Insurance agents and brokers have long been targets of error and omission lawsuits. It’s also true that most agents and brokers have sought advice of counsel as to how to win a lawsuit. They will often be told that the duty of an insurance agent or broker is to simply be an order taker, i.e., that they should utilize their best due diligence to obtain the coverage requested. So as to avoid enhanced standards of care, they probably will also be told not to offer advice, not to provide risk management advisory services or analysis, and not to make representations or promises they can’t keep. The standard of care in most states is that agents and brokers are not obliged to make recommendations or provide advice.
While this is certainly true, is this really the best course of action? Will it allow you to win a lawsuit or will it prevent one? Is this advice from counsel even practical?
The fact is, if all you did was obtain the coverage requested, and offered no advice or counsel whatsoever, the chances are that a claim against your client that might otherwise have been covered is going to be denied. Thus, there is a high probability you will, in fact, be sued anyway.
Which is better: winning a lawsuit or not having one at all?
Most insurance agents or brokers already know more about insurance than the average consumer simply by having passed the state examination (not to mention taking required pre-licensing courses). So how can the average consumer ask you to obtain the appropriate coverage they might need? How could they even understand or read an insurance policy to determine whether that which has been provided or been quoted will meet their expectations?
As we all know, there are even a lot of attorneys that can’t understand insurance policies!
Insurance is far more complex than it was when I first started my career in the insurance industry in 1975. Back then, a typical business needed only a handful of insurance policies: a Commercial Property policy, Commercial Liability policy, Commercial Umbrella policy, Workers’ Compensation, and perhaps employee benefit coverages such as major medical insurance etc. That was about it. Most policies were written on an occurrence basis and, more often than not, they were written using ISO standardized forms, which everybody knew and had studied in order to even obtain a license.
Those days are long gone! In addition to the foregoing five policies, businesses may need Environmental Liability insurance, Employment Practices Liability, Directors and Officers Liability Coverage, Tech & Media Liability, Errors & Omissions Liability Insurance, Cyber Liability, and other sophisticated coverages. In addition, these policies are written on a “claims made” basis, as opposed to an occurrence basis, adding to the complexity. Such complex coverage triggers include claims made forms, or claims made and reported forms, some with prior act limitations, prior pending and continuity limitations and reporting requirements. Many of those policies or trigger issues didn’t exist in 1975 but they sure do now!
Once again, any insurance agent who has been in the business for any length of time is going to know more about those coverages than the average consumer. Offering no advice, and being only an “order taker” from someone seeking coverage that obviously knows less than you do hardly seems the best route to a happy customer.
So how do you avoid litigation and still provide your clients with what they may need? That’s the dilemma facing the insurance agent or broker who could win a lawsuit by giving no advice, but can avoid a lawsuit by doing so.
How many times have we heard from an aggrieved policyholder that his agent “promised him the best coverage” or the most “complete coverage” available? How often have we heard customers say that they wanted to be covered for “everything” and weren’t? Obviously, it is impossible to be covered for everything, and it is impossible to have limits equal to every potential loss. That’s simply not obtainable even if it could be afforded.
Then how should you deal with such situations especially when a client says, “I want to be covered for all my exposures and I want the best policy possible?” Obviously that needs to be addressed and answered as opposed to merely being shrugged off.
Most lawsuits against Insurance agents and brokers arise from inadequate training, lack of uniform policies and procedures, lack of consistency, time constraints, and a principal failure to communicate. It boils down to providing reasonable financial security and explaining the coverages and exclusions to your customer. Providing financial security is the key. You can only do that by really delving into the insured’s needs and explaining how you can or can’t satisfy them especially when they balk at a price.
Typically only an experienced agent or broker is familiar with the ins-and-outs of insurance, or the types of things that can and often do take place. If you do everything possible to avoid what can go wrong, you won’t be sued. This includes delinquency on premium payments, making sure all contingencies are obtained prior to binding, or even asking the pertinent questions when you hear the usual, “It’s simply a name change nothing else has changed.” Businesses don’t change names; they change structure. Failure to delve into that could give rise to insuring an entity that no longer exists while not insuring the one that does.
When we don’t give advice, we don’t avoid losing a lawsuit. What’s better, fighting it out or not having a lawsuit at all?
Note: Fisher is hosting an Insurance Journal Academy of Insurance webinar, Agency Best Practices: Avoiding E&O Claims, on Thursday, March 22 at 10:30 am PT/1:30 pm ET.
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