Insights

E&O claims can arise for any number of reasons. Certain

mistakes tend to surface more often than others as the basis

for such claims in litigation. Identifying these mistakes, and taking

appropriate precautions to prevent or reduce the instances of

their occurrence, will not only assist in defending your agency

against such claims but may also reduce E&O exposure.

BY SUSAN LEECH, GENERAL STAR, AND TED WALDECK, WALDECK LAW FIRM

INSURANCE

AGENTS

AVOID COMMON

MISTAKES AND

REDUCE E&O

EXPOSURE THROUGH

DOCUMENTATION

AND

COMMUNICATION

2 General Star Insights

Having meaningful documentation in place is thus not only a good business practice but may assist in the defense of your agency in the event of a claim. Rest assured your client’s recollection of events surrounding an E&O claim may differ substantially from those of the agents. Producing documentation that presents a clear picture of what information was transmitted to the client is not only invaluable evidence when recreating what actually occurred, but in doing so, also illustrates a high level of professionalism on the part of your agency. Conversely, the absence of documentation may place your agency in a compromising position in any litigation. As an insurance agent, you are held to a higher standard than the customer is held, and differences in recollection or understanding will likely be resolved in favor of the client in instances where documentation is lacking.

Thus, when performing tasks, such as completing an application, it is important to be as specific as possible with the client,

including requiring that the client understands and answers every question on the application before signing it. Do not assume information or complete an application on the client’s behalf. In addition, always make sure you review the application before obtaining the client’s signature.

The same is true with respect to changes in coverage. Any changes to coverage should be reflected in writing and followed up with a written communication detailing any changes to the insured. Since changes in coverage may be requested over the phone, it is important to request that the insured make the request in writing, and to follow up with the insured in writing to inform them of changes and the effective dates of those changes. Keeping a log of all phone calls, including follow-up correspondence that reflects what was discussed, constitutes sound business practice that may help to avoid trouble in the future. An insured may claim that a change in coverage was requested over the phone. Without a

From completing an insurance application on behalf of an

insured to failing to obtain the insured’s signature on the

application, a significant number of E&O claims that are

litigated revolve around inadequate documentation. It’s

important to consider that most E&O claims will likely be filed

against an agency after an application, renewal or cancellation

has been filed. Having to rely on one’s memory regarding

what information was communicated to a client is not only

burdensome but ultimately serves little value in litigation.

General Star Insights, March 2014 3

“Since changes in

coverage may be

requested over

the phone, it is

important to

request that the

insured make the

request in writing,

and to follow up

with the insured…”

written record of the substance of those conversations, your agency may find itself in a “he said/she said” dispute.

In addition, verbal communication regarding coverage presents a problem when the agent and the insured do not have a common understanding of the precise meaning of certain coverage terms. Clients may use terms and phrases such as “full coverage,” “same as before,” “the usual,” etc. These kinds of colloquialisms often have no clear meaning in the insurance world, much less the legal field. It is therefore important to always clarify precisely what the client is requesting. Clarifying and documenting these matters at the time the request is made may well save you in a litigation setting from having to debate what was (or was not) requested.

This is particularly true when the customer is a friend. Don’t assume that your relationship with a client will protect you from an E&O claim. A number of the claims that end up in litigation involve former friends and acquaintances of the agent. These types of relationships can result in lax handling of a file. It is therefore important to maintain the same level of professionalism and thorough record-keeping among all clients. This includes documenting phone calls and meetings with friends where insurance is discussed. Friends can quickly become adversaries after experiencing a loss that isn’t covered

by insurance. Documentation that adequately reflects your agency’s involvement with respect to the client’s loss is invaluable when protecting your agency from or against an E&O claim.

Also remember to maintain copies in your client’s file of any and all documents utilized when discussing coverages with a client. Another common mistake by insurance agents is failing to maintain information used with clients when deciding on appropriate coverage. Claims may arise in which a client did not have what they deem to be “sufficient coverage” in place. In these instances allegations may surface against the agent that he or she did not inform the client of the opportunity for additional coverages and/or limits. Once again, properly documenting the file regarding discussions that took place regarding additional coverage, or other related matters, such as quotes, will likely be useful when responding to such allegations. Just because information is not ultimately utilized in placing coverage does not mean it is not important and should not be maintained in the client’s file.

