12 Jan A Key Umbrella Issue
Every year, it is amazing how many E&O claims involve the umbrella line of business. There are a variety of issues, but I want to highlight one of particular concern.
This involves the position that most personal lines carriers take in strongly encouraging (requiring may be a better word) that claims are reported directly to them. Their goal is to get on top of the claim faster with firsthand knowledge of the details. In many cases, technology is playing an ever-increasing role.
That’s fine – although a client may wonder, “then why do I need you as my agent?” Studies for the last number of years have addressed the issue that the independent agency system is losing some personal lines market share to the direct writers. Is there a correlation? This is above my pay grade.
As E&O Plus agencies are aware, it is important that on specific types of underlying claims (death, dismemberment, lawsuit, etc.) the excess carrier(s) is put on notice.
So, let me ask you this question – if the claim is reported to the carrier directly by the client, it is certainly possible that the agency is not aware of the claim. Now, if that claim were to be of a serious nature that would normally prompt the agency to put the excess carrier(s) on notice, is there a possibility that the excess carrier(s) is not put on notice since the agency didn’t know about the claim?
If the underlying claim is of a serious nature or develops to the degree that the umbrella coverage would be involved, the umbrella carrier will not be too pleased to find out about the claim at the last minute. They may take the position of “denied for late reporting.”
In the event of a E&O problem, one could argue that since the agency was not aware of the claim, they should not be held liable for the excess carrier not being aware of the claim. I would argue that, but I am not sure I would win.
Most agencies make every effort to place the umbrella with the same carrier as the underlying, and that is a good practice. In this scenario, when the client reports the claim, the carrier’s claim staff / system should be asking if there is an umbrella and who the umbrella is placed with.
However, what about when the umbrella is not with the same carrier for various underwriting issues? Who has the responsibility to put the excess carrier on notice? The client?
What is the solution? I don’t know – but I do suggest that your agency contact your top personal lines carriers to set up a plan to advise the agency of the claim if it is reported directly to the carrier. I am speaking of all claims, not just the severity–related ones. I believe that if personal lines carriers take the position of direct reporting, they are putting the agency in a potentially precarious situation. If they are your true partners, they should look to identify a solution that works well for both parties.