21 Oct Only You Can Prevent E&O Claims
Ok, don’t accuse me of plagiarizing “Smokey the Bear,” but I have done a couple of weeks of E&O road shows in the last month, and it has brought back a lot of memories of how my teaching career began and who pushed me into it. Before I taught my first class, which was E&O, I drove to Champaign, Illinois, and watched the Vice President of Education in Illinois teach the six-hour program (yes, it used to be a six-hour program). He always opened with “Only you can prevent E&O claims,” followed by “or at least you can make them defensible.”
Understanding your role in risk management is essential. While there are many external factors beyond your control, taking proactive steps and remaining vigilant can significantly reduce your exposure to E&O claims. By staying informed and adhering to best practices, you empower yourself to make a meaningful difference. This concept resembles the concentric model that I discussed in my last blog.
Your reviewers consistently remind you of the importance of understanding the “why” behind the E&O Plus Key Components. In addition, building strong relationships with clients and fostering open communication can also help identify potential issues early, allowing for swift resolution before they escalate into claims. Being proactive not only safeguards the agency but also enhances trust and credibility with both your clients and carriers.
Consistent documentation of your actions and communications is one of the most critical strategies in preventing (or defending) E&O claims. You have heard it before: “If it is not in the file, it did not happen.” Keeping clear records of all client interactions not only demonstrates professionalism but also provides valuable evidence in the event of a dispute.
There are several steps in securing a policy. Still, second to the discovery process and completion of applications (full disclosure) is ensuring that prospects/insureds understand what they are purchasing. We remind them that the policy contains exclusion, limitations, and conditions that may affect them at the time of loss. We also remind them that higher limits and/or optional coverages may be available, and to let us know if they would like to discuss these options. As I always tell my agencies, “We put it back in their court. It is their turn to decide what they want to transfer to an insurance contract or self-insure.” Then we memorialize those conversations.
Part of this process is using disclaimers. Did you know that disclaimers date back to the 1400s? The purpose back then was to disavow or disown. No, I don’t remember the first ones, but I do remember the first one many agencies started using with their answering machines: “Coverage cannot be bound, modified, or changed without speaking with a licensed employee of the agency.” Essentially, that is the same wording we use today in all our communications with clients. Including clear, conspicuous disclaimers in emails, voicemails, and other forms of communication demonstrates diligence and can be instrumental if a claim or dispute arises. As reviewers, we stress “make sure the wrap is attached.” These wraps serve as our documentation, disclosing various agency disclaimers. They also include what the prospect or insured is responsible for.
Disclaimers serve a vital role in clarifying the limitations of agency authority and setting proper expectations with clients. They help to reinforce that certain actions, such as binding coverage or making policy modifications, require direct communication with a licensed agent, which protects both the agency and the client from misunderstandings.
It’s important to tailor your disclaimers to fit the specific needs and circumstances of your agency. Regularly reviewing and updating disclaimer language ensures relevance and clarity, especially as regulations and industry standards evolve.
Training your team to use disclaimers consistently across all channels reinforces your commitment to transparency. This ongoing diligence helps to minimize risk further and reinforces your reputation as a trustworthy partner in the insurance process.
There is a new section in Passport under the E&O Plus Portal called “Operations Guide Resources.” We have been working to update and add new templates to assist in this process. This is an ongoing project, so new items are being added as needed. The templates are suggestions. The agency should make them its own and have its legal counsel review them. I even use a disclaimer.
Karin Thurlow from Swiss Re spoke at the E&O Plus Quality Management Seminar last month on “Program and Industry Claims Trends,” and when asked, “Do disclaimers work? Her comment was, “They don’t hurt.”