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An E&O Claim - 360˚ View

E&O Risk Management:

Meeting The Challenge Of Change

E & O Claim Overview

Generally Speaking E & O Claims are caused by:

Lack of Product Knowledge

Inadequate Values or Limits


E & O Claims Can Be Broken

Down Into Two Categories

• Procedural Errors

• Knowledge Based Errors


Procedural Error Examples

• Failure to:

• Deliver a policy

• Turn in a Claim

• Add an Additional Insured

• Comply with Underwriting Guidelines

• Incomplete Information to Carrier

• Respond in a timely manner


Knowledge Error Examples

• Failure to:

• Inadequately Explaining Coverage

• Inadequate Values and Limits

• Misrepresent Coverage

• Failure to Duplicate Coverage

• Failure to Offer Additional Coverage

• Failure to Properly Assess Exposure


People Who Don’t Like You Before the

Loss Will Sue You After The Loss!

• If you have an adversarial relationship with a client prior to

a claim being submitted, in the event the claim is not

covered it is more likely that they will sue you.


Who is Suing Agents?

• Customers

• Carriers

• Third Parties

• Regulatory/Governmental Entity


Who in an agency is most likely to be involved in a claim?

• Producers (Failure to Identify/Recommend)

• Customer Service Agents (Claims, Apps, Certs)

• Account Managers (Failure to Identify/Recommend)

• Owner/Partner/Sole Proprietor/Principal


Transactions Driving Frequency

• Commercial

• CGL

• Commercial Property

• Workers’ Compensation



Personal Lines

• Home

• Auto

• Flood



• Commercial Lines (Claims Made)

• Commercial General Liability

• Professional Liability


1 in 7 Agencies report potential

E&O

Claim

NoClaim

~50% Reported Closed

With No Defense Reserves or Indemnity

Payment Made

Paid

NoPay

E&O CLAIM STATISTICSWhat’s Driving Claims Frequency?

40%

25%

35%

Frequency

NewBusiness

Renewals

Other

• Risk assessment and

recommend

• Policy issuance errors

• Application errors

• Failure to duplicate

prior coverage


Catastrophic Events Can Spike E & O Claims

• Hurricane Katrina

• Wildfires

• 9/11

• Massive Tornado

Agency E&O Culture - Staff Awareness

Agency staff needs to follow procedures AND understand the concept of how E&O

may occur


Meditation

Through quality insurance education and adopting agency procedures many E & O claims could be avoided.

• State Minimum CE Requirements are just that….minimums

• People who know more, sell more

• Procedures save time, create proficiency, and are great training tools. • Avoid knowledge


Meditation

You can’t insure what you don’t identify

• Interview, Inspect, Use Checklists, Take Pictures

• Avoid coverage and exposure omissions

• Not only will you avoid an E & O claim your

commission income will likely increase.


Meditation

There are avoidable losses and unavoidable losses. The

E&O goal is to keep any loss you have in the unavoidable

unforeseeable category.

You can be sued at any time for

any reason and without fault.


Meditation

If you currently have adversarial relationships with clients,

consider helping them relocate to a different agency or

company.

• If every problem is your fault before the claim it will surely

be your fault after the claim.

Understanding Agents Duties

Standard of Care

• State Laws

• Contractual Duties to

Carriers

• Common Law Duties

• Third Party Beneficiaries -

Agency Action or Inaction

Standard of Care

Determining Negligence

1. Did a duty exist?

2. Was the duty breached?

3. Was the breach the Proximate cause

of the loss?

4. Did actual damages occur as a result

of the breach?

Standard of Care

Negligence - failure to use reasonable care

• Doing something that other agents would not do

• Not doing something other agents would do

Standard of Care

To Whom is a Duty Owed?

• Customer

• Carrier

• Tort claimant

• Party of interest

Standard of Care

The agent serves two masters:

• Customer

• Insurance Company

Introduction

• Understanding duties owed to customers are critically

important

• These duties can lay the foundation for how your agency

operates

• Can assist in the decision of the level of service provided

to customers

• Puts procedures in place to minimize E&O exposures for

going beyond the legal duty

Understanding Agent Duties

Differing Levels of Standard of CareProfessional or Non-professional?


