In the last few months, I have interviewed senior claims people at three of North America's largest E&O insurers. Each of the insurers considered the other two to be "one of the good guys." What they told me about how they can help agents facing an E&O claim was eye opening. In the IRMI article "Avoid Agent E&O Claim Denial," I detailed the bad things that can happen if agents do not report potential E&O claims promptly. In this article, I will focus on the good things that can happen when they do.
E&O insurers can be great agency "tag team" members because of the following.
To protect the innocent, I will refer to the three senior claims people I spoke to as Julia, Karen, and Brad. While they each work for different E&O insurers and were not on the same conference call, they were "singing from the same hymnbook," as you will see as you read their comments.
Most insurance agents probably do not realize the great benefit they may gain by putting a policyholder's attorney in touch with their E&O insurer. I didn't. But to my surprise, all three of the E&O claims people said that if the policyholder already has an attorney, they would welcome the opportunity to speak to the attorney as soon as possible—before a suit is brought. They said that if they were able to do so, they might be able to avoid the claim altogether.
Julia: "Very few plaintiffs' attorneys are versed in insurance coverage. It is a real benefit if we can discuss the situation with them before a suit is brought. It allows us to take them through the education process as well as get their perspective before everyone hardens their positions. If I were advising plaintiffs' attorneys, I would tell them, 'If you believe that your client may have an E&O claim against their insurance agency, contact the agency and tell them so. Request that they report the incident to their E&O insurer immediately. Ask that they provide you with the contact information for their E&O claims adjuster so you can speak with her and try to resolve the issue."
Brad: "Any time you can have a conversation with the policyholder's attorney before the suit, it will be an education for everyone, but probably, mostly, the policyholder's attorney. Many have little background in insurance and fewer are knowledgeable about the limitations on an agent's liability. If I can have a conversation with the attorney up front, I may be able to persuade him to drop the case."
Karen was concerned not to encourage attorneys to pursue more E&O claims, but she did agree that, "If the policyholder already has an attorney, it would be best if we can have contact with them early on."
For example, a couple walked into the office of a Florida agency and asked for a quote on their homeowners policy. They brought their policy and told the agent they wanted the same coverage for less money, which the agent was able to provide.
A month later the couple reported their $50,000 boat had been stolen out of their side yard. The agent reported the claim, but the homeowners adjuster informed the insureds that they had only $1,000 of coverage under their policy. The next call the agent received was from the policyholders' attorney, threatening suit.
The agent picked up the phone and called his E&O insurer. The E&O adjuster called the attorney, who had never handled an agent E&O suit before. The E&O adjuster explained that in this case, since there was not a "special relationship," the agent was only responsible to obtain the coverage which was requested. A suit was never brought.
Agents often try to fight these battles alone, using only their own coverage knowledge and their leverage with the denying company. As explained in "Avoid Agent E&O Claim Denial," this can put an agent at E&O risk. The E&O claims people had this to say about what they can bring to the table.
Karen: "It is much easier to get control of a potential E&O claim if you can get in front of the curve. If the insurance company is denying a claim, we can evaluate that insurer's position and often persuade them that there is coverage or, at least, that they are at risk. We have more experience with coverage arguments than agents do. We have access to case law and attorneys that handle these issues all day long. We can even ghostwrite a letter for the agent. We may hire counsel while it is still in the incident stage to either covertly or overtly intervene. Coming from us, it probably will have a lot more clout than coming from the agent. Agents often rely on their business relationship with the insurer to get the claim paid. We leverage that, but go beyond it."
Julia: "If the agent has reported the incident to us, then we will make arguments directly to the insurance companies involved to have them pay all or part of the claim. It is a little different when you have the E&O insurer making the arguments insurer-to-insurer rather than having the agent trying to do it directly. There is a dispute resolution process. Ultimately, the claim will be kicked up to coverage counsel. If we are involved, it gets kicked upstairs a lot sooner."
Brad: "I can't tell you how many times I have gotten a denial from an insurer, and they were just wrong. I tell the agent, 'Why don't I give them a call—see if I can educate them and get them to reconsider?' I tell the coverage adjuster, 'We would hate to see you spend all of this money on litigation that you are going to lose.'"
A case that illustrates the point involved a California trucking company that did maintenance work on its own vehicles. They repaired the brakes of one of their trucks, and later the brakes failed, resulting in an accident that killed three pedestrians. The Business Auto Policy (BAP) insurer told the agent that they might deny coverage because of the BAP's completed operations exclusion.
The agency was in disbelief, and immediately contacted their E&O insurer. The E&O company reached out to the BAP insurer's senior claims people. They provided the BAP insurer with documentation from Insurance Services Office stating that it was not the intent of the BAP exclusion to deny coverage for claims resulting from an insured maintaining its own vehicles. The BAP policy paid, and the agency was spared a possible E&O suit.
I asked, "When the policyholder wants to talk about the problem claim, what should the agent do?"
Karen: "The agent can put us directly in touch with the customer. That allows the agent to step out of the middle and preserve their relationship with their insured."
Brad: "Absolutely, put us in touch. Tell the insured that you will have your advisor call him. We can handle it from there."
Julia: "It is never good to try to hide the problem. If the agent misrepresents what is happening, she will lose credibility, and the customer will stop cooperating. The agent should tell her policyholders there is a problem—some issues. She should tell them, 'I have reported the situation to our E&O insurer. Here is the claims adjuster's contact information, and I have already asked her to call you.' That frees the agent to deal with her policyholders on their regular insurance needs."
In one claim, an agent in Rhode Island had a high profile client with several expensive yachts. He purchased an additional yacht and asked the agent to add it to the maritime policy. The information the agent submitted to the company about where the yacht would be docked was ambiguous, and both the agent and the underwriter assumed it would be docked in Rhode Island along with the other boats. However, it was actually docked in Georgia, which was outside of the policy territory. So when it sunk in waters off of Georgia, the company denied the claim.
When the agent realized the mistake, she immediately called her E&O insurer. The E&O adjuster contacted the maritime adjuster and pointed out that the insurance company had contributed to the error by not requiring complete information. He also explained why the policyholder would probably win if he sued to have the policy reformed. Then he contacted the insured directly to explain what he was doing and what to expect. That took the insurance agent out of the middle. Ultimately, the E&O insurer and the maritime insurer shared the loss, the customer was paid promptly, and the agent retained her relationship with the client. If the agent had waited to report the claim until suit had been brought, all of those positive results would have been forfeited.
Agents will protest, "But if I report it to my E&O company, what about my deductible and future premiums?" There are no guarantees, but E&O underwriters and surplus lines brokers have told me those fears are usually overblown. Karen commented, "Agents who are hesitant to turn in a claim think of their deductible. What they often don't consider is the much greater cost in terms of their time, distraction, reputation, and relationship with their client. We can help reduce all of those costs."
I believe these three senior claims people describe the help that an insurer should provide to its agents, but not all do. Here is what Julia had to say to agents who are not getting the help from their E&O insurance company that they should.
Julia: "If an agent is with an E&O insurer who is not being as helpful as we would be, she should be proactive. She should go to them and request that they do the following.
"If you expect more, you get more," Julia said.
Agents should reach out to their "tag team" early in the E&O process. When they do, the best E&O insurance companies can often protect an agent from suit, turn around a claim denial, and maintain an agent's credibility with his client.
If agents are not getting that type of assistance from their E&O tag team, they probably need a new team. Agents who believe that their policyholders deserve quality service from a quality insurer should also insist upon it for themselves.
The claims examples in this article are based on actual cases, but the details have been changed.
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