E&O Prevention
Strategies for the Professional Agent

March 30, 2009
Compliments of Agents of America.ORG

Volume 4
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A customer is the most important person ever in this office - in person or by mail. A customer is not dependent on us, we are dependent on him. A customer is not an interruption to our work, he is the purpose of it. We are not doing a favor by serving him, he is doing us a favor by giving us the opportunity to do so ...
~ L. L. Bean Credo
 
This month we are pleased to welcome two new contributors:  Robert Stuberg and Mark Hunter.
 
Robert Stuberg is one of the world's leading authorities on personal and professional success.  He is most widely recognized for his role as Founder and Chairman of Success.com, the premier source for personal and professional development products and services worldwide.  Robert is an internationally acclaimed author, speaker, coach, entrepreneur, and consultant.
 
Mark Hunter, "The Sales Hunter," is a sales expert who speaks to thousands each year on how to increase their sales profitability.  He helps companies and salespeople find and retain better customers. Mark travels on average 125 days per year working with companies ranging from Fortune 100 to small one-person firms to help them grow their top-line sales and bottom-line profits. His sales techniques are in use today by salespeople on 5 continents and in more than 74 different countries.
 
-          Britton Weimer, Editor


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Practical E&O Prevention Tips for Agents (Part 2)
By... Sheri Pontolillo
 
5.     E&O Can Protect Your Estate.  It is not a well-known benefit, but an important one.  The better E&O policies include the "spouse, heirs or executors of an Insured's estate" in the definition of Insured. As an example, if a claim arises from a problem that occurred while you were incapacitated or deceased, the policy could extend coverage to your heirs.  Check out your policy, tell your family about this coverage and make your E&O insurance information accessible. They will often have a limited time to access the benefits.
 
6.     Don't Let Your Coverage Lapse!  E&O policies are "claims-made" policies, meaning they cover you for claims made against you during the policy period.  The chances you will make a mistake and have a claim made against you in a 12 month policy period are pretty slim.  Therefore, there is a second coverage trigger - the "prior acts" or "retroactive" date.  In other words, how long ago can the error that gave rise to the claim have occurred?  That date is usually the date of "first continuous E&O."  If you let your coverage lapse, you will lose coverage for prior errors and it is almost impossible to negotiate coverage to correct that gap.
 
7.     What Is A Claim and When Should I Report It?  Most E&O policies define claim as a "written claim from a client for monetary damages."  In addition to the obvious lawsuit or arbitration, a letter from a client or attorney of a client alleging wrongdoing and stating monetary harm should be considered an E&O claim.  The better policies also have an "awareness provision" which allows you to report any incident or circumstance that you feel could give rise to a claim and essentially "park" your coverage.  For example, you discover a mistake that even the client is unaware of at this point, but it could result in harm to the client. Always attempt to report a claim before your policy expiration.
 
Sheri Pontolillo is CEO of E&O Professional Risk Managers & Insurance Services, a national brokerage in Laguna Hills, CA that sells and administers group and individual E&O programs.  She has specialized in E&O insurance for 23 years, including life insurance and P&C insurance agents, and is the author of numerous industry articles, seminars and continuing education programs.
Dangers of Acting as an Agent of Notice
By....Neil Weiss, JD

Insurance carriers will often designate an insurance broker as an agent for the purpose of receiving notices of claims from policyholders.  This designation can appear in policy language, by endorsement or through some other agency agreement.  Brokers should be mindful of the possible exposures associated with this designation and be vigilant in performing the task of forwarding notice to carriers.  Failing to do so can lead to E&O liability for part or all of the uncovered losses denied by the carrier due to late notice. 
 
It is important that the broker acting as an agent for notice have a thorough understanding of the types of claims covered by each policy issued.  Often, for unsophisticated policyholders, it is the responsibility of the broker to select the appropriate policy under which to provide notice.  Specificity of language is a key aspect of notice letters.  Brokers should include a description of the claim and why it triggers each policy a policyholder has purchased. 
 
