E&O Insights: Big Trucks Can Cause Big E&O Claims

Travel most any highway and it will appear that the trucking industry is healthy. Moreover, many insurance professionals are optimistic about the future of the trucking market. While this potentially provides insurance agencies with some significant opportunities, it is vital for agencies to recognize that trucking is not just any type of an account. With significant business opportunities comes significant potential for big claims. Ask most errors and omissions (E&O) liability carriers and they can readily identify some E&O claims well in the $5 million-plus area.

If your agency’s appetite includes adding trucking risks, it makes sense to brush-up on the exposures this class of business presents, while performing the necessary preparation and homework required.

Know the Risks

When one thinks of trucking, the auto exposure comes to mind. However, other exposures this class presents include property – real and personal – as well as liability, inland marine, crime, workers’ compensation, etc. In addition, not all trucking accounts look the same. For this reason, a great starting point to understand this class, and your specific risk, is using one of the industry’s many exposure analysis checklists. These checklists not only provide a tremendous amount of information on the overall profile of the class of business, but also provide a thorough review of the exposures by line of business. It is important that agents possess the knowledge and know what questions to ask to truly understand the risk and any uniqueness it presents.

For example, does the account do repair work, welding, spray painting, etc.? If so, how are the various combustibles stored? Do they have fuel pumps on location? Because truckers depend heavily on fuel, they may have a contingent exposure if one of their suppliers suffers a loss.

In addition, many of the larger trucking risks have become extremely advanced in their use of technology to manage their fleets, so inquiries regarding this exposure should be conducted.

Documentation is Key

As noted by the following claim, solid documentation (or lack of it) could make the difference if an E&O claim developed.

This E&O claim was filed against the agency based on the allegation that the agency negligently deleted the wrong vehicle from the trucker’s commercial auto policy. Several months following the coverage change, the agency’s client was involved in a serious motor vehicle accident. The carrier denied the claim because the vehicle was not listed on the trucker’s commercial auto policy.

The trucker maintained a large fleet of commercial trucks (more than 30), so coverage changes were commonplace and the agency was regularly involved with issuing insurance cards. In this case, the trucking client had sent an email that suggested that the agency should remove a truck from the commercial auto policy. The trucker now states that the email was simply to advise that the company did not need an insurance card for the vehicle and that the agency was not instructed to remove the vehicle. At this point, it appears that the E&O claim will come down to a swearing contest between the parties as to what each intended.

What should the agency have done differently or better?

The lesson learned from this claim is that when agencies are dealing with high-volume, large accounts, the recordkeeping needs to be flawless. In addition, the agency must be extremely effective in properly communicating coverage changes to the client, as well as communicating the status of a client’s coverage at any given time.

Understand the Exposure

There are several other exposures this type of risk presents. It is important to deal with a carrier that has a history in this class of business and understands the class. Oftentimes, these carriers will provide additional services such as loss prevention to minimize the exposure and the potential for loss. It is possible, too, that these carriers have developed policy forms specifically designed for the exposures present.

Theft is a major issue when it comes to the inland marine exposure, so it is crucial to completely understand the exposure. There will likely be a need for some type of business income coverage as well, depending on the risk. For smaller trucking risks, the issue may involve extra expense coverage to help pay the additional expenses required to do business when a covered loss damages or destroys insured property.

Offer Various Limit Options

Trucking risks present significant severity potential. To address this, offer these risks a variety of limit options, including multiple umbrella options. This forces the customer to choose what limit he or she wants and, as a result, the limits that are declined. This approach will be a solid defense should a major claim occur and the insured alleges you had not provided the proper coverage.

When providing an umbrella, be sure to satisfy the underlying limit requirements. While this may sound like common sense, this issue (a gap between the underlying and the umbrella) has been the cause of many E&O claims.

Bottom line, not all trucking risks are the same, so it is vital to understand the class of business and the specific exposures of your account. Using the available tools will go a long way toward ensuring that big trucks don’t become a big E&O headache.