Closer Look: Producer Liability

Keeping up with increasing liability as clients expand

Property/casualty insurance agents and brokers are being exposed to more lawsuits as they move into unfamiliar products, states and technologies, and as their own clients do the same. In the eyes of customers and juries, agents and brokers are 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 property casualty agents and brokers at the Professional Liability Underwriting Society’s 2005 International Conference.

Liability issues arise where property casualty agencies decide to broaden their services by offering long-term care, disability, annuities and investment products and 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.

Adequacy of training

The problem is that some agents do not invest the time needed to educate themselves on financial products and how they meet customers’ needs. They get licensed, take cram classes and earn continuing education credits, but they do little else, Davitt said. “We’re seeing this more and more in some of the smaller P/C agencies where they are trying to get into other lines. It’s strictly a commission business. They don’t have the time because they have to pay the bills,” Ruggles agreed.

Sally Combs, who manages producer E&O claims for Fireman’s Fund, questioned whether an agency’s size indicates 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 in-house, whereas a smaller agency might be hard-pressed to have the expertise for “one-stop” shopping.

Davitt agreed that it might be a safer route for larger agencies since they might have more experienced people to help junior producers.

E&O underwriters do 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 companies represented. Some are better at training both after licensing and when they introduce new products. “Underwriters need to look at this,” Frieri said.

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. Clients are increasingly multi-jurisdictional, and their businesses and transactions are becoming more complex.

“The business climate for their insureds is changing. Are agents keeping up with that?” Ruggles asked. “Are they doing their due diligence and researching what the needs of their clients are?”

“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, who has seen this arise in the area of workers’ compensation.

Panelists urged agents to meet at least semi-annually with clients to review their businesses and learn what they are doing and where. Know what states and countries business is being transacted. Keep up with the regulations and liability climates in those jurisdictions. “You need to really know your clients,” Fisher said.