What Is Negligence from an Insurance Agency Perspective?

What Is Negligence from an Insurance Agency Perspective?

Whether it’s for their car, their home, or something else, most Americans will need some type of insurance at some point in their lives. Insurance is what people count on to get them through some of the most difficult events in their lives, like natural disasters or accidents.

Because the insurance industry provides crucial services and benefits to so many people, it is, as it should be, heavily regulated. Errors on the part of insurance agencies can have devastating consequences for clients, so it’s in everyone’s best interest to protect against the possibility of negligence.

But what does negligence mean from the perspective of your agency, and how can you guard against it? Take a look at what you need to know.

The Elements of Negligence

First, it’s important to understand that negligence has nothing to do with intent. There are several elements that factor into a finding of negligence, but intent isn’t one of them. That’s one of the things that makes negligence a tricky thing: the negligent party may not have realized at the time that what they were doing, or failing to do, would cause harm.

For negligence to occur, the negligent party first must have/be obligated with a duty to act in a particular way, or a duty to refrain from taking action(s). Then that duty is breached: they fail to fulfill their said duty to the individual in some way. Further, that breach needs to have caused some type of harm to the individual—harm that the negligent party should have been able to predict. And finally, the harmed individual needs to suffer some type of damage, such as a financial loss. All of these elements need to be in place to determine that negligence has occurred.

What Insurance Agency Negligence Looks Like

Once you understand the elements of negligence, it may help to see some examples of what negligence looks like in the context of an insurance agency.

  • Misrepresentation is one possible form of negligence. If an agent gives their client the impression that something is covered under their policy, and it turns out not to be covered, then the agent has misrepresented the policy. While this can happen unintentionally (an agent may have misremembered the details of the policy) it’s an agent’s responsibility to be well-versed in the details of all the policies they sell and to double-check their work.
  • Failure to inform is another form of negligence. Agents need to keep their clients informed and updated. For example, if a policy is about to be canceled, the client needs to be informed of that fact. Or, if an insurer has become insolvent, agents are obligated to inform their client about that fact.
  • Failure to inform works the other way as well. When a client notifies their agent of a claim, it’s the agent’s duty to pass that information on to the insurer so that the claim can be evaluated and paid. Failure to do so is considered negligence.

While an agent may not intend to cause harm, these few examples illustrate the preventable lapses can constitute negligence. Clearly, negligence can cause undue damage to you and your clients, financial and otherwise.

In addition to training and developing your team, one way that insurance agencies can protect themselves from negligence claims is with Errors and Omissions Insurance, or E&O insurance. The American Agents Alliance is here to help agencies learn how to limit their liability. Contact us to find out more about E&O insurance.

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