Finally, act promptly when ordering and delivering the policy. Common E&O allegations include failure to place coverage and the creation of gaps in coverage. As an agent, you are responsible for not only delivering the policy to the insured but doing so in a timely fashion. A client may face a significant obstacle when claiming that he or she believed the insurance covered a subject loss, when in fact it was not actually covered under the policy and the policy was in their possession. In addition, Murphy’s Law would tell us that the most likely time for an insured to experience a loss is during a gap in coverage. If a gap in coverage exists because the agent failed to procure the policy within the time promised to the client, this, too, can give rise to an E&O claim against the agent.

This information was compiled on behalf of General Star Indemnity and is intended to provide background information to our clients, as well as our professional staff. The information may need to be revised and updated periodically. It is not intended to be legal advice. You should consult with your own legal counsel before relying on it.

General Star Indemnity Company is an eligible surplus lines insurer in all states, the District of Columbia, Puerto Rico, and the Virgin Islands. It has the status as an unlicensed insurer in California and operates under NAIC Number 0031- 37362. Insurance is placed with the General Star companies by licensed producers and, for risks that qualify, by licensed surplus lines brokers.

©2014 General Star Management Company

A Berkshire Hathaway Company

GSMInsights20143-2

Identifying the most common insurance agent mistakes in the E&O context, and taking action to eliminate or reduce the instances of their occurrence, will likely improve the way your agency conducts business and reduce your E&O exposure. Also, because the actions of an agency’s employees can be imputed to the agency itself, educating all staff members on the importance of proper communication and documentation practices is a vital component to avoiding potential E&O claims. As always, in the event an incident occurs that could potentially give rise to an E&O claim, be sure to notify your insurer in writing immediately. n

Susan Leech is a Claim Manager and Second Vice President in the Professional Liability Claim Department for General Star. In this role she is responsible for managing errors and omissions claims involving Insurance Agents, Real Estate Agents, Real Estate Appraisers, Medical Malpractice and Lawyers. She obtained her undergraduate degree in Actuarial Science from St. Johns University in New York City and her MBA from Union College in upstate New York. Susan may be contacted at 312.267.8544 or susan.leech@generalstar.com.

Theodore J. Waldeck of Waldeck Law Firm P.A., located in Minneapolis, Minnesota, is licensed and practices law in both Minnesota and Wisconsin. He is a 2004 graduate of Creighton University and a JD graduate of The University of St. Thomas Law School in 2008. He is a member of the Hennepin County and Minnesota State Bar Associations; the Minnesota Defense Lawyers Association; the State Bar of Wisconsin; the Twin Cities Claims Association; CLM International Products Liability Committee; and Eagle International Associates, Inc. Mr. Waldeck has practiced exclusively in insurance defense throughout his career providing defense to both surplus lines and standard line carriers with primary emphasis in defense of product liability, professional liability and church claims. He may be reached at 612 375 1550 or tjwaldeck@waldeckpa.com.

For information regarding the Insurance Agents and Brokers Program, please contact:

Tabitha DeGirolano

Allrisks

tdegirolan@allrisks.com

Tel. 410 828 5810, ext. 3678

Some common mistakes that may lead to an E&O claim:1. Failure to verify that coverage was bound with

the carrier

2. Failure to ensure that all requested insured locations are listed on the policy

3. Completing the application on behalf of the client

4. Signing the application on behalf of the client

5. Obtaining “same coverage” or “full coverage” as they have no meaning

6. Lack of written documentation regarding changes requested by your client

7. Failure to place a carrier on notice of a loss reported to you by your client

8. Failure to provide recommendation on coverage and limits, even when not requested by your client

9. Failure to submit your client’s premium to the carrier

10. Failure to provide a copy of the policy to your client