Brokers should also consider that the facts presented may trigger different policies in the future.  As most claims-made policies contain "potential claim" clauses, failing to provide notice of a potential claim to a specific policy may lead to a coverage denial in the future.  One common example of a failure to provide proper notice of a potential claim arises in the D&O context.  Often, facts which will first trigger a fiduciary liability policy will eventually also implicate a D&O policy.  Notice of a claim or potential claim should be provided to both to ensure coverage for all claims related to the same factual event.
 
Brokers will often provide notice on a single policy and then, in an effort to trigger all possibly relevant policies, will include language such as "and all other applicable policies."  While this approach is better than leaving a claim unreported to an otherwise applicable policy, it is an imprecise and risky way to ensure coverage for a policyholder client.  Carriers may not deem such statements as sufficient notice to policies not specifically referenced.  As mentioned above, notice letters should contain specific language describing the facts of the claim and the policy triggered. 
 
Brokers should always err on the side of providing notice of a claim.  Providing notice for a potentially uncovered claim will lead to a denial of coverage or reservation of rights.  While having coverage denied is unpleasant, the broker has shifted any burden of coverage interpretation to the carrier by providing notice.  However, failing to provide notice to a carrier of a covered claim is much more dangerous for the broker.  In this case, the broker has kept control of the coverage interpretation and either unilaterally decided not to notice a certain policy or has directly informed a policyholder that coverage is not triggered by the facts presented.  If it is determined that a claim not reported by a broker would have been covered had it been noticed on a timely basis, the broker may be subject to E&O liability to a policyholder or a carrier acting in subrogation of a policyholder's rights. 
 
Neil Weiss is an attorney with Siesko Partners, LLC focusing on insurance recovery and advisory services. 

Keys to Avoiding E&O Claims:  Confirming Underwriter Conversations
By... Britton D. Weimer, J.D. 
  
As a precaution, agents may telephone an underwriter to pre-approve a new risk.  This is often a prudent measure, and can speed up the process of confirming coverage to the insured.  However, like all other important conversations, it is vital to confirm such understandings in writing - usually by e-mail.  Otherwise, if there is a loss, there can be an expensive and difficult E&O claim seeking to sort out whether the risk was in fact approved and acceptable, and what was the scope of the agreed-upon coverage.
 
If there is no written confirmation and the underwriter does not recall the conversation, and the agent is later sued by the insured for not obtaining the proper coverage, the agent may have to choose between losing the E&O case and suing the insurer for misrepresentation.  In theory, the purpose of the misrepresentation claims is either to (1) secure reformation of the policy if the agent had binding authority, or (2) obtain indemnity from the insurer if the agent/broker lacked binding authority.  However, in practice, even if the agent brings such a misrepresentation claim, most states require high standards of proof - the clear-and-convincing-evidence standard rather than the usual preponderance-of-the-evidence standard.  In short, it is a very difficult claim for the agent to win, even if the agent is willing to jeopardize his/her relationship with the carrier.
 
All of these problems can be avoided if the agent simply follows this prudent risk-management tip:
 
"Confirm coverage discussions with underwriters with an e-mail, letter or fax." 
 
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.  
Preliminary Guiding Rules for Sellers
By... Daniel B. Price 
 
Last month we presented lists of the Top Ten Rules to follow when buying or selling an insurance agency.  This month we delve into the first three guiding rules for sellers that, if followed, will undoubtedly provide a greater chance of a transaction being labeled a success over the long-term.
 
1)     Seek Professional Guidance. Selling an agency is very likely a once in a lifetime endeavor and as such, the end goal should be to maximize the results. To accomplish this, it is critical to retain a financial advisor who specializes in insurance mergers and acquisitions. Selling an agency requires the experience of a professional who handles these transactions on a daily basis. Consider the many components to the acquisition process: business valuation, market assessment, preparation of offering memorandums, review of tax implications, due diligence and legal agreements, to name just a few. An investment in seasoned professionals will most likely result in a more lucrative overall deal-a reasonable trade-off for the additional cost incurred.
 
