An E&O Claim - 360 View E & O Claim Overview Generally - - PowerPoint PPT Presentation

An E&O Claim - 360˚ View

E&O Risk Management: Meeting The Challenge Of Change

E & O Claim Overview

Generally Speaking E & O Claims are caused by:

Lack of Product Knowledge Inadequate Values or Limits

E & O Claim Overview E & O Claims Can Be Broken Down Into Two Categories

• Procedural Errors
• Knowledge Based Errors

E & O Claim Overview

Procedural Error Examples

• Failure to:
• Deliver a policy
• Turn in a Claim
• Add an Additional Insured
• Comply with Underwriting Guidelines
• Incomplete Information to Carrier
• Respond in a timely manner

E & O Claim Overview

Knowledge Error Examples

• Failure to:
• Inadequately Explaining Coverage
• Inadequate Values and Limits
• Misrepresent Coverage
• Failure to Duplicate Coverage
• Failure to Offer Additional Coverage
• Failure to Properly Assess Exposure

E & O Claim Overview

People Who Don’t Like You Before the Loss Will Sue You After The Loss!

• If you have an adversarial relationship with a client prior to

a claim being submitted, in the event the claim is not covered it is more likely that they will sue you.

E & O Claim Overview

Who is Suing Agents?

• Customers
• Carriers
• Third Parties
• Regulatory/Governmental Entity

E & O Claim Overview

Who in an agency is most likely to be involved in a claim?

• Producers (Failure to Identify/Recommend)
• Customer Service Agents (Claims, Apps, Certs)
• Account Managers (Failure to Identify/Recommend)
• Owner/Partner/Sole Proprietor/Principal

E & O Claim Overview

Transactions Driving Frequency

• Commercial
• CGL
• Commercial Property
• Workers’ Compensation

E & O Claim Overview

Transactions Driving Frequency Personal Lines

• Home
• Auto
• Flood

E & O Claim Overview

Transactions Driving Frequency

• Commercial Lines (Claims Made)
• Commercial General Liability
• Professional Liability

E & O Claim Overview

1 in 7 Agencies report potential E&O

Claim No Claim

~50% Reported Closed With No Defense Reserves or Indemnity Payment Made

Paid No Pay

E&O CLAIM STATISTICS

What’s Driving Claims Frequency?

40% 25% 35%

Frequency

New Busin ess Rene wals Other

• Risk assessment and

recommend

• Policy issuance errors
• Application errors
• Failure to duplicate

prior coverage

E & O Claim Overview

Catastrophic Events Can Spike E & O Claims

• Hurricane Katrina
• Wildfires
• 9/11
• Massive Tornado

Agency E&O Culture - Staff Awareness

Agency staff needs to follow procedures AND understand the concept of how E&O may occur

E & O Claim Overview

Meditation

Through quality insurance education and adopting agency procedures many E & O claims could be avoided.

• State Minimum CE Requirements are just

that….minimums

• People who know more, sell more
• Procedures save time, create proficiency, and are

great training tools.

• Avoid knowledge

E & O Claim Overview

Meditation

You can’t insure what you don’t identify

• Interview, Inspect, Use Checklists, Take Pictures
• Avoid coverage and exposure omissions
• Not only will you avoid an E & O claim your

commission income will likely increase.

E & O Claim Overview

Meditation There are avoidable losses and unavoidable losses. The E&O goal is to keep any loss you have in the unavoidable unforeseeable category.

You can be sued at any time for any reason and without fault.

E & O Claim Overview

Meditation If you currently have adversarial relationships with clients, consider helping them relocate to a different agency or company.

• If every problem is your fault before the claim it will surely

be your fault after the claim.

Understanding Agents Duties

Standard of Care

• State Laws
• Contractual Duties to

Carriers

• Common Law Duties
• Third Party Beneficiaries -

Agency Action or Inaction

Standard of Care

Determining Negligence

• 1. Did a duty exist?
• 2. Was the duty breached?
• 3. Was the breach the Proximate cause
• f the loss?
• 4. Did actual damages occur as a result
• f the breach?

Standard of Care

Negligence - failure to use reasonable care

• Doing something that other agents would not do
• Not doing something other agents would do

Standard of Care

To Whom is a Duty Owed?

