Producers’ own liability grows as they and their clients expand
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Property and casualty insurance agents and brokers are being exposed to more lawsuits as they move into unfamiliar products, states and technologies, and as their clients do the same. Cus-tomers and juries see agents and brokers as experts who should be held responsible if mistakes occur.
“There is increased pressure to be an answer or expert to the evolving risks that change with companies as they grow and become diverse,” noted Mark Ruggles of Calsurance.
Ruggles moderated a panel on the subject of the evolving role of P/C agents and brokers at the Professional Liability Underwrit-ing Society’s 2005 International Conference in Boston.
Liability issues arise where P/C agencies broaden their services to become “one-stop” shopping centers for their clients.
“We see this a lot,” said Philadelphia attorney Andrew Davitt, with Marshall, Dennehy, Coleman, Warner & Goggin, who represents agents and brokers.
The problem is that some agents do not invest the time and energy needed to fully educate themselves on their expanded products and how they meet their customers’ needs. While they pass the exams to get licensed and take classes to maintain their continuing education requirements, they do little else, Davitt has found.
As the “one-stop shopping” trend continues, underwriters of agents’ errors and omissions coverage have it on their radar.
Sally Combs, who manages producer E&O claims for Fireman’s Fund, said an agency’s size might have some bearing on how successfully and safely it can diversify.
Aon’s Mary Pat Fisher noted that a larger agency or a career agency with a company is more apt to have a specialist on board whereas a smaller agency might be not have the expertise for “one-stop” shopping.
“There’s probably a big difference between your really large career agency shops versus your smaller agencies,” Fisher said.
E&O underwriters consider the quality of the training available to agents, according to Frank Frieri, Arch Capital. He said the quality could depend on the insurance or investment firms being represented. Some are better than others at training both after licensing and when they introduce new products.
Clients’ business climate
An agency becomes vulnerable to new E&O exposures not only when it expands into new fields, but also when its clients do.
“The business climate for their insureds is changing and are agents keeping up with that?” Ruggles asked. “Are they doing their due diligence and researching what the needs of their clients are.”
Clients are increasingly multi-jurisdictional and their businesses and transactions are becoming more and more complex.
“The issue for the producer is not only staying on top of what their clients are doing in terms of where they are operating but also understanding the implications of that environment and those jurisdictions,” advised Combs.
She pointed out a situation where an agent may write a policy for a client headquartered in his own state and assume any employees the client has in other states were sent there temporarily. The agent assumes the “all states” en-dorsement will suffice. But if those employees are hired and domiciled in other states, it does not apply. She warned that too many agents assume that employer’s liability protection is automatically included in statutory workers’ compensation policies in all states but there are states where it needs to be purchased separately.
Panelists urged agents to meet at least semi-annually with clients to review their businesses and learn what they are doing and where. Agents should ask in what states and countries business is being transacted, and keep up with the regulations and liability climates in those jurisdictions.
Increase in lawsuits
Panelists maintained that lawsuits and claims against agents and brokers are increasing.
“One that we’re seeing more and more pop up is for breach of fiduciary duty and always thrown in there is a negligence claim,” said Davitt. While the agent community has not been the focus of the trial bar in the recent past, that could be changing. “The plaintiff bar is very creative,” he warned.
The most important thing an agency can do to defend itself against lawsuits is to document everything. Agents should maintain a paper trail of transactions and communications; even go so far as to print out e-mails.
“An agency without documentation is at a severe disadvantage,” stressed attorney Davitt.
“A jury perceives the client as a victim. They could be lying through their teeth but it doesn’t matter,” said Combs, agreeing that documentation is critical.