2)     Commit to the Process. Selling a business is a process. The first step, then, is to thoroughly examine the financial and non-financial objectives that are driving the agency owners to potentially sell.  Once the decision has been made to sell, the seller needs to sign on for the entire process.  Just like any strategic initiative, certain steps must be followed; there are no shortcuts to executing a successful deal.
 
3)     Understand the Value of the Agency.  Calculating the value of an agency falls somewhere between an art and a science. Acquirers use different methodologies and often will not disclose how they arrived at the value of an agency.  It is essential that the seller has a clear, realistic understanding of the value of the agency before going to market.  This step greatly enhances the seller's ability to analyze an offer and remove some of the emotion that may be attached to the transaction.
 
Note that none of these initial guiding rules for sellers have anything to do with entering into discussions with potential buyers.  Much upfront work and analysis must be done before actually going to market if one is to truly maximize both the quantitative and qualitative aspects of a sale transaction. 

 
Daniel B. Price is Vice President of Hales & Company, Inc.
Are you a Bull or a Bear?
By... Robert Stuberg

 Are you a bull or a bear?
 
Of course, I'm talking about the familiar symbols that stand for trends in the stock market. Now, if you're a bull, you believe that stock prices generally will be going up. If you're a bear, on the other hand, you are convinced that stock prices will be going down.
 
Obviously, those of us who own stocks are interested in which way the market's heading. We hope that we've invested shrewdly and that the prices of our stocks will, over time, turn a tidy profit or, who knows, even make us a fortune. We may be counting on these investments for our future security.
 
But what if prices of our stocks go down and we lose money? Now we may have something to worry about. We've lost all or a good part of our nest egg and maybe a lot of our confidence as well. We worked hard to earn and save that money and now it's gone. And gone with it maybe a lot of our hopes and security for the future.
 
This kind of financial loss can take a terrible toll on people. I noticed a newspaper headline following the market's most recent spectacular nose dive that read, "Man Suffers Nervous Breakdown after Monday's Crash." Yes, it can happen. And I decided that it's likely the poor man in question had more than just money invested in the market. It's a good bet that besides his money, he had his self-worth, his pride and his future all riding on the market and he felt he'd lost it all.
 
We recall the tragic stories associated with the stock market crash of 1929 that marked the beginning of the Great Depression. Fortunes were lost almost over night. Speculators who had invested heavily in the market with borrowed money were not only wiped out but left deeply in debt. In the days following, there was the awful spectacle of men leaping to their deaths from office windows rather than deal with the consequences of the financial disaster.
 
Extreme cases? Certainly. Did greed play a part? Probably. But lessons like these make it clear that there's a better way of living than having your peace of mind depend wholly on your net worth. And especially if that net worth depends on such a capricious mechanism as the stock market.
 
You see, I believe we're missing the point of what life is all about when we measure our self-worth by the dollar value of our bank or investment accounts. No question we should place value on the monetary wealth we've worked hard for, saved and put away to provide for a comfortable and secure future for ourselves and those we love. But the real treasure of peace of mind in life is found in how well we balance the money we have and the things money can buy with those priceless human values that ultimately sustain us.
 
The good news is that money and the human values we cherish are not mutually exclusive. But keep in mind, without the wealth of health, or the wealth of integrity, or the wealth of the love and friendship of the special people in our lives our money has no value. We might as well be destitute. These are the important human values that give our lives meaning. We have to keep them in balance with our financial wealth. In that balance, you see, lies the secret to true wealth.
 
As for the stock market, most financial experts will tell you not to worry about the ups and downs of the market. Some even suggest that once you've invested in good companies, just relax with the conviction you'll come out all right in the long run. Take heart, for instance, in the knowledge that the stocks of the 500 companies in the Standard and Poor's index have appreciated on the average more than ten per cent a year since 1924.
 
So expect your stocks to rise and fall from time to time, depending on the vagaries of the economy and political climate. Let the Bulls and the Bears duke it out. But whatever happens, never stop being bullish about what you have invested in your family, your friends and yourself. And then consider yourself truly wealthy.
 
