E&O claims can arise when an insured shops coverage around with competing agencies, asking them to quote a price to "duplicate" an existing policy.  The agency with the best price will usually win the business, but may end up as a defendant in an E&O claim, if the new policy is missing some key coverage that was present in the original policy.  (Especially if the winning policy was cheaper because it reduced the scope of coverage.)
 
Few customers take the time to read their policies, beyond the dec pages.  Instead, they comfort themselves with the thought that all insurance policies are essentially identical.  Customers like to see insurance policies as "interchangeable parts," with one company's coverages being the same as any other's.  This illusion of interchangeable-policies is at times encouraged within the industry in subtle ways, including the generic language used in marketing and in certificates of insurance.
 
This can become an E&O trap for agents.  You don't want to be in the position of guaranteeing that the new policy has all the coverages of the old policy.  Of course, if you won the business by quoting a "duplicate policy," it may seem awkward to begin telling the customer that there are differences.  Still, it is prudent to promptly educate your customers about this issue.  Help them to become knowledgeable insurance consumers.  Encourage them in writing (e-mail, fax or letter) to read their policies and to ask you any questions they have about its "unique" features. 
 
In other words:
 
"If customer asks you to 'duplicate' another insurer's coverages and you win the business, promptly remind the customer in writing that no two policies are the same."
 
If you routinely follow this practice, you will avoid most claims based upon your customer's assumption that policies are literally identical.
 
Britton Weimer is an insurance-defense attorney in Minneapolis, and 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.  

 

The reasons vary as to why merger and acquisition transactions might go south before being consummated or an attempt to combine companies might fail to enhance long-term shareholder value.  Conversely, every year hundreds of "successful" transactions are completed.  In 2008 a total of 307 M&A transactions were announced in the insurance distribution segment.  Overtime some of these deals will emerge as clear success stories while inevitably others will be labeled failures.  In both the failures and the successes we can learn valuable lessons.
 
Whether selling or buying, certain fundamental principals present themselves to agency owners as they journey down the M&A path.  Therefore, we have assembled Top 10 lists of important rules for both sellers and buyers.  Below we simply present the respective lists, in successive issues the various Top Ten Rules will be expanded upon.   
 
Important Rules for Agency Sellers:
1)     Seek Professional Guidance
2)     Commit to the Process
3)     Understand the Value of Your Agency
4)     Be Proactive in Market
5)     Present Your Agency Properly
6)     Understand the Details
7)     Define Negotiation Parameters
8)     Get Your House in Order
9)     Don't Overlook Reverse Due Diligence
10)  Be Ready for the Long Haul
 
Important Rules for Agency Buyers:
1)     Clearly Define the Acquisition Strategy
2)     Establish Pricing Rationale and Metrics
3)     Be Flexibility and Creativity
4)     Give Due Diligence Its Just Do
5)     Engage Professional Advisors
6)     It is Okay to Walk Away
7)     Remember that Buying is Selling
8)     Don't Overestimate Synergistic Value
9)     Realize that Things Will Change
10)  Thinking the Deal is Done
 
Whether selling or buying, following these Top Ten Rules will take you a good way down the road toward completing a "successful" transaction.
 
Daniel B. Price is Vice President of Hales & Company, Inc.

As you well know, we are in the midst of one of the worst financial crises in the history of our country.  Every day brings news of more gloom and doom.  And most predictions show this storm not letting up for quite some time.  Can you survive?
 
Yes...you can survive...and perhaps even thrive.  How?  That's just what we will show you through this series of reports.  We'll show you why you need to mind the store, stay in touch with your customers and let them know you are there for them.  Why you need to work on ways to differentiate your service from other providers, and seek out process improvements that help you maintain or lower your costs...and we will show you exactly how to do it. 
 
In this article, we will discuss the importance of protecting your existing customer base and how to get your customers to think of you first, when they are looking to purchase upgrades or additional services.
 
The Customer (Contact) is King.  We all know that it takes way more time and money to get a new customer than to keep an existing customer.  It's something like 5 times the cost...fairly staggering.  In other words, you can keep that customer that cost you $100 or I can sell you this brand new customer for $500.  Why would anybody ignore this statistic?  The fact is that we all ignore it.  Why?  Because we don't really know how to effectively keep our customers in the first place.  It's like working out.  We all know that we'll live longer, be healthier, feel better...etc.  But, very few of us actually stick to a workout plan.  So, how do you effectively keep customers?  Glad you asked...
 
