E&O Prevention
Strategies for the Professional Agent
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March 29, 2012


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Letter from the Editor

Letter from the Editor


AgentsofAmerica.ORG supports the City of Hope. Come join us for some fun and support the City of Hope! Watch the College National Championship Game, April 2. In Chicago and Los Angeles and San Francisco. Sign up at "Hoops for Hope" to Help cure cancer and diabetes now! 


Check out this month's edition of "AOA News, Views, Tips & More." The objective is not only to provide you with some interesting articles dealing with topical issues and subject matter, but to also to provide you with important information and insights that is relative to your business. As always, our mission is to deliver the BEST people, products, information, and services to agents all designed to help them manage and grow their business and provide ongoing value to their clients.  


Analyzing potential workplace law exposure risks becomes more difficult each year. Evaluating employment practices liability risks requires consideration of such factors as (1) the jurisdiction and court in which a claim arises; (2) evaluation of how juries typically treat such claims; and, (3), the strength of the insured's witnesses and defense. These factors are case-specific. However, data can provide useful guidance. Attached please find a multi-color charts analyzing this crucial data "2011 Jury Award Trends and Statistics" courtesy of Paul J Siegel a Partner in the Long Island, New York office of Jackson Lewis LLP. SiegelP@jacksonlewis.com 


Insurance Resources 


AgentsofAmerica.ORG has partnered with WebCE, a leading nationwide provider of Continuing Education for insurance professionals to provide you with state-approved self-study CE courses to satisfy your CE requirements online! WebCE delivers over a half million courses annually, and offers the largest nationwide catalog of courses approved to satisfy state-specific subject requirements. In addition, we have also created a new featured for our readers, entitle Insurance Resources, which includes a number of useful links including:


As always, we want to thank everyone for their support. Remember to tell your friends and business associates that AgentsofAmerica.ORG is Free, FREE MEMBERSHIP.


"Bringing the Best Together" 


 Brit Weimer


AOA News, Views, Tips & More 


E&O Tip

By Curtis Pearsall, CPCU, AIAF, CPIA of Pearsall Associates Inc.


Also see his article this month, 


Does your staff know their E&O exposure?


Bottom line, virtually every agency staff level has the potential and actually is "causing" E&O claims. Producers are # 1 (approximately 50%) followed by CSR's / account execs and then "the rest of the staff". Help your staff understand their E&O exposure and what steps can be taken to address it.  


Starting with producers, they have tremendous responsibilities with most having some element of E&O exposure. Essentially, the manner in which producers conduct themselves is the key. While honesty and integrity are probably obvious, unfortunately, that is not always the case. In addition, it is critical that producers don't over promise or make statements that could potentially cause a problem. Statements such as "we will make sure that you are covered for whatever can happen to you" or that your agency is an "expert" could raise the liability that your agency would be held to. 


For many years, the # 1 cause of E&O claims is "Failure to provide the proper coverage". To address this and to ensure that the producer understands the risk, it is highly recommended that they perform an exposure analysis of the account. 


Next are the agency CSR's. These staff are typically the focal point for dealing with customer's questions and issues and this requires solid technical skills. It is critical that these conversations with customers and carriers be documented promptly and accurately not only in the agency system but back to the customer / carrier. This additional documentation will alleviate any potential misunderstandings. 


Does your receptionist have an E&O exposure? Most definitely. Obviously, they are the 1st person that your customers will interact with and although they no doubt want to be helpful, they need to understand when to hand certain issues off to a different level within the agency.


For example, when a customer comes into your agency to pay their direct bill premium, the receptionist should not be part of this transaction. Instead, they should require that the CSR interact with the customer to verify the current status of the account. 


Lastly, the claims staff. There is no doubt that E&O claims from the agency claims staff are on the rise. The manner in which claims are handled by the agency has tremendous potential to cause an E&O claim and thus it is very important that claims handling be performed thoroughly and timely.


There have been a number of E&O claims when the agency improperly denies a customer claim without sending it to the carrier. They were totally convinced that the claim was not covered. Unfortunately, they were wrong. In addition, when a claim is submitted, all policies should be reviewed to determine possible coverage. 


In conclusion,no one in the agency is immune from causing an E&O claim. Take the time at an upcoming staff meeting to discuss this issue with your staff and make them aware of their exposure. This practice will help to enhance the culture and commitment within your agency and may just save you from an E&O claim.


