When uttered together by a client, the five words in the headline of this article are — potentially — very dangerous words.
Note the following claim and ask yourself, “Could this happen in my agency?”
The insured apparently has a niche market for tow truck operators. The claim involved a client from another state whose tow truck apparently hit a car in the rear end, causing an occupant of the car to become a wheelchair-bound paraplegic. The underlying case was worth $5 million to $10 million. The client was a new customer, had provided a copy of his previous policy to the agent and asked for coverage. The agent stated that he saw the previous policy had $1 million primary and $4 million umbrella. According to the agent, he told the client he was only going to obtain a primary policy for $1 million and that the client was going to think about whether he wanted the umbrella coverage. Again, according to the agent, the client never got back to him on the umbrella. The client testified in the underlying action that he told the agent to duplicate his prior policy, and assumed he had umbrella coverage. Unfortunately, none of alleged conversations between the agent and the client were documented in writing. The claim was settled for the limit of the agency’s policy, $1 million.
When it comes to primary coverages, there is probably not a big question as to whether the coverage is needed or wanted. After all, the vast majority of your commercial clients no doubt need liability and auto, etc. When you meet with them, there is probably little doubt that you are to put these vital coverages into effect. However, when the topic gets around to an umbrella, this may not be an easy question for your client to answer. This involves additional expense they might not be able to afford. As they debate this in their mind, they will probably try to determine the likelihood that the “big claim” could happen to them.
In the above claim, the agent was taking over the risk from another agent. Fair to say, this happens with some degree of frequency. In this scenario, oftentimes the client may request that you “duplicate what I have … but save me money.” This is dangerous and can lead to uninsured claims — and potentially an E&O claim.
What if the customer did not have an umbrella? What if they had an umbrella but only at a $1 million level? Does that mean you won’t offer a proposal for one or provide options for higher limits in your proposal?
Take a Fresh Approach
It is highly recommended taking a fresh approach when working with a new client. Using an Exposure Analysis Checklist is a great starting point to make sure you understand the risk and that you look to identify the new customer’s exposures. There are probably very few risks (if any) that don’t have the potential to have a claim that can exceed the primary layer of coverages. As a result, including the offering of umbrella coverage in the proposal should become a standard practice.
Here’s a few suggestions to consider.
When it comes to suggesting a limit, don’t go there. There is the potential that if you “recommend” a $1 million umbrella and then the client has a significant loss where this $1 million umbrella is not enough, they could come back and question why you only “recommended” a $1 million limit. Face it, when dealing with products liability, professional liability, auto, etc., significant losses can occur. The best approach is to offer a variety of limit options with a comment that additional options are available. The customer should select the limit. It is also advisable to get their “sign off” on those limits you offered that were not selected. You may want to ask your carriers if they have had any big claims you can include in your proposal.
Is the coverage “follow form?” Are there any exclusions in the excess policy not in the primary? Both you and your client need to know.
Are any of the underlying policies written on a claims-made basis? How well does the umbrella address that exposure (underlying policies written on both a claims-made and occurrence basis)? If one of the coverages is on a claims-made basis, is full prior-acts being afforded or is there a retro date? There is a critical distinction you, as the agent, need to bring to the client’s attention.
Not all umbrella forms are the same. If getting proposals from multiple carriers, review the forms to identify any distinctions. This can be a daunting task.
If the client states “let me think about it,” document back to the client that you have not placed the coverage and if coverage is desired, the client should contact your agency promptly. Last, but by no means least, make sure the primary policies are at the required underlying limit to avoid any “gaps” in coverage. Sounds straightforward, but this type of “error or omission” does occur.
Additional Sales, Solid Protection
As with any risk, when you receive the policy from the carrier, check to ensure it reflects the requested coverages. Advise clients, verbally and in writing, that when they receive their policy they must review it to make sure everything is in order.
With the current economy, many customers are looking to reduce their expenses. While an umbrella may be “optional” in your client’s mind, offer a variety of umbrella limits on all proposals — whether the customer is new to your agency or is a long-time client. This will no doubt lead to additional sales and will serve as solid protection against an E&O claim.
Pearsall is president of Pearsall Associates Inc., specializing in helping agents protect themselves. He is a special consultant to the Utica National E&O Program. E-mail: firstname.lastname@example.org. Phone: 315-768-1534.
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