For many years, E&O carriers have expressed significant concerns over the issue of what many call “The Mirror Test”. Essentially, this is the need for a process within agencies to compare coverages when they are moving an account from one carrier to another.
Oftentimes, agencies will look to move an account to a new carrier when there is a need for some premium relief. However, inherent in this process is the realization that when an account is moved to a new carrier, there is definitely the potential for there to be some coverages that were part of the expiring but not of the proposed. The following is an actual E&O claim to illustrate the point:
An E&O claim was filed against the agency for failing to procure professional liability coverage on the business owner’s policy. The agency client owned a hair salon. A Professional services endorsement was on the prior policy per the request of the agency client. However, it was inadvertently left off when the agent moved the coverage to a new carrier.
The underlying loss was a scalp burn to a client. The “new” carrier denied the claim based on the professional liability exclusion on the CGL policy. There was clear liability on the part of the agency and this matter was resolved with the agency paying the policy deductible and E&O carrier paying the remainder of the underlying damages.
How many times does your agency move a client to a new carrier at renewal time? It probably happens many times a week, if not daily; in both personal lines and commercial lines.
Agencies should have a process to compare the coverages of the expiring and the proposed to determine any areas where coverage is being reduced. These reductions should be brought to the client’s attention and their sign off secured.