Over half of all errors and omissions claims filed against insurance agents include allegations that the insurance agent failed to provide adequate coverage. The majority of these claims involve additions or deletions to existing policies. No discussion of E&O prevention would be complete without a discussion of the role that documentation plays in defending agents against E&O claims. As professionals, insurance agents and brokers are held to certain standards in running their business. While documentation procedures cannot completely relieve agents of their professional responsibilities or guarantee that E&O claims will be settled in their favor, an established loss control procedure which addresses all areas of documentation will provide a better defense when an E&O claim arises.
Documentation can take many forms. One valuable piece of documentation is the follow-up letter.
Whenever a client inquires about any aspect of their policy, an insurance agent should send a follow-up letter confirming the issues discussed (with a copy of the letter retained in the file). Instances where a client requests a reduction in coverage should always be followed up with a letter. The insurance agent should consider sending such a letter by certified mail. Often an insurance agent will go one more step and have the client “sign off” on coverages that were either reduced or refused. This is especially important when a client refuses or eliminates coverage against an insurance agent’s recommendation. A customer who won’t follow a recommendation is, unfortunately, the first to hold the insurance agent responsible when a loss occurs. Requesting that the customer sign off on refused coverage often prompts that customer to reconsider the importance of the issue and purchase the coverage after all.
The telephone is often the primary method of communication between insurance agents and customers. Proper telephone procedures for both incoming and outgoing calls should be established. Whether an insurance agency has a receptionist or whether everyone answers their own phone, proper telephone documentation begins with a telephone log. Electronic records are preferred but remember that they should be backed up regularly. The log should include the date and time the call was received, the name of the caller and the individual called.
It is important to document a summary of every client/agent conversation, including calls from the insurance agent to the client. Additionally, phone conversations with insurance company personnel such as claims adjusters and underwriters should also be documented and kept in the file. The following information should be included when documenting these conversations:
- Date and time of call
- Names of parties involved in call
- Synopsis of conversation
- Action to be taken by agent, client or other parties as a result of conversation
- Follow-up measures to be taken, i.e.confirming letter, returning phone calls etc.
Remember to apply these procedures to mobile telephone calls as well. A phone call placed or received over a cellular phone poses a unique problem for an insurance agent who wishes to document the conversation rather than relying on memory at a later time. One solution might be to carry a small, inexpensive recording device to dictate required actions for later follow-up.
When developing documentation procedures for your office, address other forms of communication such as fax, voicemail, and e-mail. When using faxes, remember to immediately deliver faxes to the appropriate person. Never fax confidential information without your client’s permission. Many fax machines have automatic date and time stamp; be sure yours is set to the correct date and time.
If your insurance agency uses an answering machine when the office is closed, be sure the outgoing announcement indicates that leaving a message does not constitute an agreement to bind or write any type of coverage. You may also wish to consider a message that simply states the office hours and does not allow messages to be left.
Make sure that all email is retained and stored in the client’s file as well.
Below are some examples of E&O Insurance Claims along with some prevention tips for each claim:
Description of Claim: An insurance agent in a small town handles the insurance needs of many acquaintances, friends, and neighbors. One of the insurance agent’s friends calls the insurance agent at home one day to confirm their golf date on the following afternoon. In the middle of the conversation, the friend tells the insurance agent that he finally bought a new car for his daughter and needs to add it to his policy. The insurance agent and his friend proceeded to talk about their upcoming golf game and other personal matters. By the time the insurance agent hangs up the phone, he is only thinking about his game the next day and completely forgets about the new car. An accident occurs and because the other cars on the policy only had liability coverage, there is no physical damage coverage on the new auto. Estimated Claim Cost $4,000.
E&O Prevention Tip: Always document every conversation. Whether at home or in the office, be sure you have message pads beside each phone.
Description of Claim: A father called the insurance agent to advise that he had taken over his son’s mobile home and needed to have the insurance policy changed to his name. The insurance agent took down the information but failed to submit the information to the insurance carrier. The son stopped paying the premiums but because the policy change had never been processed, the father never got any notices of cancellation. The mobile home was subsequently damaged due to a tornado. When the claim was reported, the father was told the policy had canceled several months back. Estimated Claim Cost $5,000.
E&O Prevention Tip: It is not enough to simply write down that a call was received. Forms used for documenting requests should also include a place to record what action is required as a result of the phone call.
Description of Claim: An agent took an application for auto insurance coverage that was to be an assigned risk policy. The insurance agent prepared the quote which included collision coverage. The client stated that the car would just be parked and therefore he would not need collision coverage. Shortly thereafter, the client had an accident. The client claims that he had requested full coverage on the car. Claim Cost: $8,500.
E&O Prevention Tip: A follow-up letter confirming the insured’s desire to have minimal coverage since ”the car would just be parked” would have provided a defense of the claim. Or, if the quote had been presented in person, the insurance agent could have had the insured initial and date the refusal of the collision coverage.
Description of Claim: An insurance agent insured a prior owner of a building. That owner sold the building and completed the appropriate paperwork to have the existing policy transferred to the new owner’s name and then faxed it to the title company. The title company then paid the amount due on the policy and sent it to the insurance agent who deposited the money in his trust account. Thereafter, the insurance agent did not remember whether or not he paid the premium. A fire loss occurred to the building and the insurance company denied the claim stating that there was no policy in force. The insurance agent kept all his records on his computer but his computer crashed and he did not have access to prior records that could confirm that the premium had been paid. Claim Cost: $12,500.
E&O Prevention Tip: Establish procedures for regular backup of computer records.