In this E&O claim scenario, an agent was asked to write a landlord's policy on a new property for a long time client who owned a number of residential rental properties near a local college campus. Because he was extremely busy meeting with prospects that day, the agent simply stopped at the subject property on his way between meetings and looked at the exterior and took a number of cell phone photos. The exterior seemed well kept and in good repair, and the agent felt that strict compliance with the carrier's underwriting guidelines requiring a detailed exterior and interior inspections was unnecessary. Sometime later the client called to report that a parent rushing to pick up her child had inadvertently struck the corner of the house with her vehicle causing significant structural damage. When he visited the property again the agent learned that it was being used as a child day care facility, which would have been apparent had he done an interior inspection during his initial visit. Although the type of business was excluded under the carrier’s policy, the carrier elected to settle the damage claim and pursue an E&O claim against the agent to recover its loss.
How Could This Claim Have Been Prevented?
Binding a carrier to an ineligible risk happens all too frequently, and is perhaps the easiest risk to avoid. Always comply with the underwriting guidelines of the carrier you represent, and never give in to the temptation to cut corners no matter how busy your schedule is. Strict compliance to agency underwriting guidelines should be an integral part of every agencies risk management program, together with regular auditing to monitor compliance.
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