04 Jun Does the Client Have a Legal Duty?
Over the last number of years of this E&O Plus blog, the issue of legal duties has been addressed from various perspectives. After all, the basic premise of E&O is focused on legal liability. In other words, just because the client suffered an uninsured loss does not mean it is the agency’s fault. The various legal duties of an agency have been established over time through various court decisions. The same holds for the legal duties of your client. They have some responsibilities and duties as well. One of the key duties of a client is to read their policy.
Over the years, when I have mentioned this issue in my E&O classes, I get a fair amount of laughter with comments like “Our customers don’t read their policies” or “They have no idea what coverage they have.” While those statements might very well be accurate (at least to a high percentage), it does not negate the fact that courts have generally, in most states, held clients to a “duty to read” standard. After all, isn’t an insurance policy a contract between the customer and the carrier?
As a side note, many agencies commented that when everyone was home during the pandemic, many customers called with questions about their insurance. The key, without going through another pandemic, is to find a way to strongly suggest that clients read their policies and call the agency with any questions.
One approach my agency took when sending me my BOP policy — The cover letter read as follows:
Enclosed, please find the renewal of your Businessowners policy with Hartford. We very much appreciate your business. Please note the policy limits are those you have selected, and we cannot verify that they will be sufficient at the time of a loss. Higher limits may be available. We strongly suggest you read your policy and contact the agency with any questions.
This language may sound harsh to some, but isn’t it true? I selected my limits, so should I be able to sue my agent if I have a loss that is not covered at all or not fully covered? I don’t believe so. Isn’t this approach something to consider?
I certainly understand that policy delivery takes all shapes and sizes. Today, carriers send policies directly to policyholders more frequently than before. A couple of thoughts:
- For policies sent by the agency, look for opportunities to reinforce your request for the clients to read their policies. Possibly a cover letter with the policy or a notation in some other document to convey your position.
- Develop a document provided every year to clients that spells out the agency’s commitment to the customer and its expectations. The request for the customer to read their policy should be noted in this document.
If the carrier is sending the policy directly, reword the letter to read, “You will be receiving your Businessowners policy with Hartford shortly. We very much appreciate your business. Please note that the policy limits are those you have selected, and we cannot verify that they will be sufficient at the time of a loss. Higher limits may be available. We strongly suggest you read your policy and contact the agency with any questions.”
If the client does not read their policy (and admits to it in the courtroom), does this automatically mean the agency will win the case? No, but it certainly will help the agency’s defense.
I have always used the statement that when an E&O claim is made against the agency, there are two buckets – the issues that will help the agency’s defense and those that will hurt the agency. Your goal should be to overflow the bucket that strengthens your defense. Reminding the client to read their policy is one of those issues that strengthens your defense.