Many agencies go through their entire career without ever facing an E&O claim. For many others, they can count the number of E&O claims they faced during their career on one hand and probably have a finger or two left over. Certainly, kudos to those agencies; that is a tremendous accomplishment. However, just because your agency has had a solid track record over a long period of time does not mean that there aren’t some things to learn (and do) to enhance your E&O culture.
Virtually every agency has had a close call in the recent past. Possibly, you had a client that had a claim denied and alleged that they “were positive” they bought the necessary coverage. This happens often. Face it – if every client bought all the coverages necessary, the number of E&O claims would shrink considerably. “Failure to provide the proper coverage” is the #1 cause of E&O claims today and probably has been for the last 50 years.
These “close calls” are oftentimes, a situation where the client suffers a loss and finds out that they did not have the proper coverage or the proper limit. When these situations occur, agencies would be wise to dissect them to determine what the agency did right and what could they have done better. To be able to look at these scenarios in depth, it is important the agency have a culture that encourages these issues be brought to management’s attention. This cannot be overstated enough. I worked in an agency back in the 70’s where if you brought a problem to the boss’s attention, the pink slip was next. So, what do you do? You don’t say anything and hope the matter goes away. That is not a desirable E&O culture.
When a client’s claim gets denied, these are situations worthy of an in-depth review for a couple of reasons. One of those reasons is “what can we learn from this situation?”. Did the loss involve a type of coverage that was never offered to the client? If so, adding this type of exposure to your exposure analysis questionnaire (for new and renewal) will hopefully ensure that the situation does not repeat itself for that client or any other one. Possibly, the procedure in the agency is to “renew as is”. This is a very dangerous position to take especially in light of client’s exposures changing on a frequent basis. Addressing this moving forward, it is suggested the agency send out an annual renewal questionnaire to the client asking if any exposures have changed.
Very possibly on those situations where a client’s loss is denied, there is clear evidence and documentation in the file showing the offering and the client’s signature on the refusal of coverage. These are great situations to discuss with the staff as it shows the power and value of doing the right thing and following agency procedure. Face it, when a client suffers a loss and finds out it is not covered, who are they going to blame? You – After all, you are their agent. They may look to bring an E&O action against your agency until you show them their signature on the document refusing the coverage.
When a close call occurs, examine it to determine what went right and what could the agency do better. These are great opportunities to ensure the situation does not happen again.