The “Special Relationship”

• Claims of Expertise

• Agreement of

Additional

Compensation

• Length of Customer

Relationships

• Rendering of Advice

• Contract Review


Creating a Duty Where None Previously Existed

• Payment Reminder Calls, Emails, and Letters

• Completing Audit Worksheets

• Completing Reporting Forms

• Completing OSHA Logs for Work Comp Claims

Agent/Carrier Contracts:

E&O Considerations

INTRODUCTION

Agency/Carrier

Contracts

Agency Carrier Contracts

Binding Authority and Processing

Instructions

Agreement

• Authority

• Coverages

• Provisions

References

• Guidelines

• Applications

• Supplements

Staff

• Binding

• Processing

Agency Carrier Contracts

Licensing Appointments

Binding Authority

Document Retention

Accounting

Direct Bill

Agency Bill

Notification of Losses

Sub-Producers

Marketing Material

Privacy Laws

Indemnification

E & O Requirement

Agency Carrier Contract

Sample - Authority

• Authority

All Lines of insurance except personal lines

Personal lines policies and coverage, specialty homeowner,

personal automobile and dwelling fire

All lines of insurance

The lines of insurance described below


Sample - Authority

• Your authority is limited by our underwriting rules and

practices as set forth in the most recent edition of the

Premium Producer and other company manuals as well

as bulletins, documents and other notices as we may

send to you from time to time, and by the terms,

conditions and provisions set forth in this Agency

Agreement.


Sample – Ownership of Business

• Your records and control of expirations, including those

pertaining to direct bill business, and your work product

are your property and will be left in your undisputed

possession and control, provided you have paid and

continue to pay all monies due us as required by this

Agency Agreement.



• We will not use our records of those expirations in any

marketing method for the sale, service or renewal in any

form of insurance coverage or other product which shall

abridge your right of ownership.



• If this agreement is suspended or terminated and you

have not properly accounted or paid all premium, you

forfeit all rights to your records and expirations pertaining

to insurance policies written with us. (Includes computer

records, lists and backups)


Sample – General Duties and Responsibilities

• You are responsible for sending us accurate and complete

applications.

• You will report to us in advance any change in the form of

legal entity under which you do business.

• You will promptly report and process all claims to us.


Sample – Direct Bill Premium Collection

• You will remit to us the initial premium in gross, without

deduction of commission, with each completed

application.

• We will bill the policyholder for all renewal and additional

premiums.

• We will promptly compute and remit applicable

commission to you following the close of each month.


Sample – Agency Bill Premium Collection

• You are responsible for colleting & remitting all premiums,

including audits.

• You will pay your monthly account and ensure your

payment is received by us not later than 45 days from the

last day of the account month, whether or not such

premiums are collected by you.


Sample – Agency Bill Premium Collection

• Upon your request we may collect additional premiums

developed by final audit, except cancellation audits if:

• You return the audit for collection within 60 days

• You have made a good faith effort to collect


Sample – Hold Harmless

• We agree to defend and hold you harmless from claims

caused by our error or omission in the preparation,

handling or servicing of direct bill policies.



• We agree to hold you harmless against civil liability for

damages and expenses, including defense costs as a

direct result of our error or omission arising out of:

• Preparing, processing or handling any insurance contract,

application for insurance or billing procedure covered by

this agreement.

