Agents: Document, Document, Document
When I sold my agency in 2001, I moved to Florida and started buying shopping centers. Hurricane Frances almost destroyed the center I acquired across from the beach one day after my first renewal. My agent had originally written the wind coverage through Citizens Property Insurance Co., Florida’s carrier of last resort. Just prior to placing the first renewal, he negotiated better wind coverage terms with another carrier through a regional broker. A binder was issued, and premium was paid in advance of my renewal.
A few days after filing my claim, my agent informed me that somehow the broker had failed to procure the wind coverage. Despite the binder in my possession, the new carrier was denying my claim. I liked my agent, but self-insuring a million-dollar loss was not an option for me.
The quality of my agent’s documentation would determine the question of which errors and omissions policy would ultimately cover the loss.
In my work as an expert, I’ve found that agents who keep organized files with detailed notes are generally the ones who avoid situations that lead to E&O claims. And when a claim without merit is filed, documentation (or lack thereof) generally determines the outcome.
Several basic techniques should bolster an agency’s paper trail if they find themselves in a situation like the one my agent encountered:
Coverage checklists should be used when writing any new piece of business. The use of a checklist helps the agent distinguish his proposal from others the client may consider by making suggestions that demonstrate the value he adds as an insurance advisor. When reviewing another agent’s work, I sometimes find that named insureds are incomplete or totally inaccurate. Your checklist should include basic questions such as requesting copies of vehicle registrations or the names that appear on deeds and titles.
I recommend that any checklist be initialed or signed by the client, particularly if any of your recommendations have been declined. The existence of a signed declination will stop an E&O claim in its tracks. Your carriers or agents’ associations have developed checklists that you can use.
Renewal questionnaires promote an annual review of policy limits and additional coverage that may be needed. Your questionnaire should help you determine the need for changes in property schedules or the introduction of new operations. Has the insured acquired real or personal property you aren’t aware of? Have additions or improvements to real property been made during the year? Are vehicle schedules current? Do payrolls reflect anticipated exposures? Are all the states where the insured does work properly scheduled? I suggest you mail these questionnaires well in advance of the renewal. There is tremendous value in your clients’ response if the answers they give are properly handled. You’ll often sell additional coverage (and therefore book more commissions), and you won’t be guilty of agent neglect.
Coverage summaries are often used, particularly on commercial accounts. I recommend the use of a format that has been reviewed by somebody’s legal department. Summary forms developed by carriers or trade associations will often include valid disclaimers, as well as language regarding policy limitations and exclusions. Policy exclusions offer the agent an opportunity to book more premium, so use these summaries to quote additional needed coverage. A thoughtful summary with quoted options can insulate the agent from many E&O exposures.
Phone logs are a powerful way of supporting your side of a he-said/she-said claim situation. Simply note the date and time of any substantive discussions into your log, along with a brief description of any decisions or promises made.
Letters and e-mails should be used to document important matters. In the case of my wind storm claim, my agent had sufficient copies of letters and e-mails demonstrating the broker’s written confirmation of coverage through the replacement carrier. And clients will sometimes reconsider a decision after receiving a letter confirming their failure to follow your advice.
Web site commentary can be used against you in a court of law. Insurance agents are salespeople, and the jargon they use on their Web sites is cannon fodder for plaintiff’s lawyers. Statements such as “we can assist you in selecting the best coverage for your situation, provided by highly rated, financially secure companies” … impose a higher standard of care than you might otherwise be held to. Keep your Web sites informational and avoid language you might regret.
Demand consistency in the way producers and service representatives communicate to the outside world. The use of these various forms and techniques should be part of everyone’s job description. By demonstrating consistency, you establish business practices that meet an acceptable standard of care.
Agents who emphasize good business practices generally experience greater profitability. More coverage is written, lower E&O premiums result, and client retention is greater.
As for the outcome of my hurricane claim; as fortune would have it, my mortgagee unwittingly paid a renewal invoice submitted directly to them by Citizens Insurance Co. So my agent and I celebrated that stroke of luck over a quality bottle of Cabernet.