E&O Insights: Pounds of Prevention in 2011

A Few E&O Exercises to Keep an Agency Professionally Fit

Traditionally, as another year begins, we establish personal and professional goals. On the personal side, shedding a few pounds is often an objective. After all, with fewer pounds, we will look better and feel more fit. In setting professional goals for 2011, adding a few pounds – pounds of errors and omissions prevention (E&O), that is – will result in being more fit and looking sharper than ever professionally.

Let’s examine some exercises that will do the job. These exercises, while serving as vital protection against an E&O claim, can also result in additional sales.

Educate Your Customers

Undertake a campaign showing your expertise and experience. Develop a newsletter that is printed and mailed, sent electronically and/or posted on your Web site that provides valuable insurance information to your customers.

Topics can include:

• What does my car insurance address when I rent a car? Do I need to buy coverage from the rental company?
• What are the advantages of insuring an item on a floater?
• When my son or daughter are away at college and have a car, should I notify the agent/insurance carrier of the new garaging location?

The topics are endless. Plus there is a good chance this exercise will result in additional sales and, at the same time, reduce your E&O exposure. Ask your staff what types of questions they are being asked and start with those.

Hold Periodic Staff Meetings

Staff meetings, held at least twice a month, are great ways to address current issues as well as find out what’s on your employees’ minds. These meetings can address topics such as coverages or unique terms. Choose a coverage (example: co-insurance) and explain it in detail with claim examples. This is also a terrific opportunity to stress key agency practices such as the importance of thorough and timely documentation in the files. There is no doubt the staff will appreciate this training/open communication.

Send a Cover Letter With the Policy

In most states, there is a duty that the customer reads and understands his or her policy. In addition, if the policy terms are not acceptable, the customer has a duty to reject the policy. Thus, when sending policies and endorsements, include a very simple cover letter. It is strongly recommended that: 1. the agency letter be very general and 2. the agency does not include a summarization of the coverages. A summary could suggest to the customer that they do not need to read the policy because the agency has told them what is in it. A summarization that differs from the policy could significantly impact the defense of the agency.

Be Alert On Excess & Surplus Lines

There is no doubt this segment of the industry serves an extremely vital role. However, from an E&O perspective, there are a couple of items to lookout for.

1. Most general liability policies written on E&S paper contain a classification limitation endorsement. This endorsement is designed to restrict coverage only to the classification listed on the policy. For example, if you are insuring a plumber, chances are the policy restricts coverage only to the plumbing exposure. If the plumber moonlights as an electrician, there would be no coverage for any claims arising from being an electrician. In the cover letter you send, highlight this exclusion to the customer and advise them that if they are involved in activities not noted in the policy, contact the agency.
2. The renewal policy may contain exclusions not on the expiring policy. E&S carriers are not required to notify you of changes to the renewal policy. Thus, it is critical for you to review the renewal, comparing it against the expiring policy. Bring any changes to the customer’s attention and get their approval to renew.

Require All Applications Be Signed by the Named Insured

When there are disputes involving the accuracy of information on an application, a key element will be the insured’s signature. If the insured has signed the application, generally they will be held responsible for the content. Thus, never give the insured a blank application to sign, advising them you will “fill it in later.” Plus, never sign the insured’s name, even though you believe you have the authority to do so.

Undertake an Aggressive Campaign to Cross-Sell Personal Lines Accounts

Do you know that less than 25 percent of ladies diamond rings are insured on a floater? One can only surmise that they believe the coverage for a ring under the homeowners policy is as broad as on a floater. Reach out to your customers. Educate them. With more than 2,600 collectible clubs in the United States, chances are your customers are collecting something. Is it properly insured?

Certificates of Insurance

Nearly one out of every 25 E&O claims involves the mishandling of a certificate of insurance. Oftentimes, the issue is indicating something on the certificate that isn’t so, such as an additional insured. If the policy does not reflect the coverage, it should not go on the certificate. Meet with your staff on this – it is a serious issue!

Get it in Writing

If your customers are reducing/modifying their coverage, the best approach is having them advise you of their wishes in writing. This is designed to ensure there is no misunderstanding between the two parties. A secondary approach (on a phone request) is to send the customer an e-mail recapping the agency’s understanding of the customer’s request and advising them to contact you if your understanding is not correct.

Keep the Original Cover Sheet When Faxing Documents

Always keep the original cover sheet or a scanned copy of it when faxing documents to insureds. This will allow you to prove what you sent; when you sent it; and to whom. This documentation may be key in your defense should a claim be made against your agency and the other party states they never received your fax.

By implementing the items suggested here, you will have made significant strides to reducing your E&O exposure – and you will look sharp and feel fit professionally with those extra pounds of prevention. Here’s to a strong 2011!