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|Keys to Avoiding E&O Claims|
|By Britton D. Weimer, J.D.|
Errors and omissions lawsuits are becoming routine. When an insured has a loss that may not be covered by insurance, it is now commonplace for the insured's attorney to sue both the insurance carrier and the agent. The carrier is sued in case the policy does provide coverage. The agent is sued in case the policy does not provide coverage.
So what can insurance agents do to reduce the risk of E&O lawsuits? There are a number of basic "risk management" principles that can have a huge impact. In this issue of the E&O Prevention newsletter, we examine one of the most important risk-management keys:
Confirm coverage discussions with customers with a letter, fax or e-mail.
When agents follow this guideline, it is of great relief to defense counsel. Perhaps over 50% of all agents E&O litigation involves disputed recollections, between agents and customers, over what coverages the agents agreed to procure. Invariably, after a loss, the insured "remembers" that the agent promised very broad insurance coverage.
However, if the agent has confirmed the important conversations in writing, then the factual dispute disappears. There is no need for a jury trial to resolve conflicting recollections about what coverage the agent represented or promised. It is all there in black and white.
When the important conversations are confirmed in writing, then the case can usually be resolved without a trial, in a motion for summary judgment. When the facts are not in dispute, then the sole issue is a question for the judge - whether the agent's statement creates some legal duty for the agent or the insurer. Because the law generally favors insurance agents, the result of such a motion is usually the dismissal of the lawsuit against the insurance agent.
For example, there is seldom any legal exposure when an agent simply assured a customer that it has "complete" coverage. Most courts recognize that such generic assurances are not specific enough to create a legal duty, or to be a legal misrepresentation. However, in a lawsuit, the customer may "remember" that the agent promised something more specific, such as "complete coverage for business interruption." Then, if the policy has no business-interruption coverage, there may be a basis to go to trial. But if the agent had simply confirmed, in an e-mail, that the customer has the "complete standard coverages," or words to that effect, then the agent would normally be entitled to a dismissal of the case.
As another example, the agent normally just owes a duty to carefully follow the customer's specific coverage requests. There is normally no duty to recommend additional coverages. However, in some circumstances, the agent may undertake an expanded legal duty - a duty to advise. (Once the duty to advise is established, the agent will almost always lose the case, because the jury will find that the insured would have purchased the "missing" coverage, if the agent had only made the recommendation.)
The duty to advise arises when an agent adopts a long-term habit and practice of learning the customer's risks and exposures, and making routine and detailed recommendations. Thus, after a loss and some coaching from an attorney, an insured may "remember" that the agent followed such a long-term practice of providing insurance consultation and advice. However, if the agent has confirmed most or all of the substantive conversations with the insured, and has been careful to place the burden in those communications on the insured to make the final coverage decisions, then that will undermine the later claim that the insured relied heavily upon the agent.
The bottom line: When in doubt, send a friendly confirming e-mail or letter or fax. It will make the customer feel good, because you are paying attention. And, should there be an uninsured loss, it will make you feel good, when you are dismissed from the lawsuit!
Britton Weimer is an insurance-defense attorney in Minneapolis, Minnesota, and a partner in the law firm of Jones Satre & Weimer. He has defended insurance agents and brokers in E&O litigation for over 20 years. He is the co-author of the new Thomson-West treatise, The Law of Commercial Insurance Agents and Brokers. He can be reached at email@example.com.
|E&O Coverage Tip: Defense Outside Limits|
|By Raymond Wahl|
Over the years that I've underwritten insurance agents E&O coverage, I've seen the issue of defense outside limits (DOL) go from a non-issue to a critical consideration for the insured agents. Currently it is too big a factor in the buying decision. By this I simply mean that many agents make their decision on where to buy their E&O insurance based almost entirely on whether or not they have DOL.
The market, for its part, provides DOL in several ways. First is a true and full DOL, i.e. defense outside without limitation. Other insurers offer DOL via a specified additional limit, either a set dollar amount or an amount equal to the policy limit. Any of these approaches work. Keep in mind that DOL in actuality only rarely comes into play.
But a major problem seen repeatedly is the decision to buy based on DOL with no regard for the rest of the coverage. I have seen insureds go with carriers for DOL even though the basic form had over 20 exclusions. I can only wonder, defense in addition to what? If the basic form does not respond to a claim scenario, DOL is worthless.
I urge you to consider all factors when deciding on where to place your E&O coverage. In addition to price and quality of the insurer, this should always include a complete analysis of coverage. Do not be fooled into considering just one of the many elements of your coverage to the exclusion of the others.
Raymond Wahl, Senior Vice President, Lee & Mason Financial Services, Inc. Farmington, CT
|Writing Tips for Agents|
|By Gary Blake, Ph.D.|
The following two sentences were taken from actual risk management documents:
"Furthermore, in the event of a judgment granting punitive damages as requested in the first cause of the action, the XYZ Insurance Company would be unable to indemnify the Village for any such award. It is against express public policy for an insurer to indemnify an insured for punitive damages awarded to a plaintiff. Thus, no insurer in this state would be able to honor such an award."
"The XYZ Insurance Company does not imply that any of the current or future allegations which may be presented are valid. They do, however, have a direct bearing on the applicable coverages necessitating the need to outline the parameters of the coverage."
Tip of the Month: Read your work aloud. Your ear will catch the wordy, stodgy, or old fashioned phrases that weigh down your writing -- and can result in embarrassment and lost customers.
Dr. Gary Blake is director of The Communication Workshop, presenting writing seminars and webinars for insurance professionals.