• Customer
• Carrier
• Tort claimant
• Party of interest

Standard of Care

The agent serves two masters:

• Customer
• Insurance Company

Introduction

• Understanding duties owed to customers are critically

important

• These duties can lay the foundation for how your agency
• perates
• Can assist in the decision of the level of service provided

to customers

• Puts procedures in place to minimize E&O exposures for

going beyond the legal duty

Understanding Agent Duties Differing Levels of Standard of Care

Professional or Non-professional?

Understanding Agent Duties The “Special Relationship”

• Claims of Expertise
• Agreement of

Additional Compensation

• Length of Customer

Relationships

• Rendering of Advice
• Contract Review

Understanding Agent Duties

Creating a Duty Where None Previously Existed

• Payment Reminder Calls, Emails, and Letters
• Completing Audit Worksheets
• Completing Reporting Forms
• Completing OSHA Logs for Work Comp Claims

Agent/Carrier Contracts: E&O Considerations

INTRODUCTION

Agency/Carrier Contracts

Agency Carrier Contracts

Binding Authority and Processing Instructions

Agreement

• Authority
• Coverages
• Provisions

References

• Guidelines
• Applications
• Supplements

Staff

• Binding
• Processing

Agency Carrier Contracts

Licensing Appointments Binding Authority Document Retention Accounting Direct Bill Agency Bill Notification of Losses Sub-Producers Marketing Material Privacy Laws Indemnification E & O Requirement

Agency Carrier Contract

Sample - Authority

• Authority

All Lines of insurance except personal lines Personal lines policies and coverage, specialty homeowner,

personal automobile and dwelling fire

All lines of insurance The lines of insurance described below

Agency Carrier Contract

Sample - Authority

• Your authority is limited by our underwriting rules and

practices as set forth in the most recent edition of the Premium Producer and other company manuals as well as bulletins, documents and other notices as we may send to you from time to time, and by the terms, conditions and provisions set forth in this Agency Agreement.

Agency Carrier Contract

Sample – Ownership of Business

• Your records and control of expirations, including those

pertaining to direct bill business, and your work product are your property and will be left in your undisputed possession and control, provided you have paid and continue to pay all monies due us as required by this Agency Agreement.

Agency Carrier Contract

Sample – Ownership of Business

• We will not use our records of those expirations in any

marketing method for the sale, service or renewal in any form of insurance coverage or other product which shall abridge your right of ownership.

Agency Carrier Contract

Sample – Ownership of Business

• If this agreement is suspended or terminated and you

have not properly accounted or paid all premium, you forfeit all rights to your records and expirations pertaining to insurance policies written with us. (Includes computer records, lists and backups)

Agency Carrier Contract

Sample – General Duties and Responsibilities

• You are responsible for sending us accurate and complete

applications.

• You will report to us in advance any change in the form of

legal entity under which you do business.

• You will promptly report and process all claims to us.

Agency Carrier Contract

Sample – Direct Bill Premium Collection

• You will remit to us the initial premium in gross, without

deduction of commission, with each completed application.

• We will bill the policyholder for all renewal and additional

premiums.

• We will promptly compute and remit applicable

commission to you following the close of each month.

Agency Carrier Contract

Sample – Agency Bill Premium Collection

• You are responsible for colleting & remitting all premiums,

including audits.

• You will pay your monthly account and ensure your

payment is received by us not later than 45 days from the last day of the account month, whether or not such premiums are collected by you.

Agency Carrier Contract

Sample – Agency Bill Premium Collection

• Upon your request we may collect additional premiums

developed by final audit, except cancellation audits if:

• You return the audit for collection within 60 days
• You have made a good faith effort to collect

Agency Carrier Contract

Sample – Hold Harmless

• We agree to defend and hold you harmless from claims

caused by our error or omission in the preparation, handling or servicing of direct bill policies.

Agency Carrier Contract

Sample – Hold Harmless

• We agree to hold you harmless against civil liability for

damages and expenses, including defense costs as a direct result of our error or omission arising out of:

• Preparing, processing or handling any insurance contract,

application for insurance or billing procedure covered by this agreement.