These Aren't Your Father's Newsletters.  One great method of keeping customers is to contact them regularly.  However, you need to have something relevant to say in those frequent contacts.  A good way to accomplish both goals of frequent contact and interesting content is the newsletter.  A newsletter can range from something as simple as a product list to multiple relevant articles for the particular industry you are targeting.  The point is that the content should be interesting to your target audience, and industry-specific content can be both helpful and interesting.  The newsletter is usually distributed via email, which enables the cost savings that make frequent contact possible in the first place.  In addition to cost savings, with the power of email, you can reach customers all over the world...simultaneously.  But there are other benefits of email as well.  Your email can link to your website, link to other interesting content, enable the recipient to respond with a request for more information, and more.  But, there is a danger...if you are not careful, your email could be labeled "spam".  And spamming is illegal.  Spamming people with useless garbage could get you in trouble.  At the very least, your reputation will suffer.  At the worst, you could be facing prison time and steep fines!  So, how do you take advantage of the benefits of frequent communication but avoid doing something illegal?
 
Outsource...Outsource...Outsource.  You've probably heard the old adage to "stick to your knitting" or, in more recent times, "stick to your core competency".  Well, there's some real truth there when it comes to email marketing.  Let's examine the tactical steps needed to create and maintain a functioning campaign.  First, you'll need to create some compelling content.  This means researching, writing, editing, publishing...for every newsletter.  Next, you'll need to crank up an email engine so that you can send multiple messages at the same time, unless of course, you prefer the one-at-a-time technique.  Then you will need to implement some analytical engine so that you can determine the effectiveness of your campaign and adjust accordingly.  And, most importantly, depending on your target audience, you may need to be licensed by the government to get started in the first place!  Lots of work...and definitely not for the novice or faint of heart.
 
It's much more efficient and effective to partner with a provider that can handle all of the technical grunt work, government relations, analytics, etc.  And if you can find somebody that provides industry-specific content, you have now reduced this time-consuming, potentially dangerous activity to nothing more than a scheduling task.  Your only decision is how often to send the newsletter.

 

 

How to do you determine whether to pay as an employee or an independent contractor?  This determination is more complex than can be answered by a simple yes or no.
 
The Internal Revenue Service's 20-Factor Control test is the best place to start when you are not sure whether someone should be paid as an employee or an independent contractor.
 
1.     Is the individual's work vital to the company's core business?
2.     Did the company train the individual to perform tasks in a specific way?
3.     Do you (or can you) instruct the individual as to when, where, and how the work is performed?
4.     Do you (or can you) control the sequence or order of the work performed?
5.     Do you (or can you) set the hours of work for the individual?
6.     Do you (or can you) require the individual to perform the work personally?
7.     Do you (or can you) prohibit the individual from hiring, supervising, and paying assistants?
8.     Does the individual perform regular and continuous services for you?
9.     Does the individual provide services on a substantially full-time basis to your company?
10.  Is the company the sole or major source of income for the individual?
11.  Is the work performed on your premises?
12.  Do you (or can you) require the individual to submit regular reports, either written or oral?
13.  Does the company pay the individual by the hour, week, or month?
14.  Does the company pay the individual's travel and business expenses?
15.  Are tools or equipment furnished for the individual?
16.  Does the individual have a significant investment in facilities, tools or equipment?
17.  Can the individual realize a profit or loss from his or her services to the company?
18.  Does the individual make his or her services available to the general public?
19.  Can the individual terminate the relationship without liability?
20.  Does the company have the right to discharge the individual at any time?
 
If you answer yes to any one of these questions, then most likely you have an employee relationship instead of an independent contractor relationship.  In an employee relationship the employer is required to collect and report payroll taxes based on percentages of gross payroll and is subject to regulations under the Fair Labor Standards Act.
 
The IRS recently used these factors to develop the "three categories of evidence" - behavioral control, financial control, and relationship of the parties. You can get additional information on these categories by going to www.irs.gov and downloading Publication 1779 or contact our HR division.
 
