Disclosure of losses from prior entity

[Rob]

Here is the bottom line: Customer has three claims, one of which is open. This occurred while he was a sole proprietor. Mid term he incorporated and carrier endorsed the policy. Another broker quoted him with zero losses and zero open claims (part of their eligibility questions). When I pointed that out to him, he called the other broker and that broker told him "we don't have to dislcose those losses because the new entity doesn't have any losses, you had them as a sole proprietor". My carriers/underwriters say they count. There was no material change in ownership. The insured asks "what are the possible repurcussions?" To me, it seems like material misrepresentation. What say you?

[Big Dog]

There are several consequences. First, the insured could have their coverage canceled mid-term for not disclosing material facts. Second, should they have another claim, the carrier could take a reservation of rights on the claim once they find out there were prior undisclosed losses. Third, the agent could have the company drop their appointment for essentially committing fraud by not disclosing the losses.

[Rob]

There are several consequences. First, the insured could have their coverage canceled mid-term for not disclosing material facts. Second, should they have another claim, the carrier could take a reservation of rights on the claim once they find out there were prior undisclosed losses. Third, the agent could have the company drop their appointment for essentially committing fraud by not disclosing the losses.

Agreed, I thought of all that. So my statement to him "even though you incorporated, its the same owners so I don't know of any company that would not want to consider the prior losses of the prior entity" is correct. My guess is that he is thinking that its an old entity so he gets a clean slate and that the carrier would not be privy to the other losses anyway. I asked him what would happen if he had a claim, it went to court, and then under oath he was asked if he ever had any other incidents?

[d's insurance store]

Everything BigDog says is correct, but the larger issue here is how do integritied agents/producers counter those in the business who are less than truthful and in need of making a placement today.

Ethics are tricky. I was sure you were going to attribute the bogus submission to a direct writer, but I guess in this diminished marketplace, any slimey agent is capable of distorting the truth to win a quote.

I don't think you can win on this one...the businessowner is looking at cost and someone else is offering a better price for presumably the same product. You can only hope that on the scale of karma and righteousness that someone gets their due, or maybe the businessowner sees the risk of misrepresentation in the same way you do. Or maybe the new carrier requires a loss run from the prior policy...or maybe not. Under these circumstances, I always tell the client that the door closes and doesn't reopen if they move the business. And, writing this, in over 25 years of being an agent, I cannot recall a single time when the insured came groveling back to me...so I guess the world of insurance in an unfair place.

[earlybird]

The "other broker" is "clean sheeting" the risk, in order to obtain a premium quote under false pretenses. Most applications these days have a warranty clause stating that misrepresentation will void the insurance. Additionally, the department of insurance with jurisdiction might get involved, upon notice from you or the carrier.

[Rob]

I explained the warranty on the application and the fact that I believed any underwriter would want to know about these prior losses even if they were under the previous entity. I think he just wanted confirmation in his mind that in fact this was true, that the new insurance carrier does want to know about losses under a prior entity.

In any case, based on my advice to him I prevailed and he chose to pay $2500 more per year rather than roll the dice with the other broker who said it didn't matter. We just closed the deal today. Thanks to all the responded.

[scott]

"Mr Client, you and I know that the agent is being dishonest. My experience is that someone who lies for you will just as easily lie to you. We have established that the agent is dishonest. Im not sure where to take the conversation from here. Do you really want a lier working for you in a claim?"

If the insured goes with the slug-agent he would not have been a good client. Walk away.

[Rob]

Scott,

We definitely were thinking the same way. Prior to your post, we had already closed the deal. But to get there, what I said to the customer in an email is similar to what you were saying (although I candy coated it a bit and used the word "misrepresent" instead of "lie". Here is what I said:

"A broker's willingness to not fully disclose accurate information in order to "win" the business ultimately puts the customer in jeapordy as it can void an insurance contract (usually the bad news come claim time after they do their investigation and go back and review the application). There are pages upon pages of court cases where this principle played out in favor of the insurance carrier. My personal viewpoint is if someone is willing to misrepresent on my behalf to someone else, then there is always the possibility of them misrepresenting something to me in the future. I disclosed the prior claims even though the entity changed....because it is the correct, legal, standard industry procedure and is ultimately in your best interest and protection"

Next day: "What time can I come in?"

My proposal was about $2500 more than the other broker by the way.

[scott]

Score one for the good guys Rob!

I rarely sugar coat stuff anymore now that I am 50. Doctors have proven that sugar is bad for you.

[larsimo]

I had a similar case recently. Client has a vehicle that he uses for business (making deliveries). Client wanted me to insure this vehicle under a personal auto insurance policy. Here was my reply to the client AFTER he asked WHY other agents would do it and I wouldn't:

"Could you get a personal auto policy – yes you could. However I can’t sell it to you because of the fact that I
have full knowledge that the vehicle is used for business. In other words, if I put you in a personal auto insurance policy,a bad accident happens and the carrier denies the claim, we could be held liable for negligence.

Also, think about your recent fender bender you were telling me about where xxxx carrier paid for it and then dropped you. Chances are that your claim was really small and xxxxx carrier just paid it to get it out of the way. But if it was a big enough claim though, I would bet that xxxx carrier would’ve denied it.

So you see? Too much risk for you and us.

I will send you my commercial auto quotes tomorrow and let me know what you decide."

Next day after send him my commercial auto quotes I get this email:

"when do I sign up?'

So yes, it does pay to be honest and upfront with clients.

[wlunday]

I think we can all tell stories like these... One of my clients had a total loss house fire a few years ago. When the new home was finally constructed (after the builder's risk was no longer needed) the insured went to a captive carrier. When I asked how they were able to place it after the fire loss the client told me that, since Foremost didn't report to CLUE the loss history the captive agent told him they didn't need to declare it on the application! Wow.

I didn't like or trust the guy anyway... We had suspected fraud all along so they are meant for each other. Bye!

Swymmer