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AOA Tips, Views, News & More

You Don't Have to Anything Wrong to Get Sued! Do You Know How Your E&O Policy Will Respond?

By Curtis M. Pearsall, E&O Consultant and President of Pearsall Associates Inc

While I can certainly not speak to other professional liability classes, in the world of Agents E&O, this statement is extremely accurate. Actually, there are some E&O carriers that are reporting that historically, they are closing out close to 70% of their cases for no loss payment (there is typically defense costs on the overwhelming majority). What does this mean?

The majority of the cases develop when a customer (or other party) suffers a loss only to find out that there is not sufficient coverage. In their mind, they then seek out someone that they can "blame". More often than not, the agent is one of the first "names" they think of. But when the matter is resolved, in the majority of the cases, it is proven that the agents either did not do anything wrong and / or that they had a strong wall of defense when the litigation developed. Could the agency have any financial responsibilities even though they were "not guilty"? It depends.

Take the following claim to illustrate the point:

On June 8, 2010 Mr. Curt acquired property and his agent (Jones Agency) issued a binder to the ABC bank listing the bank as a lien holder. This binder was for 60 days and thus expired by its own terms on August 8, 2010. It is important to note that at no time subsequent did the bank request any further evidence of insurance. A policy was eventually issued and when the HO policy expired on its own in June 2011, Mr. Curt moved his business to another agency. In August 2012 (over a year later), the property is destroyed by fire and apparently Mr. Curt has no insurance and thus there is no policy where the bank is named as a lien holder. The ABC Bank brought action against the Jones Agency (the 1^stagent) claiming that they should have received a notice of cancellation or nonrenewal and if it had, it would have actively sought it's own coverage to protect it as the mortgagee (this was not accurate as the policy expired on its terms, without cancellation or nonrenewal). The bank relied on a two year old expired binder as evidence of insurance at the time of the fire and proceeded with litigation against the agency. The agency had to retain defense counsel in order to establish that they were not the broker of record and hadn't been for over a year. In addition, the language contained on the binder clearly noted it was only good for 60 days. Since Mr. Curt had moved his insurance to another agency, the Jones Agency was eventually absolved of any wrongdoing. However, there were still defense costs incurred. Who paid these?

In this matter, the Jones Agency had E&O coverage with a $5,000 deductible which required them to pay defense costs as part of that deductible. As a result, the agency had to incur a $5,000 expense when they technically did not do anything wrong. While this did not sit well with them, this was the E&O coverage they had purchased.

What the above claims shows is that at the time of the claim, the party that has suffered the loss (the bank) is going to look to recoup their loss and if they can find a way to "blame" someone else, they may very well do that. In many cases, the bulls-eye will be on the agent's back.

Another potentially significant issue for agents to be aware of involves the manner in which defense costs can impact the limit of liability. Most E&O policies provide defense "in addition to the limit of liability" and thus, when E&O litigation develops, the defense costs incurred will not impact or impair the dollars available to pay any judgment against the agency. It is certainly possible for the cost of E&O litigation to be in excess of $100,000 and there have actually been some E&O claims where the defense was over a $1,000,000. With most Agents E&O policies, this expense would have been heavily (if not totally) borne by the E&O carrier and the limits of liability to pay any judgment would have not been impacted. However there are some E&O carriers (mostly those writing on a surplus lines basis) that have a different structure ("defense within the limit") to their contract.

If the E&O coverage was written with "defense costs within the limit of liability", the defense costs incurred in litigating the matter would reduce the limits ultimately available if a judgment is made against the agency. In other words, let's say the agent has an E&O policy with a $1,000,000 per claim limit. An E&O matters develops and $150,000 of defense costs is incurred. If the policy provides for defense costs as part of the limit of liability, there would then only be $850,000 left for any judgment. It is not difficult to see that based on the type of claim, this could result in "insufficient limits" left to pay any potential judgment.

Since agents can still be sued even when they technically didn't do anything wrong, the agency needs to well aware of how their E&O policy will respond. Do you know how your E&O policy reads in this regard?

Don't wait until after a claim to find out.

For additional information, contact Curt  at curtis@pearsallassociates.com or 315-768-1534

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Tips For Surviving the PPACA Doom & Gloom - Thriving in 2013 and Beyond!                                                                                            

By Philip Eide, President of BenefitPlace.biz

Quote - "One who gains strength by overcoming obstacles possesses the only strength which can overcome adversity." - Albert Schweitzer

For the past several years there has have been a barrage of information promoting "Doom and Gloom" for the Insurance and Benefits Industries.  While the introduction of PPACA/Obamacare started the systemic negativity, the Supreme Court Ruling gave it momentum, and now the Election Results have taken it into a further downward spiral.

