23 Aug Include This When Moving an Account
A significant piece of this blog is a repeat of the blog posting done in mid-2021. It seemed appropriate to repost this 1) to get the message out to those that quite possibly didn’t see it the first time and 2) because it continues to be a major fact pattern in many of the E&O claims that are occurring. What exactly is the issue?
Often, when agencies look to move coverage to a new carrier (typically at renewal time), there is certainly the possibility that while some of the coverage is broader, there is the possibility that the replacement coverage is not as broad in some areas as the expiring coverage. Some differences can be major, some more of a minor issue. Agencies are always great about bringing to the client’s attention the positive coverage issues when replacing coverage. However, the areas where coverage is being reduced often do not get the same attention. You probably think, “we know it is important, but it is SOOO time-consuming to do a real extensive comparison.” No argument from me there, but I have a suggestion.
When proposing a new carrier at renewal time, you must understand and appreciate that a comparison involving some degree of depth needs to be done. Where things can go wrong (and where an E&O claim typically develops) is when an account is moved, the client is losing some coverage, but the reduction in coverage was never brought to their attention. If the client had a loss that would have been covered by the previous carrier but was not covered by the current one, they might have some grounds to bring an E&O action against the agency. Their position might be “I would never have agreed to move the coverage if I knew I was giving up coverage.” And they are often winning with this argument.
Ideally, a side-by-side spreadsheet noting the key coverage issues should be done, listing how each carrier addresses the various issues. Many agencies using this approach share the spreadsheet with the client. Another common approach is to include the coverage issues uncovered due to the comparison in the proposal.
There are a variety of situations where there could be coverage differences, including (but not limited to): sub-limits, the definition of who is an insured, the coverage grant, what is excluded, and the carrier’s financial rating. From an E&O perspective, bringing to the client’s attention the negative issues (a.k.a “the reductions in coverage”) is critical.
Most agencies are performing some comparison (this is one of the E&O Plus Audit questions), but often, the issue is the degree of depth of the comparison. I will admit that it is, in many situations, extremely difficult (maybe even impossible) to do a full 100% comparison. So what do you do then? A suggested approach is to include language such as the following as standard wording on your proposals.
“In proposing the moving of coverage for _________________ to a different insurance company, we have reviewed and noted in this proposal some of the coverage differences between your expiring coverage (policy) and the possible replacement coverage. It is important to note that during the review of the coverage differences, there may be other additional coverage differences that have not been noted in this proposal. We encourage you to read the policy completely and contact us with any questions.”
This “disclaimer” will hopefully help if a problem develops down the road.
Bottom line, when the replacement coverage is not comparable to the expiring coverage, look to bring the reductions (in writing) to the client’s attention. If the client agrees to the reductions, they should be required to acknowledge them in writing.