For additional information, contact Curtis at curtis@pearsallassociates.com or visit Pearsall Associates.





Financial Tip of the Month 

By Mike Brady of the Brady Financial Group, LLC.   

Contact Mike at mike@bradygrp.com



The In Trust calculation is a ratio that every agency owner needs to be familiar with. I have found this to be one of the most important measurements in the industry and also the one most overlooked. This ratio measures whether an agency is using trust money, client premiums they have collected in a fiduciary capacity, to pay agency related items. At all times this ratio (Cash + Accounts Receivable/ Premiums Payable) must be greater than 1.0. A ratio lower than 1.0 indicates that the agency is out of trust, which violates agency agreements with carriers, would have a negative impact on agency value and can also result in legal issues. Visit Brady Financial Group.





Insurance Coverage Tip 

By Kristin Toto of Martin & Company


A Novel Approach to Promoting Safe Driving Habits


While the invention of smart phones and savvy technological devices has brought about great innovation, it is also creating less-than-safe driving habits that are becoming an increasing concern for carriers writing Private Passenger Auto Insurance.


Unitrin Direct conceived a novel approach to promoting safe driving habits among this more technology-centric generation of insureds. Unitrin's "Network Discount" allows an insured to receive an additional 10% off their Private Passenger Auto Insurance if they: 1) agree to the "My Network Safe Driving Pledge" and 2) get a friend to sign-up and agree to the safe driving pledge, as well.


The "My Network Safe Driving Pledge" consists of 5 statements that encourage drivers to follow all law and traffic safety rules, to drive safely and responsibility, to avoid distractions while driving (i.e. texting/eating/smoking while driving), to maintain the vehicle in a safe condition and finally to encourage "Network Mates" to carry out these safe habits too.


Unitrin believes that the combination of having to accept the Safety Pledge and the necessity of having a "network" in order to maintain your discount provides an appropriate amount of peer pressure to encourage safe driving habits.


To view more "hot trends" in the Property & Casualty Insurance Marketplace, visit: Martin & Company's Market Trends & Updates. 


Insurance Product Research & Development * Martin & Company

Tel: (610) 325-4455 * Fax: (610) 325-4405 *www.martincompanyus.com.




E&O Loss Prevention Tip

Description of Claim:


Hidden Dangers with New Client/New Business

The Agent was approached by a new client to procure patent infringement coverage for his business. The underlying insured developed, patented, and manufactured a product that was to be marketed to dentists throughout the world. The agent had very limited knowledge of the client's operations and failed to adequately uncover the client's needs. The agent procured a commercial general liability policy that provided coverage for the underlying insured for instances when a third-party alleges that the client infringed on a third-party's patent. However, the client alleged to have requested that he wanted a policy that would provide coverage that would provide legal dollars to pursue third-party's for infringing on his patent (offensive patent infringement coverage). The client alleged that the agent failed to procure the coverage that was requested and that the agent misrepresented the coverage that was actually procured.


The underlying loss:  The client discovered that another company had manufactured a product that was identical to his which was cutting into his profits. He sought to have a patent attorney initiate a suit against this third-party and recover his losses.


Damages:  In excess of $100,000


Brought to you by:  CalSurance Associates - A Division of Brown & Brown Program Insurance Services, Inc. - Email: info@calsurance.com, Phone: (800) 745-7189



RiskSmart Solutions - Risk Management Tip

By Charles T. Wilson of RiskSmart Solutions


See also his article, "Help Your Broker Make You Look Good"  


How many policyholders know how to work closely with their broker - to make both sides work easier and more productive.


Brokers would do well to teach their clients some steps and point out the benefits that can accrue to the insured.  Here's the start of savvy client checklist:


  • Ask your broker for a pre-renewal strategy meetings 90+ days in advance
  • Come prepared with revenue and payroll estimates
  • Update values for buildings, inventory, vehicles & equipment
  • Understand the difference between RC and ACV for declared values
  • Be ready to report claims-made policy "incidents" or possible claims
  • Start a "story" about the lessons learned from past claims and how you're now more prepared to avoid similar losses in the future


From your experience, what else should be added?  Please let me know!


Contact Charles at charles@risksmartsolutions.com | 510-685-3883 or visit www.risksmartsolutions.com





Result From Last Month's poll question:  (New Feature) 


What would your firm consider to be the most important item in making a change to a new E&O Insurance Carrier?

