09 Apr Is Every Carrier Denial an E&O Claim?
“Is every carrier denial an E&O claim?” is a question I was recently asked by one of the agencies I am honored to work with. On the surface, it is an interesting question you might have wondered yourself. And when you think about it, what is the typical scenario that triggers a potential E&O matter? It is when your client has a loss that is not fully covered or not covered at all. Since you are their insurance agent, they may feel that you are to blame. Approximately 60% of all E&O claims involve the cause code – failure to provide the proper coverage.
So, is every carrier denial an E&O claim? The bottom-line answer to the question is “no.” But without a doubt, for the reason just mentioned, many carrier denials have resulted in some form of legal action against an agency. Most often, the size of the uncovered loss is the key issue. Will a client sue your agency if they didn’t have rental reimbursement on their personal auto insurance? Probably not.
Conversely, will they bring E&O litigation if they are negligent in causing a major auto claim and they allege that you told them that liability limits of “100/300” was plenty of coverage? So, the size of the “uncovered loss” makes a difference. Every agency should have a number, and when the size of the uncovered loss exceeds that number, management should be made aware of the matter. This practice should then result in a review of the file to determine any next steps, including potentially putting the E&O carrier on notice and seeking their guidance and advice. Whoever is handling the client’s claims (the dedicated agency claims person or at the CSR level) needs to understand how important their role is when a large uncovered loss occurs.
You have undoubtedly heard the expression, “You don’t have to do anything wrong to be hit with an E&O claim.” And this gets to the heart of the matter. When the account file is reviewed, the goal is to determine to what degree the agency could have some liability. This is where issues such as file documentation, correspondence with the client, exposure analysis checklists, and questionnaires that were sent (hopefully) to the client will come into play. If the file is thorough with solid documentation and memorialization of purchase decisions, this should lead to a strong defense if the matter elevates. However, the client may realize that they were offered higher limits (which they declined) and thus are largely responsible for buying “what they bought.” This may prompt them to refrain from pursuing the matter since they feel they won’t win. A side note to this is important to state. If the client makes threatening comments, such as “I’m going to sue you” or “My lawyer will be in touch,” regardless of the size of the uncovered loss, those should be elevated to management for their review and action.
While the following statement may restate the obvious, it is still important to make. The quality of the file, the documentation, the notes, the proposal, and the correspondence with the client will collectively make a “huge” difference in how a carrier denial will go. Will the issue go away, or will it become an E&O matter? That is up to you!