• Our failure to comply with any applicable law

• Our inspection services or surveys or those of our sub-

contractors

• Our services or the services of an independent adjuster

we hire…



• We will not protect you to the extent you contributed to or

caused the error or omission

• We will not hold you harmless when incorrect information

you provide us results in an adverse decision

• You must notify us promptly if anyone makes a claim or

files suit against you based on our error or omission

• We will not hold you harmless if you admit liability


Sample – Termination

• We may terminate agreement with 180 days notice

• For any reason not prohibited by law

• Change of ownership more than 50%

• Change of legal entity

• If you fail to comply with the terms of this agreement

• Agency Agreement automatically terminates without

notice if the agency files for bankruptcy or bankruptcy

protection


Sample – Miscellaneous Provisions

• Compliance with Applicable Law

• Advertising – No authority to employ, reproduce, display

or use our trademark, service mark, logo or other

identifying symbol in any manner whatsoever with written

consent


Sample – Miscellaneous Provisions

Privacy – Company agrees to keep agency information

private

• You agree not to disclose confidential information

including but not limited to:

• Customer information (All)

Driving records, names, addresses, loss history, policy limits


Sample – Arbitration of Contract Disputes

• If a dispute arises we agree to make every effort to meet

informally and settle our dispute in good faith.

• You and we may agree to submit the dispute to one

arbitrator, otherwise there will be three

• Determination by arbitrator shall be final binding on all

parties

• The cost of arbitration shared equally

Agent/Carrier Relationships:

Law Of Agency

Introduction

Agent

Carrier

Carrier

Client

Carrier

Establishing An Agency Relationship

The Law Of Agency

Agent

Insurance Agents have duties to both the

carrier and the customer, but never

simultaneously.

The Law of Agency

Obligation to Company

• Fiduciary

• Loyalty

• Honesty

Like Marriage Vows

• Love

• Honor

• Obey

Obligation to Customer

• Proper Coverage

• Adequate Limits

• Prompt Communication

Good Business Practice

• Right Policy

• Right Limits

• Transparency

Compliance with State &

Federal Laws

Introduction

Compliance with State/Federal Laws

Non-Compliance Opens the Agency Up to:

• Fines

• Loss of License

• Potential Criminal Penalties

• Damage to Reputation

• Loss of Customers

State Laws

Unfair Trade & Claims Practices:

• Deceptive

• Misleading

• Misrepresentation

• Defamation

• Twisting

• Discrimination

• More

South Dakota – Chapter 58-33 & 58-33-67

State Laws

Unfair Claims Practices:

Communications

Deny or Affirm

Claim Payments

Misrepresentation

Federal Laws

Fair Credit Reporting Act (FCRA)

Motor Vehicle Records

Credit Reports – Credit Scoring

Federal LawsGramm-Leach- Bliley Act

(Financial Services Modernization Act of 1999)

Federal Laws

Sarbanes-Oxley Act (SOX)

Federal LAWS

Electronic Signature in Global and National

Commerce Act (ESIGN)

Federal LawsTelephone Consumer Protection Act (TCPA)

Federal Laws

CAN-SPAM

Unwanted Emails

Advertising

HIPPA

Security of Health Data

Reporting an E&O Claim

Introduction

Myths vs. Reality

The Cost of Reporting

Cost of Reporting

Cost of Not

Reporting

Concerns of Loss of

Policy Premium Credits

When It Happens To You

• Do not admit liability

• Be empathetic

• Do not discuss or provide copies of your E&O

policy to anyone

• Do not offer to pay the claim yourself

• Do not agree to give a deposition or provide a

statement•Report

•Forward

•Cooperate

E&O Carrier

• Involve

•Appoint

• Interview

•Narrative

Agency

Attorney

“If they are not your attorney, they are

not your friend”?

Documentation Can Reduce Deductible

Agency50%

Swiss Re50%

Agency Defenses:

Documentation

Agency Documentation

Avoiding the “He Said” /

“She Said” arguments

Let the File Tell the Story

• Prospect

• Marketing Information

• Applications

• Quotes

• Proposal

• Acceptance or Declination

• New Business

• Order to Issue

• Policy Received

• Policy Checked

• Policy Delivered

What Makes Documentation Complete?

Who

What

When

Why

Where

How

What types of communications should

be in the customer file?