• Our failure to comply with any applicable law
• Our inspection services or surveys or those of our sub-

contractors

• Our services or the services of an independent adjuster

we hire…

Agency Carrier Contract

Sample – Hold Harmless

• We will not protect you to the extent you contributed to or

caused the error or omission

• We will not hold you harmless when incorrect information

you provide us results in an adverse decision

• You must notify us promptly if anyone makes a claim or

files suit against you based on our error or omission

• We will not hold you harmless if you admit liability

Agency Carrier Contract

Sample – Termination

• We may terminate agreement with 180 days notice
• For any reason not prohibited by law
• Change of ownership more than 50%
• Change of legal entity
• If you fail to comply with the terms of this agreement
• Agency Agreement automatically terminates without

notice if the agency files for bankruptcy or bankruptcy protection

Agency Carrier Contract

Sample – Miscellaneous Provisions

• Compliance with Applicable Law
• Advertising – No authority to employ, reproduce, display
• r use our trademark, service mark, logo or other

identifying symbol in any manner whatsoever with written consent

Agency Carrier Contract

Sample – Miscellaneous Provisions Privacy – Company agrees to keep agency information private

• You agree not to disclose confidential information

including but not limited to:

• Customer information (All)

Driving records, names, addresses, loss history, policy limits

Agency Carrier Contract

Sample – Arbitration of Contract Disputes

• If a dispute arises we agree to make every effort to meet

informally and settle our dispute in good faith.

• You and we may agree to submit the dispute to one

arbitrator, otherwise there will be three

• Determination by arbitrator shall be final binding on all

parties

• The cost of arbitration shared equally

Agent/Carrier Relationships: Law Of Agency

Introduction

Agent

Carrier Carrier Client Carrier

Establishing An Agency Relationship

The Law Of Agency

Agent

Insurance Agents have duties to both the carrier and the customer, but never simultaneously.

The Law of Agency

Obligation to Company

• Fiduciary
• Loyalty
• Honesty

Like Marriage Vows

• Love
• Honor
• Obey

Obligation to Customer

• Proper Coverage
• Adequate Limits
• Prompt Communication

Good Business Practice

• Right Policy
• Right Limits
• Transparency

Compliance with State & Federal Laws

Introduction

Compliance with State/Federal Laws

Non-Compliance Opens the Agency Up to:

• Fines
• Loss of License
• Potential Criminal Penalties
• Damage to Reputation
• Loss of Customers

State Laws

Unfair Trade & Claims Practices:

• Deceptive
• Misleading
• Misrepresentation
• Defamation
• Twisting
• Discrimination
• More

South Dakota – Chapter 58-33 & 58-33-67

State Laws

Unfair Claims Practices:

Communications Deny or Affirm Claim Payments Misrepresentation

Federal Laws

Fair Credit Reporting Act (FCRA) Motor Vehicle Records Credit Reports – Credit Scoring

Federal Laws

Gramm-Leach- Bliley Act (Financial Services Modernization Act of 1999)

Federal Laws

Sarbanes-Oxley Act (SOX)

Federal LAWS

Electronic Signature in Global and National Commerce Act (ESIGN)

Federal Laws

Telephone Consumer Protection Act (TCPA)

Federal Laws

CAN-SPAM

Unwanted Emails Advertising

HIPPA

Security of Health Data

Reporting an E&O Claim

Introduction

Myths vs. Reality

The Cost of Reporting

Cost of Reporting Cost of Not Reporting

Concerns of Loss of Policy Premium Credits

When It Happens To You

• Do not admit liability
• Be empathetic
• Do not discuss or provide copies of your E&O

policy to anyone

• Do not offer to pay the claim yourself
• Do not agree to give a deposition or provide a

statement

• Report
• Forward
• Cooperate

E&O Carrier

• Involve
• Appoint
• Interview
• Narrative

Agency

Attorney

“If they are not your attorney, they are not your friend”?

Documentation Can Reduce Deductible

Agency 50% Swiss Re 50%

Agency Defenses: Documentation

Agency Documentation

Avoiding the “He Said” / “She Said” arguments

Let the File Tell the Story

• Prospect
• Marketing Information
• Applications
• Quotes
• Proposal
• Acceptance or Declination
• New Business
• Order to Issue
• Policy Received
• Policy Checked
• Policy Delivered

What Makes Documentation Complete?

