21 Sep What Do You Do When the Client Changes Their Mind?
I read an E&O claim the other day (not an E&O Plus member) involving a somewhat unique situation. The agency received the order to bind coverage for a homeowners policy. The agency proceeded to issue a binder notifying the various loss payees and mortgagees. The binders were delivered to all of the respective parties. Three days later, an email was received stating, “after further thought, we have decided we don’t want the coverage.” Despite further attempts to secure the account, it was lost.
The agency proceeded to notify the carriers that the coverage was not to be bound. Is that it? Is there anything further that needs to be done? Bear in mind that the loss payees and mortgagees have not been notified, and therefore, they believe that the binder they have received is in effect.
A loss has now occurred, and the loss payees/mortgagees believe that the coverage noted on the binder will respond. The carriers have notified the client that the agency advised them that coverage was not bound. They indicate that they have no liability, and they are probably right. So who pays the loss? The loss payees and mortgagees are expecting someone to pay. Is there the possibility the agency could be found liable? Time will tell.
So what’s the lesson to be learned? If a client decides they do not want the coverage after a binder has been issued (actually, whether a binder has been issued or not), the binder must be canceled. To do this, the appropriate cancellation request/form should be sent to the applicable carriers, and notification of cancellation should be sent to other parties named on the binder (mortgage and/or loss payee). This is certainly not a situation that occurs with any great degree of frequency, but when it does, these further steps must be taken, and the binder must be canceled.
Without this type of notification, there is the potential that if a loss occurred, the insured or the mortgagee/loss payees could contend they thought that coverage was in place through your agency and the carriers noted on the binder.