02 Jun How Catastrophes Impact E&O Claims
It certainly appears that in any given year, several catastrophes will occur. Whether the catastrophe involves hurricanes, tornados, floods, wildfires or some other event, we can count on catastrophes happening. Unfortunately, that is a given.
In my 30-plus years of involvement with Agents E&O, it has become very clear that when catastrophes occur, E&O claims activity will be on the rise. Actually, nothing brings out an agent’s mistake as quick as a catastrophe.
Let me ask you a question: if one of your clients had a loss, what is the possibility that there is a mistake in the placing of the insurance coverage for that client? It’s possible, but statistics show that there is low probability. However, if a catastrophe occurs and your agency now has 250 clients that have suffered a loss, what is the probability that at least one of those clients has a problem involving their insurance coverage? Obviously much more likely.
This certainly occurred in 2012 when Superstorm Sandy caused significant and widespread damage on the East Coast. The number of uninsured losses prompted many clients to bring an E&O claim against their agent, alleging failure to provide the proper coverage in most cases.
The presence of catastrophes including what they will look like and who will be affected elevates the need for agencies to periodically (typically annually) remind clients of various coverages they do not have. Agencies should also determine any changes their clients are now facing that could be addressed through insurance. While agents don’t win any points by advising their clients that they don’t have the proper coverage, these renewal questionnaires serve as solid protection if a client alleges their agent did not provide the proper coverage.
Another E&O issue that tends to surface at the time of a catastrophe is the way agencies handle claims. Agencies need to be diligent in how they handle these issues especially with clients that do not have the necessary coverage. There will be clients that have been severely impacted by the catastrophe. As claims were being reported during Superstorm Sandy, there were many situations where an agency’s comments went something like this:
“I’m sorry, but you don’t have any flood coverage. How did we not offer you flood coverage?”
Those words were viewed by some courts as an admission of liability and thus used against the agency. The agency staff member obviously meant well, but there were negative consequences.
To ensure this doesn’t happen in your agency, have a discussion during your next staff meeting on what to say and what not to say when these calls start coming in.
This issue is even further exacerbated by agency staff who, due to the number of calls coming in, are given additional responsibilities of handling claims. Since claim handling is not something that they do on a regular basis, it is important for these staff (and all staff) to know the dos and don’ts of claims handling.
The dos and don’ts of handling claims should be a living document within the agency. For example, agencies technically don’t have the authority to approve or deny claims (this is a carrier role), so the agency’s comments should be carefully scripted.
Since it is impossible to know when the next catastrophe will occur, what it will look like and who will be affected, agencies need to prepare in advance and have the proper procedures (including the renewal questionnaires) in place.