Robert Stuberg is one of the world's leading authorities on personal and professional success. He is most widely recognized for his role as Founder and Chairman of Success.com, the premier source for personal and professional development products and services worldwide. Robert is an internationally acclaimed author, speaker, coach, entrepreneur, and consultant.
EFCA Employee Free Choice Act
By... Paul Halter, CPDU, CIC, CRM 

Passed or not, your employees have a free choice now! As employers, our employees have a free choice now to form a bargaining unit no matter what NLRB process.

In reality, if we, as employers, are not treating our employees with value and respect, we leave ourselves open to a bargaining agreement. When a specific body of work needs to be accomplished and we choose to hire an employee to complete the work, we need to look upon the employee as a valuable resource that requires care.
 
When is the last time you sat with the receptionist, rode with a sales person, worked on a production line to see the daily challenges of the job and provide support? Do you spend time communicating with your employees about the business and how the work performed contributes to the business, emphasizing that a profitable business translates to more security for everyone. Have you checked to assure that your salaries are competitive with your industry and area in which your business is located? Do you regularly review your benefit plans to assure that you are offering benefits that are competitive and meet the needs of your employees? Do you regularly praise your employees for good work and counsel them on how they can improve? One of the most important elements of work is for employees to know what is expected and to be able to accomplish the work required. Too often we expect employees to just know. Are your systems defined to the point that each employee knows exactly what is supposed to be accomplished and how to accomplish it?
 
Once you have done your homework, it is important to communicate to your employees what is important to you. Discuss such items as a safe workplace, employees being able to provide for themselves and their families now and in the future with the benefits you offer such as a safe place to work, competitive salaries, health coverage, dental coverage, vision coverage, disability coverage, retirement savings, holiday pay, a place to park, everything that is positive. Talk about the amount you must pay for state and federally required taxes over and above the amount of take home pay an employee receives. And, most importantly, talk about the fact that employees can talk directly with supervisors and you directly regarding any issue.

 
Paul Halter is Executive Vice President with The Resourcing Solutions Group
Truth About Hiring Millennials & Generation Xers
By... Michael Mercer, Ph.D.

Managers often talk trash about hiring young people - Millennials (18-28YO) Generation X (29-42YO).  However, pre-employment test research and other methods reveal the true message every manager needs to know. 
 
Fact:  Managers need to realize it does not make any difference how old or young a person is.  The one and only factor that counts is if the person you hire will be a productive, dependable, and honest employee.  Some Millennials and Gen Xers are very

> productive, responsible, and valued employees
> lazy, irresponsible, and lousy employees

 
Oops.  I almost forgot to tell you another handy management fact.  Some people older than Millennials and Gen X are extremely

> productive, responsible, and valued employees
> lazy, irresponsible, and lousy employees

 
Wow.  Isn't that amazing? 
 
Colorful trash talk by managers and in news media makes exciting "news" and human interest stories.  But the fact remains:  Managers need to hire productive, dependable, honest employees, regardless of job applicants' age.
 
With that said, let's look at some helpful research plus tips to help you hire the best, regardless of the age of the job applicants.
 
 
PRE-EMPLOYMENT TEST RESEARCH ON YOUNGER WORKERS VERSUS OLDER WORKERS
 
Companies using pre-employment tests from my firm start by us quickly custom-tailoring the tests.   We conduct research called a "Benchmarking Study" or concurrent validity study.  In this research for custom-tailoring, we have employees in the company take our pre-employment tests on interpersonal skills, personality, motivations, and mental abilities.  Then, we discover typical or "benchmark" test scores of the very best employees in each job. 
 
The resulting pre-employment tests are taken by job applicants.  Then, the company can take the logical next steps:

* prefer applicants whose test scores are similar to the very best employees
* shy away from applicants whose test scores differ from the best employees

 
In pre-employment test benchmark customizing, I continually discover the very best employees get similar test scores - regardless of their age.  For instance, ultra--productive and dependable Gen Xers and Millennials get test scores essentially the same as older employees who also are ultra-productive and dependable. 
 
