As an independent insurance agent, you have experience working without binding authority. However, when an insurance carrier provides you binding authority it is important to understand the limitations. The claim example below illustrates how exceeding binding authority 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 insurance exposures.
Description of Claim: An insurance agent bound a homeowners policy on a $1.5M home. The insurance agent has binding authority for any risk $750,000 and under. When placing coverage on homes with value greater than $750,000, the insurance agent must get authority from the insurance carrier’s underwriting department. In addition, the home was in the process of being built and had not yet been completed nor were the intended residents planning to occupy the home within 30 days of the policy inception. This is another violation of the underwriting guidelines. The carrier was forced to pay the claim and sought reimbursement against the insurance agent for binding an ineligible risk.
Damages: In excess of $1m. E&O Prevention Tip: Know your binding authority and don’t exceed it. When in doubt, refer to your insurance carrier’s underwriting guidelines or get confirmation in writing from the underwriting department before proceeding.