This is One Thing You Definitely Want to Avoid

25 Aug This is One Thing You Definitely Want to Avoid

When your agency is notified by your client of a claim, hopefully in most of those situations, the client has coverage for the issue that has just occurred. In those situations, everything should be good to go. But what if the client does not have any coverage for that loss? How would your agency handle this? 

As hopefully all agents are aware, agencies do not have the authority to either approve or deny a claim. There may be a strong belief there is coverage, but it is vital agents know that decision rests with the carrier.    

In situations where you think the claim would not be covered, what is the suggested approach? Perhaps a comment such as, “I do not believe that this claim will be covered, but I will send it in to the carrier and they will promptly advise.” Once again, let the carrier make that decision. 

At times like this, the agency (more so the producer) may feel bad for the client suffering an uninsured loss. The producer may actually feel somewhat responsible – and this is where things can go bad very quickly. The area you DEFINITELY want to avoid is taking the blame for the lack of coverage and subsequently admitting liability. Virtually all E&O carriers (including the E&O Plus carrier) are reporting that this is an area that seems to be occurring with greater frequency.   

There are a number of reasons an agency should avoid an admission of liability. A major one is that your E&O policy (typically within the conditions section of the policy) is going to contain language on this issue essentially stating that by admitting liability, your agency could be seriously jeopardizing your E&O coverage.  

What if your agency wants to make a goodwill payment to the client? These do frequently occur. The key is for your agency to contact the E&O carrier and advise them that your agency would like to, for business reasons, pay most (or all) of the uncovered claim. The E&O carrier will provide valuable guidance and direction to ensure the matter does not get out of hand. If the decision is for the agency to pay the claim, the E&O carrier will likely provide you with a release that should be executed by both parties. Without this release, your admission of liability could impact the handling of other losses arising from that one claim. 

It is important for agencies to understand that just because the client had an uninsured loss, it does not mean the agency is legally liable. The premise of E&O coverage is based on the concept of legal liability and there are a variety of issues that could come into play including some key defenses. These defenses include:  

1. The client’s duty to read their policy  
2. The client never asked for the coverage that would have covered the claim 
3. The client signed the application thereby attesting to the accuracy of the application content 

It is strongly encouraged that every agency dedicate time to discuss the handling of claims that appear not to be covered with specific emphasis on the avoidance of any type of admission of liability. What to say and what not to say should be addressed.  

Personally, I find it ironic that agencies typically educate their clients that when they are in an accident they should avoid admitting liability – but it appears some agencies do not practice what they preach.