Always know what it is that you are selling to a client to prevent the likelihood of an E&O claim. In this E&O claim scenario an agent was contacted by a new client who wished to purchase coverage for his home, which was adjacent to a normally dry stream bed. The agent assisted the client in obtaining homeowners coverage. Several months later the area suffered a "storm of the century" resulting in several days of torrential rainfall. The streambed became a raging torrent, which flooded the client's property causing significant damage. The client quickly filed a claim only to have the claim denied by the homeowners carrier. He thereupon filed an E&O claim against the agent, alleging that he had specifically requested coverage for all perils including flood. The agent had no recollection of the alleged request but did have records of the client’s prior coverage, including flood insurance, in his file. The agents E&O carrier settled the claim after speaking with the agent and his inability to explain the requested coverage to the adjuster.
What Can You Do to Prevent This?
Homeowners policies will typically cover certain types of internal water damage such as that caused by a broken pipe or roof leak, however coverage for water damage from an external source may not be covered and a separate flood insurance policy may be required. The agent clearly breached the professional standard of care in that he not only failed to provide adequate replacement coverage needs but didn't completely understand the coverage he was selling. Claims like the one above can be easily avoided by simply taking the time to study and understand the product you are selling.
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