Agent no legal duty to inform on cancellations?

[ins-atty]

Thanks to GPilat for posting the cite, Slovak v. Adams, 141 Ohio App. 3d 838 (2001). Despite what the E&O seminars state about agency calls on lapses, I have never seen a decision in favor of the insured on this issue. If anyone is able to find a contrary decision, please post it.

Even putting aside the statutory framework of the cancellation process, a defendent agent could make a very pursuasive argument that it's simply good public policy for agents to be able to make courtesy calls, whether they do so consistently or not. If the law punishes the courtesy call, many more claims would be uninsured.

[gforaker]

Sorry, ins-atty, but you are wrong

We were sued for just this situation over 10 years ago. After almost a year of CSRs being called in for depositions and a drawn out lawsuit, we finally got off because we had a policy of calling no one on direct bill. The judge explicitly said he would have found against us if we had called anyone.

Typical story of a bad pay client who did not pay his homeowners policy on time and had a fire. BTW, these are usually lower court cases and not easily searchable if not appealed. The E&O carrier had a number of cases paid out. Oh, and I'm in Ohio.

[mhutch69]

This being the case, I believe, on personal lines auto and homeowners, 80-90% of all commissions should be fully earned at inception except for a flat cancel.

If that were the case, I promise I would not call delinquencies.

Until then, I will call them and if I miss one, I will take my chances.

That is why I buy E & O.

I can not afford to NOT call.

[rodgwag]

Don't call and make yourself responsible, it's that simple.

[Erik M. Olsen, CIC]

Earlybird is precisely correct. Not chasing down your revenue-creating premium is the thin-end of the wedge. Why wouldn't an agency remind their clients' of monies due or cancellations pending? There may be some merit in the arguments above discouraging this, but to hazard your revenue, for the benefit of avoiding litigation, doesn't make any sense to me.

[jtownagent]

Quite a discussion with little agreement-Here's a suggestion-Check with your own legal advisor.

DISCLAIMER: As the billing for insurance coverage is between the insurance company and the insured, Such and Such Insurance Agency can not be responsible for any lapse in coverage resulting from non payment of premium. Although we alerted you to the fact that the policy is canceled in this particular case, we can not guarantee that we will continue to do so in the future. Please let us know if you would be interested in having future premiums deducted directly from a bank account through electronic funds transfer.

Be careful.

[d's insurance store]

I think the major conflict is an agency trying to balance the valid pursuit of revenue versus the continuing 'enabling' of perpetual late paying clients. Where is the trade off between genuine concern for both making sure coverage continues for clients and the income derived from conserving business and regularly chasing down habitual late paying policyholders and the time and resources devoted to that task on a regular basis.

Many times, we as agency principals or workers tend to superimpose our virtues and values on our client's behavior, silently scowling at claim filing customers who 'always' seem to be in a position of loss, perhaps because of their own behavior attributes and rolling our eyeballs at the cancel list with by and large the same names on it month after month, when we, as responsible adults manage our monies in a more conventional way. Or that resentment you feel when the perpetual late pay customer calls to complain when a loss check is delayed by one day when they can't seem to issue a premium payment in a timely fashion...ever!

This thread started off as a legal question about defending our positions as agents when we either choose to be proactive on a regular basis in chasing down premium payments or doing that selectively or not doing it at all. There seems to be no real definitive answer to that, with individual circumstances dictating how a court might or might not rule on pushing responsibility back to the agency. But there's also the work time and effort and emotional drag of both being the agent and the bill collector, in addition to all of the other duties involved in running and working in a retail agency.

[ForumReader1]

Policyholders ARE notified about lapsing policies. The insurer notifies them - often more than once. It is not the responsibility of an agent to give them ANOTHER notification via a phone call or any other method. Does anyone call from the electric company every month you don't pay your bill, reminding you that you need to or your power will be shut off? No, they notify you by mail, the same way everyone else is notified, and you are expected to read your mail and act.

We are not obligated to hand-hold in return for our commission. We are the agent of the insurer, and they pay us a commission for being their sales arm. The policy is a contract between the insurer and the insured. The policy specifies what notice the insured will receive in the event of cancellation. The insurer has the responsibility for performing the terms of the contract (policy.)

