The answer to the question posed in the headline is a definite “yes.” This has actually developed into a significant issue for agents and is one of the current errors and omissions (E&O) hotspots agents must be aware of. It is currently projected that approximately 10 percent of all E&O claims are due to alleged mishandling of the underlying claim by the agency. What could go wrong?
Improper Coverage Interpretations
The scenario: a claim is reported to the agency, which is fairly certain there is no coverage, so they don’t bother sending the claim to the carrier. While some of these instances are minor, more than a handful are serious. I am aware of one that actually involved a fatality. The agent did not report the claim because it was thought that it wasn’t covered. In this specific case — and many like this one — the claim was denied for late reporting after it was eventually reported to the carrier.
What should an agent do? Even if you are completely convinced there is no coverage, report the claim to the carrier anyway. Let the carrier make the coverage decision.
While we all pride ourselves on our insurance knowledge, it is difficult to be the “expert” on all lines of business. Take professional liability, for example. It is common knowledge that no two policies are the same — many of them have unique language that could determine the application of coverage.
In an E&O claim I am familiar with, the customer called the agent to report a claim. The agent interpreted the issue differently and advised the customer it was not necessary to report the matter because it wouldn’t be covered. The professional liability policy was written on a “claims made and reported” basis and, when the suit papers arrived, the matter was reported only to be denied because it did not meet the “claims made and reported” conditions. Bottom line: although the agent believed the matter was not covered, a simple reporting of it to the professional liability carrier would have: 1) triggered coverage and 2) allowed the carrier to make the coverage interpretation.
Another hotspot can be when an agent advises there is coverage when there is not. If you advise your customer there is coverage only to find out there isn’t, the customer, needless to say, will not be happy. While you may be fairly certain coverage applies, it may be difficult to provide a definitive answer without reviewing the entire policy form for any applicable conditions or exclusions. Once again, it is best to submit the matter to the insurance carrier and let them determine coverage.
Failure to Advise All Carriers
Have you ever seen what you thought was a minor liability matter all of a sudden become a major claim? It happens. Thus, despite your perspective that the matter will never “blow up,” it is best to advise all applicable carriers, especially any excess or umbrella carriers. This will give them the opportunity to conduct their discovery on the matter. When a claim is submitted to your agency, make it a practice to review the file for all possible available coverage, and then put those carriers on notice. Even with auto claims, the business owners policy or package policy may contain hired or non-owned coverage.
Failure to Handle, Customer Requests
The carrier often requires additional documentation as a claim unfolds. This can involve estimates, appraisals, etc. Make sure requests for additional information are handled promptly and professionally. This will help the carrier resolve the claim in a timely manner.
From time to time, customers will contact an agency to notify the agency of a loss, but ultimately tell the agent not to report the claim to the carrier. What should you do? It can be strongly argued that you have an obligation to notify the carrier. The concern would be that if you don’t notify the carrier and the claim takes a bad turn, the customer could find fault with your handling of the matter.
Determine Your Role
The manner in which agencies are structured to handle claims varies. In some agencies, there is a dedicated staff person with the knowledge and experience in handling these matters. In other agencies, the “claims handling” duties may be part of the account executive role – not the most desirable method as it is difficult to give claims the attention they deserve. Handling the claim could become something you do when you have time, which you rarely have. In addition, it is difficult to expect the staff to have the skills necessary to perform this task when they have other customer service responsibilities.
Most agents want to be involved in claims from their customers. This provides the opportunity to show the agency’s strength and demonstrate you are there when customers need you. It is best to exercise caution at claims time. This is an emotional time for your customer, and the agency must avoid advising customers to the detriment of the customer. Determine the role you want to serve and handle it professionally and promptly.
Pearsall, CPCU, ARM, is president of Pearsall Associates Inc., a risk management consulting firm specializing helping agents protect themselves. He is also a special consultant to the Utica National Agents E&O program. Phone: 315-768- 1534. E-mail: firstname.lastname@example.org.