27 Oct Key Agency Defenses
In any given year, of the E&O claims made against insurance agencies, 50-60 percent are closed for no loss payment although on many of those claims, there are likely to be some defense dollars incurred to defend the agency against the allegations. There are a couple of reasons why a significant number of E&O claims get closed with no payment.
Many E&O claims are closed for no loss payment because of the various defenses used to counter the client’s allegations. These include issues such as:
- Plaintiff failed to read the policy. In most states, the insured has a duty to read their insurance policy. This is certainly not a “slam dunk” in achieving a victory for the agency but it certainly has shown at times to be helpful. While clients may not read the entire policy, there is certainly more of an expectation that they will review the declarations page to ensure that various key policy details (named insured, location, vehicles, limits, deductible, etc.) are accurate and what they requested.
- Plaintiff failed to give accurate information to the agent. This can potentially be a big issue. Take for example, a client asks you to insure their homeowners but when you ask about the square footage, the client does not divulge that they put an addition on last year. They suffer a loss and the carrier determines the home was not insured to value. The settlement check could be less than what the client is hoping for. Another example that could apply to both personal and commercial lines involves vacancy. The client advises the building is occupied when in reality, it is 50 percent vacant and unoccupied. This certainly could make a difference in the underwriting and rating of the account.
- Plaintiff misrepresented certain facts. You ask the client if they have a dog. The client knows that if they tell you that they have a German Sheppard (or some breed that is on the prohibited list), the carrier will refuse to write the risk. So, what does the client do? They tell you they have a Chihuahua. When the “Chihuahua” bites the mailman and the carrier finds out the client misrepresented the facts and actually had a German Sheppard, they may deny the claim or may void the policy for material misrepresentation.
- Plaintiff signed policy application containing incorrect information. For some of the reasons stated above, this speaks heavily to requiring the client to sign the application. If the client signs the app and the app contains incorrect information, the client will typically be held accountable since they attested to the accuracy of the information. One word of caution – when you look for the client to sign the application, require the client to review the app and then sign it. This is also a reason why agents should never ask a client to sign a blank app as obviously the client cannot be held responsible for the contents of an application if it was blank when they signed it.
Other defenses that could come into play in the defense of the agency would include:
- An insurance agent is not required to provide an insurance policy that would cover all possible contingencies. This often is applicable when a client tells their agent “cover me for whatever can happen.”
- An insurance agent is not required to advise an insured as to every exclusion contained in the policy. However, noting on the proposal some of the more significant exclusions has been shown to be a successful sales technique. If an agent were to list some exclusions, there should be a notation such as, “Exclusions include but are not limited to the following.”
Issues such as those noted have contributed to a successful outcome for many agencies.