In 2010 one reliable source predicted that over 50% of all Health and Life brokers would be out of business within 4 years!

The P&C markets have also been affected!  Several months ago we came across the following quote by Mike Jackoski - "PandC insurers have had a bad taste of doing business in 2012, and they realize they are dealing with a tough environment-one in which little or no organic customer growth exists to fuel corporate growth. Gaining market share means taking it away from someone else, so the level of competitiveness in the industry is high and will only get more intense."

The Industries - Health and Life (H&L) and Property and Casualty (P&C) - are facing many challenges and disruptive changes!  These include:

ñThe ongoing Economic Recession!

ñUnemployment and Under-Employment!

ñExisting Regulatory Constraints!

ñA lack of guidelines for PPACA!

ñUncertainty about State vs Federal Exchanges!

ñShrinking Commissions and Capitated Payments!

ñInsurers dealing directly with consumers over the internet!

ñIncreased Costs of Administration and Reporting!

ñUncertainty about Taxation for Individuals and Organizations!

The above factors generated a "Wait and See" attitude.  Agents/Brokers - and their Clients -  have failed to initiate Innovative Strategies in the face of the Disruptive Change even at their own risk!

The time has come for Agents/Brokers - as well as other participants in the Insurance and Benefits Markets - to embrace the changes and take pro-active and innovative approaches for meeting client's needs!  The following measures might best serve Organizations and Individuals in serving Clients while attracting Potential Clients:

ñAccept - and even embrace - change!  Make the changes work for you!

ñCapitalize on the Markets and the potential Clients that are expanding with PPACA!

ñExamine a shift to a fee based model!  It worked for the Financial Services Industries!

ñDiversify!  Traditional H&L Brokers and can learn from - or join with -

 Voluntary/Worksite Brokers!  P&C firms can leverage their existing relationships to

 joint venture with the H&L and Voluntary/Worksite Specialists.

ñLeverage Expertise - Expand into markets that are new to you or that require specific

expertise by utilizing the services of Wholesalers, GAs, PAs, etc!

ñShift from expensive and often wasteful "Outbound" marketing strategies, ie.

Advertising, Buying Lists, Cold Calling, Call Centers, Traditional 3 Day Trade Shows,

etc. to "Inbound" Marketing ! 

ñLeverage the Power of the Internet, Social Media, Search Engines, SEO, etc. as the basis for your "Inbound" Marketing Strategy!

In my Blog of June 6, 2011 I posted, "A Rebound in the US Markets - combined with expanding worldwide opportunities, a renewed emphasis on saving, and the preservation of income will open new markets for those in the Insurance and Benefits Industries who remain!  THE UNITED STATES IS, REMAINS, AND WILL CONTINUE TO BE THE BEST PLACE TO LIVE, WORK, OWN A BUSINESS, CREATE A BUSINESS, AND TO PRESERVE EARNED INCOME IN THE WORLD!"  I'll stand by that statement today!

For additional information, contact Philip W. Eide - max@benefitplace.biz or Call - 216.577.55

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Insurance Coverage Tip

By Alison Slezak of Martin & Company

aslezak@martincompanyus.com

New Commercial Auto Telematics Program

Auto insurers are always looking for new ways to better market themselves to consumers. Many insurance companies have begun to offer programs based on self-installed electronic devices in vehicles, which collect valuable driving data. This data can ultimately lower insurance rates for consumers since it is purely based on the insured's driving habits.  These devices have become very common with Personal Auto Policies, but one can expect to see more of these device programs being offered for Commercial risks as well. 

Recently, Utica Mutual introduced a Telematics Premium Discount Program for use with their Commercial Auto Program.  A discount is provided to the insured for implementing a risk management based Telematics Product. The Program works by first installing a micro processing device into the autos for the purpose of capturing raw data that is then transmitted to a central server. The data from the micro processing devices (the Telematics equipment) is then used as a risk management fleet safety tool to qualify for a Telematics Premium Discount.

Vehicles that are eligible for this Program include Private Passenger, Light Trucks, Medium Trucks, and Heavy, Extra-Heavy Trucks or Truck-Tractors.   

To view more "hot trends" in the Property & Casualty Insurance Marketplace, visit:

Martin & Company's Market Trends & Updates  or contact Alison at 

aslezak@martincompanyus.com or(610) 325-4455