Agent no legal duty to inform on cancellations?

[surestart12345]

Does anyone have court citations and other authoritative information showing that insurance agents have NO legal duty to inform the insured that their policy is set to cancel or has cancelled? We're always being told by IIABA and other legal opinions by industry publications, but now I need to put my hands on it all. Our policy is not to get involved where especially there is direct billing and all legal notices are made. Claim was attempted 5 months after an insured got cancelled due to nonpayment and is attempting to say we should have told her. Help???

[LadyBroker]

Are you honestly saying you make no attempt to notify a client when their policy is in cancellation mode?

[agentagent]

Florida agent-I'd also like to see any documents showing a legal duty. Thanks.

[GPilat]

In Ohio, there is at least one appellate court case that says an agent does not have a duty to notify a client that the policy has canceled. The cite is Slovak v. Adams, 141 Ohio App. 3d 838 (2001). I'm not offering an opinion on whether you should or should not, just that there is an Ohio case to answer the initial question whether you have a duty.

[Brenda H]

In Texas, at every E&O course I have attended, this is mentioned. The advise we are given is that you must do for all what you do for one. So, if you notify customers that the policy is in cancellation or cancelled, you must make sure that you notify everyone of your customers of the same thing. By the same token, if you choose as an agency not to notify, then you must not notify any.

Our policy is to send an email or letter out that the notice has been issued, and the same if/when the policy cancels. This has, at times saved an account. On the other hand, some of the ones that are in cancellation are ones you would just as soon not keep, but you have to notify them anyway, so sometimes they just keep sticking around.

The take on it from the "people in the know" that I have talked with is, in Texas, is there is no "law" that you have to notify them.

[d's insurance store]

I think the legal term is 'estoppel', whereby past practices can become the established norm for business dealings...meaning that if an agency is consistantly and constantly informing habitual late pay insureds about their payment status and that is enough to prompt a payment from the insured, then one day 'getting really pissed' for all the extra work and saying 'screw it...I'm tired of nagging them every payment' and then the policy cancels, a loss occurrs and claim is denied, then the agency can be held responsible if the insured says they relied on the contact, rather than the billing, to make the payment and when that contact was withheld, it constituted a breech of notification responsibility.

Although never accused of that, I've been there and done that at the retail level, an so, whether for personal lines or small/medium commercial lines, I make it clear that if a late pay pattern manifests itself, that I state my call for late payment reminder is NOT custom and practice, but rather an isolated courtesy, and I then document that conversation in the file, so that if/when I reach the end of my patience and business activity in trying to conserve all the continuous late pay business, I'm documented that it never became the 'normal' business practice to induce payment.

I've been in the situation where I've chased after a habitual late pay insured, got the policy reinstated, only to have a significant loss soon after payment was received and cost me major dollars in contingency monies. Then, the insured just let the policy lapse again due to a total auto loss, so there was no more revenue derived through normal commissions. That alone got me to change my business practices.

[kfrasier]

Our agency does not contact the insured on a late notice or cancellation notice. We do send a confirmation letter when the policy has actually cancelled confirming the fact that tye no longer have coverage in force with our agency. This is our agency procedure. We are not babysitting them.....the whole purpose of direct bill is so we don't have to!

[agentagent]

Never start a bad habit, it will come back with a vengence. Imagine if you did contact a client with a million dollar life insurance policy every month for several years to remind him his bill is due. Then you stop, the policy lapses and he dies. You know the rest of the story. See you in court......says the wife. The family relied on you to "remind" them there was a premium due. Read the post, almost all advise against notification and they are right.

[earlybird]

After 42 years in this business, from claims, underwriting, retail and wholesale, let me offer this advice. Use common sense.
If you have an insured that pays a premium of $100,000 per year. You get paid a substantial commission. He misses a payment. Are you going to try and keep that account and the commission?

If you brother or other family member is on your cancellation list because of non pay, are you going to call them and remind them. I bet you will.

If you are the agent of record for any account, direct bill or agency bill, you receive a commission, dont you? What do you do to earn that commission on a direct bill policy? That is what the customer's attorney is going to ask you while you are on the witness stand. Are you going to answer by saying "Nothing after the first policy period."

If you do it for one, you must do it for all. Make sense to me, that's what agents do to "earn" a commission!

[d's insurance store]

Every retail agency, whether personal lines or commercial has them...the perpetual late pay people. The one's you wonder if they ever open their mail. The one's who you wonder if it's just insurance, or do they go to the limit with their electric bill and rent and phone bills. The clients who just can't seem to ever pay a bill on time...you get them to pay one late premium notice and then they're immediately behind on the next payment.

Often they generate very little in premium and thus very little in revenue.

The agency is faced with a decision...continue to chase after them, devoting time and resources that could more profitably be spent elsewhere just to pad the agency book or say 'to heck with them' and let the policy lapse and hope they move to someone else's agency to repeat the pattern.

