As an insurance agent, one of your most important duties is to make sure your clients have the right kind of coverage in the right amounts so they aren’t left financially exposed to a liability claim down the road. That means that when you gain knowledge of a potential exposure, you’re obligated to ensure your clients understand the nature of those exposures as well as what coverage options are available to protect them.
That may not sound so difficult, but if you have longstanding and friendly relationships with your clients, even a brief social interaction could be yielding information that you need to pay attention to so you can advise your clients and protect yourself as well.
Here’s a case in point:
“Ann” was looking for a way to earn some extra money to supplement her regular income. As an accomplished amateur artist, she decided to sell artwork she had painted during her spare time. Like many small business owners before her, Ann decided to sell some of her paintings online to keep her overhead costs at a minimum. To spread the word about her art locally, she also decided to sell paintings from her home to local customers and friends who made appointments to see her work. Ann’s insurance agent was also one of her friends, and one day during a visit to Ann’s home, the agent purchased a painting. Several months afterward, another customer visited Ann’s home to view her work and discuss the purchase of one of her paintings. During his visit, he slipped and fell, injuring himself. Afterward, the customer sued Ann for damages incurred as a result of those injuries. Ann turned to her homeowner’s policy for coverage; that’s when she learned that her policy did not cover the damages for which she was being sued since the damages involved business activity, and her policy did not include coverage for business use of the home. Ann wound up suing her insurance agent, claiming that because of the agent’s prior painting purchase, the agent knew of the existence of Ann’s business yet failed to provide adequate coverage through the homeowner’s policy. The court wound up ruling in favor of Ann, who was awarded damages of $7,000.
The lesson here is that even casual acquaintances can result in knowledge that could have an impact on your liability as an agent. Of course, keeping track of every situation where you might inadvertently gain knowledge of a client’s insurable activity, such as the operation of a home-based business, can be taxing, if not nearly impossible. Certainly in this case, the agent probably thought they were doing a client a favor by patronizing the client’s business; never did it cross the agent’s mind that the interaction could result in liability down the road.
That’s why having adequate errors & omissions insurance for insurance agents is so important. Being a good insurance agent means interacting with clients, and this case illustrates how even simple interactions can place you in jeopardy of being found liable. It also clearly underscores the value of reviewing your own e&o insurance coverage.