Agents are often asked by clients to provide a new policy to replace a similar policy. When doing so, it’s important for the agent to ensure the new policy meets the same or revised coverage needs of the client. Both the agent and the client cannot assume that a replacement policy will provide the exact same coverage as the original policy.
The claim example below illustrates how a mistake in replacing coverage contributed to an E&O claim being filed against an agent. Review this claim and the following E&O Prevention Tip to help reduce your E&O exposures.
Description of Claim: An agent bound a Multi-State Commercial General Liability policy for his client, a contractor. The contractor performed work in a variety of states, including California. Prior to placing this coverage, the contractor had coverage that did not have any exclusion for work performed in California. However, the new coverage was placed with a surplus lines carrier that had an endorsement attached to the policy which excluded any operations performed in California. When the insured reported a claim to the carrier, it was denied due to the exclusion for work performed in California. The insured was sued for work defects and damage resulting from these defects.
Estimated Claim Cost: $38,000.
E&O Prevention Tip: Have a thorough understanding of the client’s original policy and what coverage requirements are expected in the replacement policy. Ensure both you, the agent, and the client agrees the new policy provides the coverages needed.