Also, when starting pre-employment test "Benchmarking Studies," I have the company give me lists of employees they are testing.  Sometimes, I hear details about the employees listed.  Lo-&-behold, the very best employees span all age ranges.  That clearly shows age is not the key issue impacting productivity and dependability. 
 
Instead, it boils down to this fact, which I also emphasized in my third book, Hire the Best - & Avoid the Rest™: 
            The fastest, easiest and lowest cost way to have employees who are productive, dependable and honest is to hire people who are productive, dependable and honest human beings. 
 
REMEMBER THIS - SO YOU HIRE THE BEST
 
Pre-employment test research and work-style observations show some Millennials and Gen Xers are super-productive, dependable, and honest employees.  And some are the opposite.
 
In fact, every age group - young, old, and everywhere in between - has people who are productive employees.  Also, others are people you never should hire, because they are slackers who do minimal amounts and quality of work. 
 
So, age of job applicant does not matter.  What matters is a hiring manager's skill at predicting which applicant is likely to be productive and top-notch, if hired. 
 
Remember - as I highlight in my Hire the Best - & Avoid the Rest™ book:
            The easiest, fastest and cheapest way to have productive, dependable and honest employees is to hire productive, dependable, and honest people. 
 
And pre-employment tests, which are readily custom-tailored or each company, plus work-style insights are two great methods to predict if a job applicant will be productive, dependable, and honest.
 
So, quit wasting your time fretting about a job applicant's age.  Instead, invest your time into using prediction methods that forecast which job applicants - without regard to age - will be fantastic employees for your company.
 
Pre-employment tests plus investigating work history gives you big clues.  Look for these two key clues to hire the best:

1.  Applicant's pre-employment test scores are same as scores of your best employees.
2.  Applicant's work history reveals proven productive, conscientious work habits.
 
Michael Mercer, Ph.D. .  Dr. Mercer is a business psychologist specializing in pre-employment testing and hiring the best.  Dr. Mercer created the 3 Forecaster™ Tests - pre-employment tests that many companies use to predict job applicants' potential for success.  The 5 books he wrote include Hire the Best - & Avoid the Rest™ (in 13th printing).   
Reduction-in-Force (RIF) in a Difficult Economic Climate
By... Joseph A. Starr, JD

An employer's decision to terminate more than one employee due to reorganization, the lack of business or business closings may lead to wrongful termination lawsuits.  Employers must take great care when undertaking a RIF.  Employers must analyze the potential impact upon one or more protected groups, e.g., 40+ year old employees, women, African-American employees, disabled and/or pregnant employees, etc., before finalizing its decision as to which employees to discharge.
 
To avoid these types of claims, employers should:
 
(1) carefully plan for the RIF - with the help of an employment specialist and/or human resources professional - to ensure consistency in both the reason for the RIF and the selection of employees for termination;
 
(2) the planning should include analysis of pre-RIF workforce demographics, job classifications and a financial cost-benefit analysis; and
 
(3) strive to use objective selection criteria.

 
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.
Selling with Your Personality
By... Mark Hunt
 
Everyone can sell a policy if the premium is cheap enough or if what is being sold is something people can't live without.  However, for the vast majority of us, neither of these luxuries are part of the scenario.  The difficulty of selling is compounded by the fact that most customers have a wide range of options available to them regarding what they can buy.   Therefore, in order to close the sale, it becomes necessary for us to stand out from other salespeople.  One of the best ways to be different is by displaying confidence.

A powerful sales tool that many of us overlook is our personality.  It positively and negatively influences far more sales than we will ever admit to.  I firmly believe that you should use your personality to impact every sales call.  "CPP" is a concept I often teach to sales groups.  It stands for "Confidently Passionate Personality" and it means to use your personality with a level of passion and confidence that allows the client to believe you are genuinely interested in them and their success.  Although it's not rocket science, it is a critical idea that is often neglected and is very useful in helping you gain sales over your competition.

