How to Respond and React When Threatened With an E&O Suit
Ask any agent who has suffered through an errors and omissions (E&O) suit, and he or she will provide sage-like insight into the professional and even personal trials created by such an ordeal.
I recently met an agent whose agency just four months ago closed the last of 16 E&O suits related to Hurricane Katrina; his new-found experience is priceless (although he hopes to never have to call on that experience).
Proper actions and reactions when threatened or served with an E&O suit are of utmost importance. Once a threat is made or a lawsuit filed, the allegedly improper act or omission has already occurred — don’t worsen the situation by making bad decisions.
The dos and don’ts of an E&O claim are often discussed in errors and omissions courses sponsored by the agency’s professional liability insurance carriers, state associations or agency consultants. Many agency consultants can perform agency audits to help prevent, as much as possible, E&O situations and prepare an agency to respond when one comes.
Following are just some general “do” and “don’t” tips that may need to be customized to fit a particular agency.
First Don’t …
The first big don’t is, do not overreact to the claim. Understand that there is no shame in being pulled into an E&O situation. Even the best agents and agencies are open to an E&O claim, regardless of the procedures and protections in place to avoid them. Take the experience, learn from it and make the necessary changes to make sure no such situation arises again. Anger at yourself or others is counterproductive and can increase the weight of the situation.
Do not, under any circumstances, alter the client’s file as it relates to the charges. Do not add details, delete
details or change details. Such changes are easily found in electronic files, and even if paper files are used, any changes can be evident. Making any changes creates the appearance that there is something to hide.
Do not discuss the claim with anyone other than the claims representative, defense attorney or any other member of the office directly involved in the claim. Comments made under duress or when angry can be misconstrued and be potentially damaging in court if such comments are recounted on the stand. The only individuals that need to be involved in any discussion of the case are those in the office directly related to the care of the plaintiff’s account and those defending the agency.
Do not make any admission of liability or wrongdoing; and do not offer or make payment. This is the same advice agents give their clients when involved in an auto accident. Allow the legal process, and those hired to debate and decide questions of law, to make the determination of legal liability and amount of damages.
Do not provide any written or recorded statement to the plaintiff without your carrier’s claims representative present. Because this will be admissible, the agent will want guidance on how to truthfully give an account of the story using facts without unnecessary opinion or emotion.
Do not allow inspection, copying or removal of client files and records without consulting with the claims representative managing the claim. This is the agency’s information about the client, not necessarily the client’s information. The claims representative needs to know what information is being requested and what is not.
Do not try to manage the claim on your own. The E&O carrier has more experience and is better able to manage the process. Remember, other clients must be cared for, new business must be written and the agency must be managed. Allow those with more experience, time and resources to take care of the agency.
What to Do
The list of “do’s” seem almost like common sense, but they still require mention.
Following are a few of the immediate and ongoing “dos” of E&O:
Notify the E&O carrier of a “claim” at once. Provisions in errors and omissions policy require the insured to notify the insurance carrier as soon as practicable upon the receipt of a “claim.” A “claim” is a defined term that can mean something as innocent as a threat, a letter from the insured, or the actual suit papers. It’s incumbent upon the agent to know the definition of “claims” in his or her policy, and to notify the carrier in compliance with that definition.
Gather and organize all records related to the insured and the situation. But in so doing, remember the “don’t” No. 2 — don’t alter them. The claims representative will need all the information to conduct an investigation, and to prepare and provide a proper defense.
Write down all the information known about the incident surrounding the claim. Each member of the team directly related to the client and the incident giving rise to the E&O claim should record all he or she can remember about the incident or incidents on which the claim is based. This should be a factual narrative statement in chronological order.
Cooperate with the E&O carrier. This includes providing information and facts that look bad for the agency. Hiding or hedging certain aspects of the facts surrounding the situation on which the claim is based creates distrust between you and your insurer. It also makes the agency look guilty. The insurer is on your side.
Make sure you comply with all policy conditions and requirements. If the agency fails to comply with all E&O policy conditions, coverage may be jeopardized.
Hopefully It Will Never Happen to You
This is but a quick recap of some of the more common “dos” and “don’ts,” and is not a complete list of all that will be required at the time of a claim. Your insurance carrier will ask for information and may require some actions not contained in this list.
As stated, hopefully this information will be superfluous for your agency; however, this is still good information to assist in advising your professional liability clients in the event they suffer an E&O or professional liability claim.
Was this article valuable?
Here are more articles you may enjoy.