When it comes to your E&O insurance, admitting liability is definitely something that you want to avoid. Quite honestly, the admission of liability can totally change the direction of a potential E&O matter facing your agency. Virtually every E&O policy speaks to “admission of liability” with some very strict language.
How does this happen? What does the admission of liability look like?
Think of the last time you dealt with a client that called your agency to report a claim. After taking the information and reviewing the client’s coverages, it appears that the loss is not covered (more about that later). You advise the client you do not believe the loss will be covered. Unfortunately, that is not where the conversation ends.
When the client voices their obvious displeasure to your response, you proceed to advise the client with responses such as:
– You have no flood coverage. How did we not provide you with a flood proposal?
– It looks like we messed up in not providing the coverage you needed to cover this loss.
Responses such as these may be alleged that you are admitting, on behalf of the agency, that your agency did not do the proper job and because of your “negligence”, there is no coverage in place to cover the loss. Actually, the first response noted above was a common element of E&O claims that developed from uncovered flood claims as a result of Superstorm Sandy.
Obviously, the admission of liability by the agency is a major concern because your admission can prejudice the development of an EO claim if one were to develop. Agencies need to realize that just because the client had a loss that was not covered does not mean that the agency was negligent in their duties. The question of legal liability is up to the legal system to decide. The admission of liability by the agency will definitely make it harder for the agency to be absolved of any negligence.
Dealing with clients, especially on uncovered claims matters, is an issue you want to prepare for so that when the event does happen, the staff are aware of how best to handle. While you want to show empathy to the client, crossing that line to one of admission of wrongdoing is what you want to avoid. It is advisable to discuss this at an upcoming staff meeting.
Lastly, when it comes to claims being reported to the agency, it is important to note two key issues:
– You should not be denying claims. This is the responsibility of the carrier. It is probably best to advise the client you will report the claim and the carrier will make a coverage determination.
– You don’t have the authority to approve claims or advise the client that the loss is covered. This is also a carrier duty. How should you respond? A statement such as “While I am cautiously optimistic that this claim is covered, I do not have the authority to make coverage determinations. That is the role of the carrier. I will report the claim and advise you as soon as I hear anything further”.
Some of the issues cited above are the reason why the manner in which agencies handle claims are a significant cause of E&O claims.