07 Sep Can Policy Delivery Be an E&O Issue?
Bottom line, yes. Policy delivery has the potential to be a significant issue in the event a problem (uninsured or not fully insured loss) develops that could result in an E&O claim against your agency. While following proper agency procedures regarding policy delivery may not preclude a claim against your agency from happening, it does have the potential to affect the outcome positively.
There are several key issues involving policy delivery for agencies to be aware of. Before addressing those, it is important to explain some of the “why” behind this issue and why it can help an agency. As agencies are held to various legal liability standards, policyholders are also held to some legal standards. In most states, there is a legal liability duty that clients have to read their policy. Whether they read the policies is another matter. The hope is that the client will read the policy and point out an issue they feel is incorrect.
Carriers today, probably more than ever before, are sending policies directly to their policyholders. This practice is more so in personal lines and small commercial. However, sometimes the policy is sent to the agency to be reviewed and then sent (paper or electronic) to the client. One suggestion for those involved in sending the policies is not to wait until you get all of the policies before sending them. In other words, don’t hold onto the policies waiting for that straggler to arrive before sending them. It is best to send the policies once they have been received and reviewed and to advise the client that the remaining policy will be sent under separate cover when it is received.
Have you ever had a situation where the client advises your agency not to send the policy and instead hang on to them? Is this ok, or is it a potential problem?
Let’s assume that you follow your client’s instructions and hang on to the policies (probably storing them electronically). The client subsequently suffers a loss only to find out that the loss is not fully or maybe even partially covered. There is a good chance your client will take the position that they were not aware of the particular exclusions, conditions, or limitations applying to the loss because they never saw the policies. They may succeed in using this defense because they technically never saw the policy.
So what should you do? The best course of action is to send the policies anyway. A common response might be something such as: “I can appreciate that you don’t see a need to receive the policies, but as an insurance policy is technically a contract, you should receive the policy and review it to make sure that everything is in order. Please advise us if you have any questions or see areas that are not correct.”
If your agency provides clients with a portal to store information such as policies, the client should be advised when they are uploaded with a note to remind them that they should review the policies.
Policy delivery is a very important issue and is one of the key questions in the E&O Plus audit form.