Who What When Why Where How

What types of communications should be in the customer file?

• In-person

Discussions

• Phone Calls

(landline and mobile)

• Emails
• Instant Messages
• Live Chats
• Faxes (traditional

and electronic)

• Text Messages
• Websites
• Social Media
• Voice Media

Characteristics of Proper Documentation

Clear, Concise, Consistent No Jargon Unalterable date/time Recreate the Transaction

Same System and Procedures

Policy Information and Transactions

Things To Avoid

Claim Opinion Going to Bat on Denied Claim Personal Asides and Comments E&O Claim Information in Customer File

Customer File

New Business Renewal Limits & Values Checklists Claims Endorsements

Documentation And Your Deductible

50% 50%

Up to $12,500 Reduction

Reduce Retain

Electronic vs. Paper Files

Admissibility of Electronic Files

• Electronic more credible
• Date and time embedded
• Copies not necessary
• Scanning viable
• Secure personal information

Electronic Signatures

ESIGN enacted in 2000 Electronic legal and enforceable Federal Law

Customer Sign-off, Acknowledgement Forms, and Written Follow-up

Exposure Coverage Offered Declined Documented

Signed Applications

Use Of Disclaimers

• Voice Mail
• Website
• Fax, Email and Instant Message
• Claims Reporting
• Social Network
• Proposal

NO BINDI NG

Read Your Policy

Customer File Retention

Documentation Retention Considerations

• Agency Policy, Carrier Requirements &

Legal Obligation

• Electronic files should be purged
• Good documentation saves / Poor

documentation sinks

• Personal Information required to be

protected

Disposal Of Customer Files

Use Qualified Document Destruction Company

The Role of Agency Procedures

Introduction

Documentation Good Procedures Improved Customer Service Efficient Operation Audited for Compliance E&O Claims Defense Good Policies

What are “Invariable Practices”?

Why are “Invariable Practices” Important?

Procedure Manual: Training Tool

Procedure Manual: Reduction of Operating Costs

Procedure Manual: Employee Evaluation

Procedure Manual: Agency Operations Audits

E&O Issues of Certificates of Insurance

Introduction

While there are a number of issues that can create E&O claims, one of the most common errors made involves agencies using the certificate of insurance as a way to add additional insureds without formally contacting the carrier to add them by endorsement

Certificate

What is a certificate of insurance?

• Informational – snapshot only
• It is for general informational purposes only and

confers no rights

• It is subject to all of the terms and conditions
• f the various policies shown

Certificate

What isn’t a certificate of insurance?

It does not:

• extend any contractual rights to the holder not

provided by the policy

• represent compliance with any contracts entered

into by the insured with others

• amend, extend or alter coverages or terms afforded

by the policy

E&O Exposure

Why the increase in E&O exposure:

Demand Complexity Frequency

E&O Exposure

Why the increase in E&O exposure:

Qualifications Pressure Litigation

Certificates of Insurance: Should You Be Concerned?

Certificates

Didn’t Exist AI Not Ordered OK

Settlements:

• $445,000 no contract,

no coverage

• $180,000 no AI

endorsement

• $10,290,000 no WC

bound

Certificates of Insurance: ACORD

• ACORD’s licensing agreement requires

new form editions to be used no later than one year following publication

• This may require upgrading agency

management systems

• Never issue “blank” certificates that do

not show certificate holders

Certificates of Insurance: Requests for Specific Language

Certificates of Insurance: Cancellation, Nonrenewal, and Material Change

Insurance is primary and all others are non- contributory Primary and noncontributory additional insured coverage provided by general liability, auto and workers compensation insurance Should any of the described policies be cancelled or materially modified, the insurance company will mail 30 day notice of cancellation to the certificate holder.

Certificates of Insurance: Reviewing Contracts

Certificates of Insurance: Sending COIs to Insurers

• Send them. Next question?
• Marlin v. Wetzel (WV Sup. Ct., 2002)
• Erie v. NGM (NY trial court, 2009
• “Our internal procedures and our legal

counsel require that a copy of all certificates be sent to our carriers.”

• Some AI endorsements are triggered by

the receipt of the certificate by the carrier.

Certificates of Insurance: Solutions for Agencies

Education Procedures Job restructuring Service, not servitude

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