Paul Halter is Executive Vice President with The Resourcing Solutions Group

 

Part 1 of this comment described how brokers are in an ideal position to assist excess lines claim handlers during the early stages of the claim process.  Similarly, brokers are in a position to assist as the claim process moves forward.
 
When excess lines carriers are notified of a claim, underlying carriers have often already communicated an opinion to insureds regarding coverage.  As a result, excess lines claim handlers will request any coverage letters already issued by underlying carriers.  These coverage letters are vital for excess lines claim handlers reviewing coverage under a follow-the-form policy.  Reviewing the underlying carriers' coverage letters will hasten an excess lines carrier's coverage analysis saving valuable time for both insurers and insureds.
 
Brokers are generally copied on all coverage correspondence related to a claim.  Thus, brokers are in an ideal position to keep a record of all coverage correspondence between underlying carriers and insureds and to provide that information to excess lines claim handlers upon request. 
 
Beyond communications related to coverage, brokers often receive factual correspondence regarding the defense of an underlying claim, including defense counsel reports and trial documents.  There can be significant developments in the facts of a claim before excess lines carriers are even placed on notice.  Brokers are often a party to these communications, and a record of all communications from defense counsel (i.e. motions, conference calls, litigation summaries) will allow excess line claim handlers to assess exposure and set accurate reserves early. 
 
While excess lines claim handlers will gather information relating to coverage and the facts of an underlying matter independently, brokers are in the best position to maintain a comprehensive record from the beginning of a claim.  In lieu of maintaining an actual record, brokers can make the first step simpler by keeping all contact information for insureds, underlying carrier claim handlers, defense counsel and other stakeholders in the process readily available upon the request of excess lines claim handlers.  Excess lines claim handlers will then be able to quickly locate this information.  
 
Both insurers and insureds benefit from brokers making these early parts of the excess claim handling process more efficient. 
 
Neil Weiss is an attorney with Siesko Partners, LLC focusing on insurance recovery and advisory services. 

 

The higher the level of professional service, the higher the legal standard of care.  How can independent agencies risk manage the agency, customer, and carrier partnership, deliver professional service, and minimize the E&O exposure?  By simply executing a customer-service agreement.
 
One measure of agency success is the length of the partnership that lasts over the renewal years. If there is a break down in the partnership independent agents will again find the best match until a carrier denies a major claim that the customer expected to be covered.  Now the agency must show its customer service agreement to avoid and quash an E&O claim.
 
This service agreement, signed by the parties, is one of several methods to manage this E&O risk. For many agencies this agreement is an extension of an agent of record letter giving the agency an exclusive ability to place coverage with carriers, while providing the service of finding the best carriers for the customer's risk profile by marketing the customer's risk profile to carriers known to excel in providing coverage, service and reasonable claims payment at competitive cost. If the agency wishes to provide insurance consulting, or insurance advice on coverages the agreement can state it with specified compensation for the now affirmative duty to advise.
 
With out a this written agreement many agency's have been sued for breach of contract and negligence in promising to place "complete" coverage, "sufficient" coverage, "'reasonable" coverage, "full' coverage,  "the best" coverage or coverage "for everything", and for breaching a duty to advise regarding coverage.  These allegations are commonly supported by references to the agency's advertising, web site, and its proposals which buff about the experience, expertise and service qualifications of the agency.
 
When the compliant is served the agency's E&O carrier must provide a defense. If the service agreement defines the services to be provided the suit may not be filed, and if filed will likely be dismissed. Courts recognize that to find otherwise would allow a damaged insured to make a "complete" or "fully" covered allegation against an insurance agency each time an insurance policy did not cover a particular type of loss.
 
This service agreement can be presented to the customer within the process of commercial insurance placement, when the agency is selected to obtain quotes, presents a proposal and binds the requested coverage. The limited scope of services defined in the agreement should be reflected in proposals presented to customers. The design and language to proposals this another risk management approach.
 
In the absence of this service agreement the agency is more likely to be sued even though an agent seldom has a duty to advise the insured or inform the insured of possibilities, permutations, and collateral consequences outside the scope of the policy's terms.
 
Andrew Whitman, Ph.D., J.D, CPCU, has testified in court in ten states, served as Deputy Insurance Commissioner and Acting Chief Counsel in the Pennsylvania Insurance Department.  He is the author/co-author of insurance articles and books, including co-author of the new Thomson-West treatise, The Law of Commercial Insurance Agents and Brokers.   
 