Note that in order to successfully use your personality on a sales call, you have to be confident in how you can help your customers.  Unfortunately, many agents are simply confident in what they're selling, not in their ability.  There's a big difference.  When you're confident in what you're selling, it means you're putting more emphasis on your policies or services than you are on your customers.  This misunderstanding eliminates a large number of salespeople from being able to use their personality to positively influence their ability to close.  Confidence should not come across as manipulation.  I'm sure we all know salespeople with infectious personalities that use them to bulldoze their way through with customers.   On the surface, they're very successful, at least for the short term.  However, those who have a manipulative personality will lull themselves into a false sense of security when, in reality, they're destroying their long-term sales potential.

A confident salesperson is willing to take the time to find out what the real needs of their customers are.  They don't jump at the person's first comment and try to close the deal.   Their genuine interest helps expose the underlying needs that the customer may otherwise not be willing to share.  Confident agents believe so strongly in themselves and their ability to help that they're not concerned with making a quick sale.  Rather, they want to make a great sale, which is usually much bigger and more profitable than a quick one.

Furthermore, when you're genuinely confident in yourself as a salesperson and how you can help people, it's impossible to keep from showing your passion.  The word "passion" is usually heard in the context of someone being avidly in love with another person.  This is not what I'm talking about.  The "passion" that I'm referring to is showing genuine care and concern for helping the customer.  This means that you're willing to not only take interest in what they are telling you, but to also dig deeper, even if it takes you down a line of questioning you had not planned on.  The true test in demonstrating passion towards a customer is if after you've determined their needs and discovered that they are not in line with what you are selling, you would be willing to refer them to someone else.  That's passion!  Yes, it may mean giving up a sale, but I guarantee that if you truly are passionate towards your customers, you'll end up with far more sales in the long-run than the person who is not.

Finally, to successfully use your personality as a sales tool, you must be someone that people like to associate with.  Negative or self-serving personalities will not see positive results.  Your personality must be upbeat in both actions and words, and should be complimentary to everyone you come in contact with.   Attractive personalities do not get easily upset with issues, are willing to help find solutions, and are optimistic.  They are inviting rather than exclusive, and they cause others to be willing to share openly.  Very simply, an attractive personality is one you would like to hang out with. 
 
To determine your level of confidence, ask yourself the following two questions. 

           Do customers call you for information that goes beyond the policies you sell? 
           Do customers willingly refer you to others?
 Although they are simple questions, the responses they elicit can quickly tell you if your personality is confident, but not arrogant.

Having a "Confidently Passionate Personality" is not something every agent can achieve.  However, for the vast majority, it is attainable if they're willing to show genuine interest in their customers.  The questions they ask and the service they provide will allow their personalities to be the effective sales tool that differentiates them from their competition.
 
Mark Hunter, "The Sales Hunter," is a sales expert who speaks to thousands each year on how to increase their sales profitability.  

New FMLA law -- burden or relief?
By... Paul Halter, CPCU, CIC, CRM
 
The new Family Medical Leave Act requires all employers to provide a copy of the regulation policy to each employee upon hire, even if the organization is not covered under the Federal Act. The regulation requires employees to specifically apply for FMLA leave and gives clear guidance on how this is to be accomplished by the employee and employer.
 
Under the former regulations, too often, employers were blindsided when suddenly an employee filed a suit or charge and the employer had no idea that the employee considered their absence to be covered under FMLA. The new regulation leaves no doubt that an employee must apply for leave and specifies the length of leave. Once the length of leave is exhausted, the employer no longer has a responsibility to reinstate the employee if the employee chooses not to return to work upon the end of the leave. Prior to this, employees often expected their jobs to be held open for any length of time while the employer's business suffered through the uncertainty of the employee's return.
 
The bottom line to the new FMLA regulations is the additional administrative work should lead to more clarity for employees and employers, and fewer legal entanglements for everyone.
 
Paul Halter is Executive Vice President with The Resourcing Solutions Group.
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