• In-person

Discussions

• Phone Calls

(landline and

mobile)

• Emails

• Instant Messages

• Live Chats

• Faxes (traditional

and electronic)

• Text Messages

• Websites

• Social Media

• Voice Media

Characteristics of Proper

DocumentationClear, Concise, Consistent

No Jargon

Unalterable date/time

Recreate the Transaction

Same System and Procedures

Policy Information and Transactions

Things To Avoid

Claim Opinion

Going to Bat on Denied Claim

Personal Asides and Comments

E&O Claim Information in Customer File

Customer File

New Business Renewal

Limits & Values

Checklists

Claims Endorsements

Documentation And Your Deductible

50%50%

Up to $12,500 Reduction

Reduce

Retain

Electronic vs. Paper Files

Admissibility of Electronic Files

• Electronic more credible

• Date and time embedded

• Copies not necessary

• Scanning viable

• Secure personal information

Electronic Signatures

ESIGN enacted in 2000

Electronic legal and enforceable

Federal Law

Customer Sign-off, Acknowledgement

Forms, and Written Follow-up

ExposureCoverage Offered

Declined Documented

Signed Applications

Use Of Disclaimers

• Voice Mail

• Website

• Fax, Email and Instant Message

• Claims Reporting

• Social Network

• Proposal

NO

BINDI

NG

Read Your Policy

Customer File Retention

Documentation Retention

Considerations

• Agency Policy, Carrier Requirements &

Legal Obligation

• Electronic files should be purged

• Good documentation saves / Poor

documentation sinks

• Personal Information required to be

protected

Disposal Of Customer Files

Use Qualified

Document

Destruction

Company

The Role of Agency

Procedures

Introduction

Documentation

Good Procedures

Improved Customer Service

Efficient Operation

Audited for Compliance

E&O Claims Defense

Good Policies

What are “Invariable Practices”?

Why are “Invariable Practices”

Important?

Procedure Manual:

Training Tool

Procedure Manual:

Reduction of Operating Costs

Procedure Manual:

Employee Evaluation

Procedure Manual:

Agency Operations Audits

E&O Issues of Certificates of

Insurance

Introduction

While there are a number of issues that can create E&O

claims, one of the most common errors made involves

agencies using the certificate of insurance as a way to

add additional insureds without formally contacting the

carrier to add them by endorsement

CertificateWhat is a certificate of insurance?

• Informational – snapshot only

• It is for general informational purposes only and

confers no rights

• It is subject to all of the terms and conditions

of the various policies shown

Certificate

What isn’t a certificate of insurance?

It does not:

• extend any contractual rights to the holder not

provided by the policy

• represent compliance with any contracts entered

into by the insured with others

• amend, extend or alter coverages or terms afforded

by the policy

E&O ExposureWhy the increase in E&O exposure:

Demand Complexity Frequency

E&O ExposureWhy the increase in E&O exposure:

Qualifications Pressure Litigation

Certificates of Insurance:

Should You Be Concerned?Certificates

Didn’t Exist

AI NotOrdered

OK

Settlements:

• $445,000 no contract,

no coverage

• $180,000 no AI

endorsement

• $10,290,000 no WC

bound


ACORD

• ACORD’s licensing agreement requires

new form editions to be used no later

than one year following publication

• This may require upgrading agency

management systems

• Never issue “blank” certificates that do

not show certificate holders


Requests for Specific Language


Cancellation, Nonrenewal, and Material Change

Insurance is primary and all others are non-

contributory

Primary and noncontributory additional insured

coverage provided by general liability, auto and

workers compensation insurance

Should any of the described policies be cancelled or

materially modified, the insurance company will mail

30 day notice of cancellation to the certificate holder.


Reviewing Contracts


Sending COIs to Insurers

• Send them. Next question?• Marlin v. Wetzel (WV Sup. Ct., 2002)

• Erie v. NGM (NY trial court, 2009

• “Our internal procedures and our legal counsel require that a copy of all certificates be sent to our carriers.”

• Some AI endorsements are triggered by the receipt of the certificate by the carrier.


Solutions for Agencies

Education

Procedures

Job restructuring

Service, not servitude

Thank You For

Attending Our Program!

an e&o claim - 360˚ view - iiasd.org eo presentation... · all lines of insurance except...

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