 

 

Many employers want to rely upon the "at will" doctrine, i.e., the employer does not need a reason to discharge an employee.  In the real world, however, this is a recipe for disaster!  Employers should make sure they have a solid reason for the termination and should not "make up" a reason to make it easier on the employee (or the employer).  Also, employers should keep carefully prepared written notes regarding an employee's misconduct, disciplinary actions and/or failure to properly perform their job.  After preparing "documentation", the manager or supervisor should re-read it as if he or she were a third-party to the situation, i.e., the jury.  In other words, make sure an outsider, looking at this situation for the first time, would understand the employer's perspective.
 
Employers should not withhold any money due and owing to a terminated employee.  In fact, employers should err on the side of overpaying a recently terminated employee.  Angry employees are litigious employees, so end the relationship on a high note, i.e., be nice!  Finally, spending a few hundred dollars to discuss the situation with an employment lawyer prior to making the termination decision may save an employer thousands of dollars spent litigating avoidable uninformed or bad decisions.
 
Joseph A. Starr is a principal with Lipson, Neilson, Cole, Seltzer & Garin, P.C in Bloomfield Hills, Michigan.  His practice includes the defense of employers and insurance agents and brokers.

 

Chief Executive magazine recently published a fascinating article on leadership.  The article includes a list of "What Organizations Value in Leaders." (Jan./Feb. 2009 issue of CE magazine)  Pre-employment tests quickly and easily predict most leadership traits listed in Chief Executive magazine.  As such, personality and intelligence testing of job applicants vastly increases the odds that you hire people worth developing into leaders.
 
Research for my latest book, Absolutely Fabulous Organizational Change, included extraordinary leaders taking two pre-employment tests - the Abilities & Behavior Forecaster™ Tests:
            -  Behavior Forecaster™ Test predicts behaviors, such as interpersonal skills, personality, and motivations.
            -  Abilities Forecaster™ Test predicts intelligence or mental abilities.
 
All leaders taking pre-employment tests definitely were superstar leaders.  Reason:  Each leader had planned and implemented organizational change resulting in $10-million - $1-billion profit improvement.  Result:  The leaders' Forecaster™ Test scores forecast - or predicted - key traits in Chief Executive magazine's list. 
 
For example, Chief Executive listed "Strategic Thinking" as #1 - the most important leadership trait.  The personality test section of Behavior Forecaster™ predicts crucial behaviors needed by truly effective strategic thinkers:  Super-successful leaders' test scores included both:
            +  high scores on Creativity Motivation
            +  low scores on Following Rules
 
That makes sense, because innovative strategic thinking simultaneously requires both (a) creative thinking while (b) breaking with past "rules" or methods. 
 
Team Work was leadership characteristic #5 in Chief Executive's leadership trait list.  Indeed, test scores on interpersonal and motivation measures of Behavior Forecaster™Test showed the absolutely fabulous leaders got both
            *  ultra-high test scores on Teamwork
            *  only average test scores on Power Motivation
 
Lesson from these two test scores:  Highly effective leaders lead by excelling at collaboration or teamwork - and not by pushing their authority or power. 
 
Emotional Intelligence (#8) also was predicted - by leaders' personality test scores of both:
            >  high test scores on Optimism
            >  high test scores on Helping People Motivation
 
Interestingly, Chief Executive magazine's other list -"Tactics Used to Attract Leaders" - revealed the #1 tactic is Development Opportunities. 
 
Actually, pre-employment testing of job applicants should be tactic #1.  The reason is companies need to hire job applicants who excel in leadership traits that make giving them Development Opportunities likely to pay off in sales and profits. 
 
Pre-employment tests are the most accurate, customizable and quickest prediction method to make such crucial predictions of leadership potential.  Such leadership skills predictions of people you hire ultimately helps forecast if your business will flop - or prosper.
 
Michael Mercer, Ph.D. is a business psychologist and president of Mercer Systems, Inc.  He is an expert on (a) hiring the best and (b) pre-employment tests.  The 3 Forecaster™ Tests created by Dr. Mercer are used by companies to help them hire productive, dependable employees.  He wrote 5 books, including Hire the Best - & Avoid the Rest™.