I don't think any of the responders here are thinking of the large account, or even the small account that very occassionally goes into late pay status due to an oversight...it's the perpetual late pay people, large or small premium that give the agency a sour stomach.

In the exception cases, the agency earns its money by keeping the insured informed. In the chronic late pay client base, it's a drain on resources trying to retain the account.

[jackwehoca]

Reluctantly I have to agree with earlybird. If you earn a commission from a policy, you owe the insured a measure of customer service, even when they are the habitual/chronic late payers. You can advise them that it is a courtesy notification, but that still won't get you off the hook should the policy lapse and a claim denied. I would think most juries, especially if prompted by the prosecution, would say that if you earn income from a policy, it is your duty to keep the policy in force by reminding the insured of payment(s) due, especially if you have received notice directly from the carrier and/or the finance company. If the policy/insured is a small income generator, you might offer them the "opportunity" to go elsewhere 60-90 days before renewal, suggesting that you are changing your business model, and another agency might better cater to their needs (then hope for the best-that they do switch brokers!) Distasteful as it might be, I would rather put up with the reminder annoyance factor rather than have a claim against my E&O. That claim then becomes part of your "permanent record" and must be disclosed every year when completing your own E&O coverage application.

[surestart12345]

From original person who posted this thread:
Don't forget...if you do reach out to any customer then you are then binding yourself legally to reach out to all customers. We are always told not to from our national organizations and their legal opinionated people, because if you usually do, and a customer relies on you, and then one time you don't call, THEN you have a legal E & O issue.
Also, what if you are fortunate enough to have an agency with 5,000 customers? Are you then supposed to reach out to each customer (say 20%) who are perpetually late, get two additional reminder notices plus a cancel notice and then you have to make (20% X 5,000 X 3) or up to 3,000 phone calls every month! Of course not every one of these late people will get all 3 notices, but 20% is a good estimate and even up to 1,500 calls or 50% of the people get most of the notices, that's about 68 phone calls or postcards sent out EVERY DAY when it's their primary responsibility to open their mail and act on it. Remember, as agents, the contract that is signed binds the insured and the insurance company. There is no contract between the agent and the insured.
Plus, it's a totally a ridiculous assertion that it's the responsibility of the agent to add to the bill paying confusion, especially when there's a direct billing relationship between the insurer and the insured. I cannot see a judge or jury mandating a contractual relationship when there is none, or mandating that an agent must perform a duty that may be clearly onerous and not legally called for by state insurance law.
Opinions are well and good, (especially if you've sold insurance to your brother-in-law), but what are the officials laws of each state, or what court precedents exist? Isn't that the only thing that matters in the real world...and shouldn't there be one rule for all agents to live by?

[jackwehoca]

Great analysis, but in the real world there is no cut and dry answer. All I know is that I wouldn't want to have my future and license in the hands of a jury versus the "poor uninformed insured" that didn't know his policy had been cancelled and had generated income for the agent by purchasing the policy in the first place. I don't think the jury would be swayed by your statistics, but you are welcome to test the theory by not informing the insureds. In fact, if there is no law on the books specifically relating to the matter, then the jury is not bound by any mandated contractual relationship, just that they think the insured got screwed and they are going to make the agent pay for said "screwing".

[tsorrels]

Never start a bad habit, it will come back with a vengence.

Once you start notifying customers that they are in cancellation status, you can never quit. What happens when the CSR responsible for contacting that customer is on vacation and the customer does not get notified? Then they have a wreck and find out no insurance in force. "Well, my "agent" didn't call me and remind me. If she/he had, I would have made my payment and paid a late fee."

I'm reminded of the agent that used to send birthday cards and include a stick of chewing gum. Mail prices got higher, costs for gum and cards got higher....so, he quit. He didn't lose MANY accounts....only some BIG ones.

I say don't do it. In Texas, we can charge an agent fee - so, if they continually cancel for non-pay, we just re-write them and charge another fee.

[Presl70]

The first thing everyone needs to remember here is,"Do you want to have to defend a lawsuit." Wheather you are right or wrong a win in court is expensive. Documentation is the key to avoiding this problem. Send a notice to all insureds....Period...

If an account is on direct bill you can do what we do. Have the customer sign an affidavit when they first insure that states that the agency will not be responsible for notices. That a notice from the company shall be the same as if sent by the agency and that the signor agrees to these terms as a part of insuring with your agency.
I the case of account current billings you need to send your own notice(certified) to show proof of mailing and then send a copy by direct mail so that if the certified copy is refused they still get mail. All Lawyers do this, so so should we. I did consulting for lawyers for just over 10 years and I can assure you these are the very things they look for when deciding to take a case or not. In 46 years we have been sued twice and both were dismissed because of these common sense approaches.

Hope this helps solve the delima.

Pres70