Our May E&O prevention tip reminds agents to take the time to read their policies.
Claim:
A customer came to the agent’s office looking for quotes on a homeowner’s policy as their current carrier had levied a 20% rate increase at renewal. The customer brought along a copy of his current policy to review with the agent. The agency producer provided competitive quotes to the customer. The customer took the quotes and called back with more questions as his wife wanted to make sure that they would be able to obtain a jewelry floater. The agent explained that they could get a jewelry floater as long as they had current appraisals (within the last 3 years). The agent assured them that as long as the item was scheduled, it was essentially covered for anything.
A few days after binding coverage, the wife took her jewelry to be cleaned and maintained. She was advised that the 3 carat stone in her ring was marred. She filed a claim for the stone with her insurance carrier. The carrier denied the claim as its jewelry floater excluded marring as a cause of loss with “marring” defined as “injury or damage to an item that made it less attractive”. The customers filed an E&O claim against their new agent based on his representation that the floater would cover them for any loss to the jewelry. During the E&O investigation, it was learned that the original policy would have replaced the damaged stone in the ring. E&O settled that claim for $32,000.
E&O Prevention Tip:
The function of definitions in the insurance policy is to clarify the meanings of terms so that outside interpretation does not expand or restrict the intended coverage. The inclusion of definitions, and/or a glossary reduces the length of the insurance contract and provides a measure of consistency. Once a word or term is defined, its singular meaning is applicable throughout the policy.
To most people, an insurance policy is something that is purchased to provide financial protection for a catastrophic event such as an automobile accident, fire, or the sudden death of a spouse or loved one. Many people never read the policy form because they expect it to be filled with mind boggling “legalese” that no one wants to be bothered with. While no insurance policy would ever be a captivating read, smart consumers and agents alike will take the time to read their policies.
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