How to Help Clients with Disaster Claims

In an online discussion on agency errors and omissions (E&O) exposures following Hurricanes Harvey and Irma, Florida Association of Insurance Agents’ (FAIA) David Thompson, insurance educator for more than 20 years, and Dan Britto, professional liability attorney with the law offices of William W. Price, P.A. of West Palm Beach, Fla., offered tips on what not to do following a catastrophe.

Below are excerpts from the hour-long discussion. The full discussion, moderated by Insurance Journal’s Academy Director Patrick Wraight, can be accessed here: “After the Storm: Preventing Agent E&O Claims in a Disaster.”

Patrick Wraight: What coverages, if left unaddressed, can create some of the bigger E&O exposures for an agent?

David Thompson: The top three things that we most commonly see are business income and extra expense, especially relating to utility failure, which is always our top E&O driver, and screened enclosures over pools, or what we would call a pool cage in Florida. … Those three categories probably make up 30-40 percent at least of our typical E&O claims.

Wraight: How should coverage conversations be handled with an agent and insured following a catastrophe?

Dan Britto: After the storm, I tell agents to keep their conversations about what’s covered to an absolute minimum. I see a lot of agents post-storm basically make a coverage opinion in writing whether it be in an email to the customer or they’re arguing with an adjuster thinking the adjuster is wrong.

If it turns out the insurance carrier is right and something is not covered, the agent’s email, where he’s trying to help out his customer, basically is an admission that he or she did not know what the coverages were in the policy that he was selling. The time to have that conversation with your customer is obviously before the storm hits.

Afterwards you’re going to have a lot of phone calls saying, “Is this covered? Is it not covered?” My advice to agents is report the claim. Let the insurance adjuster do their job. Do not put on an adjusting hat and try to play adjuster because it can only end bad.

Wraight: When it comes to business income (BI) and extra expense (EE) coverage related to off-premises utility loss of power, a lot of times that cause of loss is not going to be covered, right?

Thompson: Correct. There are three endorsements to fix that. One is the direct, one is the time element and one is for spoilage. … A lot of folks, anything dealing with food, flowers, pet shops, those are critical endorsements that need to be on a policy.

Wraight: What advice do you have for an agency that can’t locate the off-premises BI and EE?

Britto: If they feel like it’s an important coverage, and I would say it is, have that discussion ahead of time. My caution would be to say, “My agency can’t get this particular type of coverage for you. But we think it’s an important coverage and you may want to consider.”… That might steer someone to get a quote from one of your competitors. But the case law in Florida is if you tell a customer that a particular type of coverage is not available, and it turns out it is, even if it’s on a surplus lines market and the premium is pretty high, you’re still on the hook for giving bad advice and you could have an E&O claim. …

Be very careful using definite (language) like, “This coverage is simply not available.” What you’re representing is it’s not available anywhere in the insurance universe. A sophisticated plaintiff lawyer will find it somewhere, even at a ridiculous price and I can assure you in the plaintiff’s deposition they’ll say, “I absolutely would have bought it if I wasn’t told it didn’t exist.”

Wraight: Should all losses be reported to the carrier no matter what?

Britto: From the E&O ivory tower, the answer is yes. I know the reality, especially with agencies that do a lot of residential work, it’s a volume practice and you don’t want to lose a bunch of clients because they get canceled because they had a claim and they never got the first dollar for that claim.

The attorney answer is yes. If I take off my attorney hat and say, “From a practical matter, what do you do in that situation?” You educate your customer and say, “This is your deductible. If you have a contractor that says this is a minor fix, then the decision is yours whether to report it or not. Here we recommend that you report all claims.”

You have to advise your customer to report it. If they choose not to report it and you have that documented in an email or in your agency activity notes, I can run with that… but you better make sure that the customer understands that you’re recommending all claims be reported.

Thompson: Not picking on our industry, but sometimes we do it to ourselves. The policy says, “practically report all losses.” We do that. We do what we are supposed to do and then we get nonrenewed. That’s the problem. I don’t have the solution and it’s a horrible position to be in.