Trusting your clients – what’s the worst that can happen

Your agency has a customer that owns a number of dwellings covered under a master policy. One day, your client contacts your agency to cancel coverage on one of the covered locations since the property had been sold. The coverage request was made by phone and as the account exec, the coverage is cancelled as requested.

Or so you thought.

This customer was a long-time client of the agency and had made numerous changes to their property policy over the years. The agency account exec, trusting the client, did not see a need to request the client send a confirmation e-mail. Nor did they see a need to send the client an e-mail memorializing the conversation. As previously noted, this transaction had occurred numerous times in the past.

Six months later, the property in question, sustains a significant fire loss. The client contacts the agency to report the claim, only to be advised that there is no coverage for that location on the policy. The client advises the account exec that there should be property for this location; it was the dwelling next door that was to be cancelled. An E&O claim is brought against the agency seeking damages of $100,000.

Did the client give the agency account exec the wrong address? Possibly.

Did the account exec misunderstand the instructions from the client? Possibly.

There is no doubt that agents want to show their clients a high degree of trust. However, mistakes do happen. Will the client admit their mistake? Probably not – ask any agency that has had an E&O claim and they will advise you that it is amazing the story the client will tell when they are facing an uninsured loss.

It is certainly okay to trust your clients, especially those that have had their insurance coverage with your agency for some time. Former President Ronald Reagan coined the phrase many years ago, “trust but verify”. How does that translate into the insurance world? What should the agency account exec have done?

The key issue that was lacking in this agency transaction was documentation. The agency management system was documented but there was no documentation back to the client to confirm the change request. Without a document that memorialized the conversation, any testimony in E&O litigation is going to be viewed as “hearsay” which is not going to have the same degree of credibility. The agency should have sent the client an e-mail essentially restating the coverage change request including the date of the change.

Another option for the agency to consider is to mandate that the coverage will not be modified until the agency receives a written request (e-mail is acceptable) and agrees to the change. It is vital that any documentation clearly detail what coverage is being changed and when.

If either one of these approaches had been used, it is doubtful that an E&O claim would have developed. Could the above scenario occur in your agency?

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