06 Feb Is Coverage Bound?
Sometimes, something so simple and basic can be a problem. What am I referring to? The binding of coverage.
Over the past year, I have heard of several E&O claims due to coverage not being bound. The typical scenario involves the producer returning to the office and advising the staff, “We got the account – let’s get together later to get everything taken care of.” Great news!
The internal staff assigned to the account then waits for the produce to call them in to review the details and determine the next steps. What if the producer gets tied up in another matter and the internal meeting doesn’t occur? You may laugh and say, “That could never happen in our agency.” I am sure that several agencies truly believe that but then also found that statement untrue.
In the vast majority of E&O cases, the issue is the client has a loss that is not covered. If the client gave the order to put the coverage into effect, they would have a strong case if, for some reason, that didn’t happen.
I have seen some E&O claims where coverage wasn’t bound because there was a misunderstanding about who was responsible. Technically, the producer would bear initial responsibility since they know what coverage and limits the client secured and with what carrier. Preferably, the internal meeting should occur when returning to the office at the earliest opportunity. The meeting should clarify who will be advising the carriers involved of the details. This should be in writing to ensure there is no misunderstanding. Depending on the situation, the carrier should acknowledge receipt of the email and confirm coverage is bound. Some potential issues could impact the binding (any stipulations, confirmations of details, documents, monies, etc.), so it is best to determine any issues and get a confirmation.
There are a couple of other scenarios worth noting on this issue, primarily due to the marketplace that we are currently in.
In some states, the marketplace is beyond comprehension. Carriers may be “open for business” but limit the number of risks/accounts they are willing to write. This is probably more so with personal lines, and it could also occur with commercial lines. I have seen situations where the agency is limited to as few as one new account per month. Well, if your agency has multiple offices, it is critical to have a tracking system to see which policy gets written and which gets rejected for exceeding the limit. What if you went to bind the account, and the carrier said, “You have already hit your limit for the month, so we cannot bind this account?”
Another scenario (possibly due to capacity or reinsurance issues) involves agencies sending in endorsement requests to bind coverage and the carrier advising the agency that they “cannot confirm coverage is bound at this time.” What if the carrier takes 30 days (or longer) to advise if coverage is bound? What do you tell the client? Could the carrier return after 30 days and advise, “We are sorry, but we are not in a position to bind coverage.” This is actually happening!
The best advice is to be transparent with your clients and tell them the truth. If the carrier cannot confirm coverage is bound, the client should be advised in writing. This marketplace sometimes lacks sanity, but whether we like it or not, “it is what it is.”
Be sure to have set procedures in your agency for binding coverage (including who has the responsibility) and be alert for carrier actions/announcements detailing their position.