Providing Adequate Coverage
When it comes to selecting an insurance policy, defining exactly what constitutes adequate coverage is important. Insurance agents should be aware that customers sometimes are unfamiliar with what questions to ask or even what kind of insurance to ask for. As an insurance agent, it’s important that both you and your customer have thoroughly discussed the insured’s needs so that the best policy is selected. The claim example below illustrates how a lack of providing adequate 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 sold a homeowners policy to a newlywed couple who had just purchased their first home. About a year later, the home was completely destroyed by a fire. The couple decided to rebuild their home and discovered a new city ordinance requiring the home to be rebuilt using a higher grade of electrical wiring. Because the homeowner's policy only provided coverage to replace the home in its original state, meaning the original wiring, the couple was required to pay the extra charge for the new, higher grade wiring in order to complete the rebuild of their home. The couple filed an E&O claim against the agent alleging they were led to believe their policy provided adequate coverage to restore their home in the case of destruction. The couple maintained that the agent did not inform them their policy had ordinance or law exclusions that could limit their coverage.
Damages: $8,000 E&O Prevention Tip: Ask specific questions. Clearly, define any vague terms to ensure both you and the customer are in agreement with regard to coverage requested. Summarize with the customer what the policy will cover and explain any policy exclusions or limitations.
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