  • Price 70%                                                
  • Coverage 18%    
  • FinancialStrength/AMBestRating 12%

This month's poll question


Would you place business with an insurance carrier even when you do not have full errors and omission coverage in place. (i.e. - Placing business with a B rated carrier when your coverage does not provide coverage for carriers rated less than B+)




Depends on the circumstances




How to Make and Save Money in this Market 

By Bruce Hughes of 321Swipe.com 


Do you want to blow away your competitors?  Bundle more services and products. Value-added services can differentiate your company from the pack.


The only way your company will survive against the new channels of distribution is to offer more value-added services than they do with a package of products. A value-added service is an investment that you have made in your company or its employees that makes life easier for your customers or helps you do a better job.


Value-added services help differentiate your company from its competitors, and it's important to regularly examine the services that your company offers-and more importantly those of your competitors. Take a close look at the services a competitor is unwilling or unable to perform and you may find that your company can package some of them for your own mix of customers. The company with the best package of value-added services will usually outpace its competition. 


For specific ideas contact me. R Bruce Hughes, CEO, 321 Swipe - Merchant Service Provider, 877 321 1020 x103 or BHughes@321Swipe.com 




Social Media Tip

By Cynthia Cavoto of Firebrand Social Media.


Here is this month cost-effective and easy SMM (social media marketing) idea to benefit all website businesses:


Grow Twitter Followers: This excellent marketing platform has expanded within the past year to exceed the popularity of Flicker and Orkut, two social media websites which enjoyed huge popularity until the snappy, cute, and brief message update system beat their member base. Signing with Twitter is absolutely free. Therefore, reserve your business account then secure your business's name. Do a fundamental search for familiarizing yourself with top phrases and keywords utilized by the leading competitors to gain more followers upon Twitter and utilize them to create a customized social media optimization plan for your company.


This month's EBook is entitled, "Pay Per Traffic Secrets"  
Each month, we will feature a brand new Social Media EBook that contains valuable information on how you can harness the power of social media. Each featured EBook will contain a wealth of information that will include such topics as Facebook, LinkedIn, Twitter, Email and Blogging to name a few. Contact Cynthia at cynthia@agentsofamerica.org







Michael Mercer, Ph.D., provided AOA with the Motivational Quotes and Joke-of-the-Month.  He is author of "Hire the Best & Avoid the Rest" plus 5 other books.  You can subscribe to "Dr. Mercer's HIRE THE BEST Newsletter" at:



Also see Dr. Mercer article, "9 Horrible Phrases Used by Job Applicants You Should Not Hire"


INSPIRATIONAL QUOTES - -- from popular dance music songs


"Reach for the stars.  And even if you don't grab them, at least you end up on top of the world."

- from song "Give Me Everything"


"You're magical.  You're a miracle."

- from song "Love Song" by Selena Gomez


"I just want to live my life, and celebrate."

- from song "Dynamite"


"Sometimes I get a good feeling . . . a feeling like I never had before . . . I get a good feeling."

- from song "Good Feeling" by Flo Rida



"If you sit there and race your engine, it'll make the light change even faster." - Ed Foreman



Table of Contents


By Curtis Pearsal, CPCU, AIAF, CPIA


Help Your Broker Make You Look Good 

By Charles T. Wilson, CMC, CRM, RPLU


Pin the Tail on the ERE 

By Todd Dashoff, ACAS, MAAA, ARM of Huggins Actuarial 


Insured Fails in Attempt to Obtain Independent Counsel 

By Michaela L. Sozio, Esq. of Tressler LLP


9 Horrible Phrases Used by Job Applicant 

By Dr. Michael Mercer, Ph.D


Key Issues in Food Insurance Law 

By Robert Chester Esq. of Lowenstein Sandler PC


By Dana Hentges Sheridan, Esq. of of Tressler LLP


Court Effects Contraction of Contract Claims 

by Dana B. Mehlman, Esq. of Hinshaw & Culbertson LLP


Accountant Cannot be Held Liable to Third Parties 

By Thomas Paschos, Esq. of Thomas Paschos & Associates, P.C.


By Treacy Duerfeldt

howHow Your Agency Handles Property Valuation Claims  

By Curtis M. Pearsall, CPCU CPIA of Pearsall Associates Inc.