Calling everyone who has a late payment is unproductive and unprofitable. Spend your time doing something of value.

[mhutch69]

I added a disclaimer years ago stating the customer may get a phone call or email but may not also.

The customer will always receive a notice of cancellation from the insurer each month. That notice is the only one that matters and pay accordingly.

I have been contacting customers to make sure payments are made timely for over 30 years.

When commissions are earned at policy inception, the phone calls and emails will certainly be less frequent, but until then...

Real Estate Agents sell homes and if the buyer never makes a mortgage payment, the agent does not return commissions.

Insurance Agents should earn 80% of any policy commission at inception and the remaining 20% should be earned over the remaining policy period.

that would be fair.

[ins-atty]

I think many folks have gotten paranoid after attending E&O seminars sponsored by the E&O carriers. As I stated in an earlier post, I have not been able to locate a single published opinion holding an agent liable for inconsistent phone calls to their insureds on lapses.

Please remember, each State has statutes governing the handling of cancellations. If a court goes beyond the statutory framework, it is rendering an EXTRAORDINARY decision.

My point is that you can't run your business worrying about an unlikely event. Planes crash. Will that knowledge stop you from flying?

In my agency, we buy E&O insurance and use common sense when deciding whether to call on a given lapse notice.

[Brenda H]

"Policyholders ARE notified about lapsing policies. The insurer notifies them - often more than once. It is not the responsibility of an agent to give them ANOTHER notification via a phone call or any other method. Does anyone call from the electric company every month you don't pay your bill, reminding you that you need to or your power will be shut off? No, they notify you by mail, the same way everyone else is notified, and you are expected to read your mail and act."

We have this very discussion in our office mulitple times a week, and that is the same reasoning that we use...you don't get called to pay your utility bills every month, or to make your car payments! Consequences of not water, cool/heat or no car.

[ForumReader1]

I agree with Ins-atty's 8/7 post. Exercise common sense. My practice is to never call anyone about a late payment. My best customer (a large commercial account) premium finances their policies every year and in 15 years I'd never received a late payment notice. One day when I did, I knew something had gone awry. I called them and they were able to straighten it out. Regardless of my practice of not calling, it would have been crazy not to when something was obviously wrong.

[mightyquinn]

If you issue a Certificate of Insurance it is no more than information that insurance is in effect as shown on the Cert and for the time shown.

Most insurers these days do not require that you send them copies of those Certs. That increases your obligation, legally or not.

Concurrently, because you communicated that coverage was in effect when you issued those Certs, in doing so you have created an obligation to notify the Cert holders when coverage is terminated prior to the dates you show on the Certs. It is no longer the insurers' obligation.

On direct bill accounts when an insured does not pay you are notifed by the insurer of the cancellation. This defaults to the above, in that, if you issued that Cert confirming coverage, then you must therefore notify the Cert holder[s] when coverage ceases.

Specific state statutes aside, if you do not notify Cert holders you will spend some time in court and you will lose. Better to err on the side of reason than spend tons on money on your alibi and defense.

[superdash8]

They are notified by the direct bill insurer. So there is no way they can claim that they weren't told.

[Brenda H]

If you issue a Certificate of Insurance it is no more than information that insurance is in effect as shown on the Cert and for the time shown.

Most insurers these days do not require that you send them copies of those Certs. That increases your obligation, legally or not.

Concurrently, because you communicated that coverage was in effect when you issued those Certs, in doing so you have created an obligation to notify the Cert holders when coverage is terminated prior to the dates you show on the Certs. It is no longer the insurers' obligation.

I have to disagree with this somewhat. The only one that is entitled to a cancellation, unless there are specific endorsements on the policy, is the first named insured. Certificate holders, unless they are listed in the policy, are not entitled to a cancellation notice, nor to be notified that the policy has cancelled. (In texas anyway). I realized there are excptions to this, but by and large, this is the case. The COI is just a form that represents what coverage was in place at the time of issuance.