A Dozen Ways You Can Be TOO Good at Your Job
Most agent errors and omissions (E&O) policies cover claims that arise from “professional services.” This term is usually defined in the E&O policy to be something like “activities as an insurance agent or insurance broker” or “services rendered as a managing general insurance agent, general insurance agent, insurance agent, or insurance broker.”
Some E&O policies may include coverage within the policy or by endorsement for related services such as teaching an insurance course, providing notary public services, insurance consulting and expert witnessing, agency advertising activities, claims adjusting services, etc.
Note the use of the word “insurance.” In general, E&O policies cover activities that are reasonable and customary for individuals selling or servicing insurance policies. For example, “professional services” likely does not include the provision of legal advice beyond a discussion of insurance contracts, which is one reason why agents must be very careful in responding to questions and issuing certificates of insurance that warrant compliance with noninsurance contracts.
Likewise, while mistakes in property valuation or law or ordinance coverage are errors common in insuring property, providing advice about compliance with building codes or laws unrelated to insurance is quite possibly an activity not covered by most E&O policies.
So, why is this an issue? One of the earmarks of a good customer service representative (CSR), or producer for that matter, is a desire and commitment to providing excellent service to prospects and customers. The problem is that, in doing so, an agency staff member may go beyond the call of duty or expertise and, as a result, beyond the coverage of the agency’s E&O policy.
Over the years, I’ve received hundreds, maybe thousands, of inquiries from agency personnel about whether something they have been asked to do is appropriate. The same is true of David Thompson, CPCU, AAI, API, CRIS, insurance educator and consultant. Together, we came up with 12 real examples of situations that might possibly result in an uncovered E&O claim.
12 ‘TOO Good’ Scenarios to Consider
- An agency customer visited the agency to discuss something with her CSR. The customer was renting a cabin for a week and, given that her CSR was “so smart and helpful,” she asked her to review the rental agreement, not from an insurance coverage perspective, but just from the standpoint of whether it was a good idea for her to sign it.
- An agency insured a condo association. One of the unit owners hired a general contractor to remodel the unit. The general contractor hired a plumber to repair a leaky pipe in the unit. The plumber sent an invoice to the condo association and they paid it. The general contractor then sent an invoice to the condo association for his 15% “supervisory” fee. The condo association contacted their insurance agent and asked whether they should pay the invoice.
- An agency insured a customer’s golf cart on a recreational vehicle policy. The customer contacted their agency CSR to inquire about whether it was legal for them to operate the golf cart on public roads and, if so, did the vehicle have to be licensed. The CSR contacted David Thompson and asked him to confirm the information she had researched so she could provide it to the customer.
- A homeowners association asked their agent if the community swimming pool must comply with the Americans With Disabilities Act.
- A commercial lines customer was buying a building and wanted his agent to tell him if building or fire codes required him to install a fire sprinkler system.
- A customer contacted her agency CSR about cancelling her personal umbrella policy after someone told her that her wages could not be garnished if she was sued. She asked the CSR whether her wages could or could not be garnished, and the CSR contacted her state agent association for their answer.
- A business owner whose personal and commercial lines accounts were written by the agency owned a car that he wanted to lease to his business and insure on his business auto policy, a reasonable coverage question. However, the actual question to the agent was if he had a sample lease the customer could use.
- An agent contacted his insurance trade association to obtain a sample hold harmless agreement he could give his general contractor customer for use with his subcontractors.
- A condo association contacted their agent and asked whether the cost to tear out dry wall in a unit to repair a deteriorating, but not yet leaking, water pipe should be paid by the association or the unit owner. There was no insurance claim of any kind.
- A personal lines customer’s 19-year-old son lived at home with his parents. He wanted to transfer the title to a vehicle owned by the parents and insured on their personal auto policy to the son and place it and the son on a low-limit auto policy. The father wasn’t asking if this was a good idea from an insurance standpoint … the question was whether the parents could be sued if the kid injured someone.
- A prospective customer was starting a business with a friend and asked the agent if they should operate as a partnership, LLC, or corporation.
- Finally, a personal lines customer called his agency CSR to ask, if he was sued, could the plaintiff access his IRA and the cash value from his life insurance policy. The agent contacted his agent trade association for the answer. Neither the agent nor his trade association should be answering a question like this.
Sometimes it’s difficult to say “no” but it’s necessary. Failing to do so may create an E&O exposure that didn’t exist until the question was asked and create problems for customers. In a 1933 lecture, Albert Einstein, paraphrased, said something to the effect that, “Everything should be made as simple as possible, but no simpler.” Similarly, from an E&O perspective, agency staff should be as helpful as possible, but not too helpful.
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