When analyzing the E&O results within certain lines of business, there is no doubt that when it comes to commercial property and  

homeowners, valuation is a huge cause of claims. Bottom line, 

your client suffers a loss and when they don't receive the settlement

that they thought they should, filing an E&O claim against the agency is a common occurrence. 


Read More... 



helpHelp Your Broker Make You Look Good 

By Charles T. Wilson, CMC, CRM, RPLU   


Previous Tips have discussed Broker Basics and the Top 10 Services you'll want to negotiate. Here, we'll examine what you need to do to be a great - educated and savvy - customer.


Read More... 



pinPin the Tail on the ERE 

By Todd Dashoff, ACAS, MAAA, ARM of Huggins Actuarial 
Services, Inc.


Extended reporting endorsements (ERE) provide a period of additional coverage for eligible insurance claims reported after the expiration of a claims-made insurance policy, which covers claims reported during the policy term.  The length of the additional period depends upon the terms of the policy, and can vary from one month to an unlimited period.  While technically it is not a distinct policy but an endorsement to the expiring claims-made policy, an ERE is commonly referred to as a "tail policy".  This is largely because the ERE provides a new effective date and a renewed aggregate loss limit that cause it to function like a separate policy.   



insuredInsured Fails in Attempt to Obtain Independent Counsel 

By Michaela L. Sozio, Esq. of Tressler LLP


A California federal court judge denied an insured's motion for preliminary injunction that was filed in an attempt to prevent its insurer from assuming its defense via the appointment of panel counsel as opposed to independent counsel. Poshe USA LLC v. Nautilus Insurance Company, No. 11-06795, C.D. Calif.



nine9 Horrible Phrases Used by Job Applicant  

By Michael Mercer, Ph.D.


You can hire the best when you accept this fact: Words have meanings. And words a job applicant uses reveals how that person will think, feel, and act if hired by you.


Beware: Some words applicants use are warning signs. 


Read More... 



keyKey Issues in Food Insurance Law 

By Robert D. Chesler, Esq. of Lowenstein Sandler PC

2011 saw the passage of the Food Modernization and Safety Act, vastly increasing the powers of the FDA to inspect and recall food products.  2011 also saw a striking increase of illness and fatality arising from contaminated food, most notably from sprouts in Europe and cantaloupes in the United States.  


Read More... 






 Click here for Free Property and Casualty Ideas 





recissionRescission of Policies Permitted When Insured's Misrepresent 

Prepared by Dana Hentges Sheridan, Esq. of of Tressler LLP


Concealment of a counterfeiting scheme in the renewal application amounted to a material misrepresentation, thus warranting rescission as the loss was not, in the California federal court's view, fortuitous under either the first issued policy or the renewal policy. The Upper Deck Company, et. al. v. Endurance American Specialty Insurance Company, 2011 U.S. Dist. LEXIS 148668.



courtCourt Effects Contraction of Contract Claims 

By Dana B. Mehlman, Esq. of Hinshaw & Culbertson LLP


Plaintiff client entered into a design-build contract with defendant design-build firm for a resort and conference center. The contract also stated that the design-build firm would provide architectural, engineering and construction services. Almost 10 years after substantial completion of the project, the client sued, alleging that the design-build firm "defectively designed and/or defectively installed" portions of the project, leading the client to incur significant costs for inspection and repair.


Read More... 




accountantAccountant Cannot be Held Liable to Third Parties 

By Thomas Paschos, Esq. of Thomas Paschos & Associates, P.C.


In Cast Art Industries, LLC v. KPMG LLP, --- A.3d ----, 2012 WL 489229 (N.J. February 16, 2012), plaintiff, Cast Art Industries (Cast Art), was a producer and seller of collectible figurines and giftware. Papel Giftware (Papel) was in the same line of business as Cast Art, and in the spring of 2000 Cast Art became interested in acquiring Papel. Eventually, Cast Art decided that a merger, rather than an acquisition, would be the preferable format for such a transaction. Cast Art lacked the financial ability to complete such a transaction on its own. As a result, it negotiated a loan agreement with PNC Bank (PNC) for $22 million to fund the venture. One of PNC's conditions to advancing the $22 million loan, however, was that it receive audited financial statements of Papel.


Read More...  











fadingFading Memory - Staying Home 
By Treacy Duerfeldt


How many times do employees have to wait days (not hours) before a knowledgeable manager from their company can advise them on their worker's compensation claim? Sometimes this can be a whole week.


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