23 Jul How Well Are You Dealing with This Issue?
According to the U.S. Census Bureau’s current (2024) divorce statistics, one divorce occurs every 30 seconds. If that trend continues throughout the remainder of this year, that will result in over 900,000 divorces in the U.S. in 2024. Despite the trend being on the downswing after having hit just short of 1.3 million, this is an issue that agency staff need to be aware of and know how best to handle. This reality is not just a personal lines issue; it can happen in the commercial world, as evidenced by the 2011 divorce of the owners of the Los Angeles Dodgers.
Have you/your agency had to deal with one of your clients going through a divorce? If not, it may be a matter of time.
As you can imagine (hopefully not personally), separation/divorce scenarios have the potential to cause a number of problems that ultimately become E&O claims. For this reason, tremendous attention to detail and solid communication are paramount. Coverage under various personal lines policies (auto, homeowners, umbrella, etc.) is based on the named insured and the residence. As a result, changes in the living arrangement can reduce/eliminate coverage.
These situations are most often very emotional for the parties involved, and there is a good chance the couple will want to keep things private and not be overly receptive to divulging what is occurring to you, their agent. There may be some indications that your client is going through a divorce or separation. One should look for certain coverage requests, such as a client requesting a renter’s policy or possibly a new second residence. The notification to the agency might include a new garaging for one of the vehicles.
An agent told me years ago that when he suspected something was different, he would ask, “As your insurance agent, is there anything that would be important for me to know?” This is when some couples divulged what was happening. It’s an interesting approach.
Whether you are dealing with homeowners or auto coverages, the key is to communicate with both parties and arrange coverage for both individuals that is at least equal to what they had under one policy. Anything less than that should be explained, understood, and agreed upon. Letters should be sent to each person to inform them of the action taken by the agency and to invite questions or further changes that may be needed.
I am familiar with an E&O claim that arose due to the agent’s handling (actually mishandling) of a divorce matter. The husband moved out, and the wife contacted the agent to have the husband’s name removed from the policy. The agent promptly handled that request. The problem was that the divorce had not been finalized, and thus, the husband still had an ownership interest in the home and the need for protection via the homeowner’s policy. The house suffered a fire loss, and his name was not on the claim settlement check.
I recently had an inquiry from one of the E&O Plus agencies I work with on this matter. The question involved who should be communicated with and involved a homeowners policy. Take the scenario that the policy is only in the name of “Joe Jones” (fictitious name). He has all the right to make changes. But what if the policy reads “Joe and Mary Jones?” Is Joe considered the First Named Insured and thus has all rights to make changes, including cancellation of the coverage, or is the First Named Insured technically both Joe and Mary?
I often bounce my question off Angie and Mishell for their tremendous expertise in E&O and technical policy insight. Since it is very difficult to predict how the courts (or insurance companies) will look at these situations, the sound advice given was for agents to tread very carefully and to get both signatures on a cancellation request, whether it is technically necessary or not (many insurance companies require both signatures). Both Joe and Mary Jones will likely be viewed as Named Insureds and thus have all rights to the policy. What if you cancel a homeowners policy based on one spouse’s request and the house burns down, leaving the spouse still residing in the house without insurance? Trust me, you don’t want to be faced with that issue.
How about auto coverage? Many (probably not all) states require proof of coverage elsewhere (or some other document) before they remove a vehicle, so that should help. If there are teenage drivers with their own vehicles, it is important to identify where they will live, where the cars will be insured, and whose policy they will be listed on.
On other coverages (such as inland marine policies), agencies should be sensitive to who the named insured is. They should not be taking any direction from an individual who is not a named insured.
Does your agency have a process for dealing with clients getting divorced? Now might be a good time to develop one.