In the course of identifying and securing products designed to protect a client’s specific risks, independent insurance agents face a number of exposures that can land them on the other side of the litigation table. Common insurance agency Errors & Omissions (E&O) claims involve everything from failure to carefully explain policy provisions (for example, the need for Ordinance or Law coverage on a Commercial Property policy), to failure to adequately identify exposures, failing to provide timely notices of a claim to the insurer, and allegations that the agency didn’t offer or procure the limits or the coverages they were supposed to. In fact, according to research on members of the Independent Insurance Agents & Brokers of America (IIABA), failure to procure coverage accounts for nearly one in five E&O insurance claims against P&C insurance agents.
A number of reasons may be behind why coverage missteps occur, including a producer’s failure to conduct a careful risk analysis which may overlook an important exposure, or not finding an insurer with a sufficient underwriting appetite and neglecting to document this or advise the client. Or, a producer secured an insurance binder, but due to an administrative glitch, never finalized permanent coverage. Often, it’s also a case of he-said, she-said, where the customer was offered coverage but turned it down and there is no documentation of the agency-client communication.
To avoid potential claims, diligence in conducting coverage checklists is paramount, as is having procedures in place and making sure everyone in the agency follows them, including producers. Documenting all communications with carriers and clients alike is also critical. An agency should also consider using a qualified E&O auditor to audit procedures and/or files, identify exposures, help educate those in the agency as to how they can help minimize their exposures, and provide the organization with a plan by which they can reduce their exposures. Of course, always educate clients about their insurance plans, making sure customers understand the policies they’ve purchased; avoid making promises to clients that can’t be kept; and execute all client service requests promptly and accurately.
Just as you do with your own clients, be sure you have a tailored Independent Agent E&O policy in place. Many carriers offer E&O coverage, but not all E&O policies are created equal, especially in what they cover if a claim makes it to court. In addition, the type of agency and the extent and scope of services provided affect the E&O coverage you purchase. Exposures vary from an MGA, to a retail agent handling property/casualty and a one-person shop that’s independent. At a minimum, agents should look at: the definition of who’s an insured; what constitutes a claim; what is the extended reporting-period option in case the agency is considering buying or selling an agency; and is the agency covered for what it does.
RPS can assist you with your E&O insurance coverage. Just give us a call to discuss your specific needs.