Burand’s Agency E&O Blog: Tip #33

E&S Binding Limits. Extremely few, if any, retail agencies have any binding authority whatsoever with their E&S brokers.

This is such a simple E&O tip that most readers probably see it as a complete waste of blog space. My field experience is that a considerable deterioration of knowledge relative to binders has occurred including how some agency staff and producers do not know their agency cannot bind E&S risks under any circumstances. Only the broker or insurance company can provide a binder. The agency cannot even tell the insured, “We’ll bind it.” This means the agency is binding it and the agency has no binding authority. These nuances may be critical in a lawsuit. More properly, an agency might state, “We’ll ask the broker to bind it and if they do, we’ll send you a copy of their binder.” Always use their binder. Never retype their binder onto your form.

The key point that has led to the Dark Ages of binder knowledge is that too many people within the industry no longer understand that a binder is a contract of insurance. It is not evidence or a certificate. Therefore, a binder contains contractual ramifications and if an agency has no authority to write a contract, as is the case with E&S brokers, but they do so anyway, the E&O exposure may be huge.