AGENTS' E&O CLAIM ANALYSIS
Agents' Errors & Omissions Review is excerpted from "The Professional Edge" newsletter which is published by SAFECO Insurance companies in conjunction with the marketing administrators for SAFECO's agents E&O program.
When is there a duty to advise?
At issue: If customers choose your agency to place coverage based on your advertising claim to understand all their coverage needs or because they thought you specialized in the placement of coverage for their particular type of business, your standard of care has been heightened.
You can open up any phone book and turn to the Insurance Section to see such innocent advertising promises as "Insurance plans to fit all your specific needs," or "Specializing in the placement of . . ." Another area where a duty to advise can arise is when there is a course of dealing over an extended period of time with a particular customer or if a "special relationship" exists.
SAFECO'S commentary: An insured who delegates decision-making authority to the agent is reasonably entitled to claim that the agent had a duty to obtain all appropriate coverage. Similarly, the policyholder who pays his/her compensation for consultation and advice, apart from the payment of premium, may be likely to rely on the agent to procure the appropriate or necessary coverage. Agents holding themselves out as experts in a particular area may also be found to have heightened duties. It is extremely important for agents to make certain those promises they make as to their competence are backed up by the appropriate capabilities and market know-how. Even agents who are not being compensated beyond their commission arrangement may be exposed to liability based on promises of expertise. Some of these "promises" as to expertise or competence are often found in the agency's advertisements, the agency listing in the Yellow Pages or maybe on the agent's business card or stationery.
Avoid delays
At issue: A common scenario giving rise to claims against agents involves the failure to secure an insurance policy, or to promptly forward an application for the issuance of a policy.
SAFECO's commentary: Generally speaking an agent is not held liable for an insurer's decision to decline issuance of a policy. Agents also are not responsible for failure to timely procure a policy if the policy would not have been issued in the first place by the carrier. A problem may arise, however, when the insured has relied upon an agent to submit an application and/or to procure a policy and a delay by the agent results in an uncovered loss before the policy can be issued. The problem can often be easily solved by limiting, and even avoiding, any delays in getting the application to the insurer and in not promising any coverage in the interim. By limiting the time in which the application is in the hands of the agent, the chance that a loss will occur before the agent can secure coverage is drastically cut. Similarly, by not promising coverage that may not be issued, the agent can dramatically limit his/her own risk.
Your customers may create situations, however, for which the solutions are not quite so clear and the risks for the agent are extremely grave. In many cases there is no prior coverage and the insured is relying on the agent to procure the coverage which has been promised. That coverage may be more difficult to obtain than anticipated, creating delays that can result in an uncovered loss.
To avoid this, agents and brokers should make as many of the inquiries as possible before the application is taken. This reduces the time period in which the agent has the application in his/her possession. Agents should try, as much as possible, to keep the potential liability in the hands of the insured or the insurer.
If the application submitted to the first insurer is declined, the agent must do two things. First, the agent must immediately notify the insured that the submission has been declined. Second, the agent must get the application into the hands of a second insurer as soon as possible if access to another market is available.
Agents' Errors & Omissions Review is excerpted from "The Professional Edge" newsletter which is published by SAFECO Insurance companies in conjunction with the marketing administrators for SAFECO's agents E&O program.