27 Jun Verbal vs. Written – Any Difference?
Imagine the following scenario: As the producer who sold the account, you are on the stand in a trial where the client suffered a loss, and after reporting the claim, they were informed there was not enough coverage. Due to the size of the uninsured loss, the client sued the agency. We will use cyber coverage in this scenario.
As the producer, it was customary to present various coverage options. Since cyber coverage can vary from one carrier to another (or even different forms from the same carrier), the proposal addressed the differences for the client’s benefit. According to the producer, the client chose the “cheaper coverage” since they did not feel they had much of an exposure. The producer advised the client, “ok, you’re bound.” The communication was strictly verbal, with nothing in writing, including no notes on the proposal form. Coverage was ordered, but the agency had not yet received the policy.
The client, as to be expected since they had suffered a loss that was not covered to the extent they believed, had a slightly different version of the discussion. They testified that while they didn’t feel they had much of an exposure, they realized it was best to get the better coverage based on everything they were reading in the news. They were emphatic that they had ordered the better coverage, coverage that would have fully covered the loss they have now suffered.
Three guesses as to the final resolution of this case (and the first two don’t count). Without anything in writing, the case will come down to “he said, she said,” and agencies probably have a less than 50% chance of winning.
What should the agency have done?
Special thanks to one of the great E&O Plus agencies I am honored to work with that provided its binding protocols. Before reading these protocols, how often do you think the above scenario happens in your agency? Do you have a procedure to ensure a consistent method of handling the binding of coverage? Ok, what if the following procedure was in effect and religiously followed?
Binding Protocols
Client requests to bind coverage in writing: This should not be from the producer but from the client in writing. If we get it from the producer, the client manager should write back to the client, confirm the conversation with the producer, and ask them to respond.
Bind request to the carrier: This should include a copy of the quote we are binding and details, including the effective date, premium, commission, options, and any updates.
Carrier confirms binding: This can be with a binder (if they provide it) or an email back confirming.
Bind Confirmation to the client: This should include binders (if the carrier issues) and, if not, the bound proposal. We don’t think just telling the client it is bound is acceptable. It should be taken to the next level, and the carrier binders or the bound proposal should be sent.
As an expert witness, having participated in many E&O claims, I would venture that if the above procedures were followed (involving a much greater level of documentation), I doubt there would have been a lawsuit. It would have been clear to the client (and the plaintiff’s attorney) that the client got what he requested – the “cheaper coverage.” End of story. This is called client accountability, one of the many areas where written documentation and memorialization back to the client would have made a major difference.
Do you have a set procedure for binding coverage in your agency? If so, how often does every producer follow it?