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"A Comprehensive Guide to Avoiding E&O Claims" addresses issues that Insurance Agents & Brokers encounter every day. One of the most important assets an agent has is their reputation; it takes years to build a business and only one mistake to ruin it. "Book One" is a practicable guide and resource that every Insurance Agency should read and use as an effective risk management tool.
This week's edition of AOA E&O Prevention:
Table of Contents
By James A. Knox, Jr., Esq
By Joshua H. Romirowsky, Esq.
Check out todays edition of World Risk & Insurance News at
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AOA Tips, Views, News & More
Expanding Potential Liability for Insurance Agents & Brokers
By Marc J Zimet, Esq. of Jampol Zimet LLP
California law is well-settled that insurance brokers owe a limited duty to their clients to "use reasonable care, diligence, and judgment in procuring the insurance requested by an insured." (Jones v. Grewe (1987) 189 Cal.App.3d 950, 954; Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1153.) A recent case decided in February of 2012 raised the issue of whether brokers in California owe a further ongoing duty after procurement to monitor a carrier's financial condition and inform their clients of adverse changes in the carrier's solvency. In a narrow holding, the Court of Appeals for the Fourth District declined to impose that additional duty on brokers. The case was Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Insurance Services West, Inc. (2012) 203 Cal.App.4th 1278.
In June 1999, a developer engaged broker Aon Risk Insurance Services West, Inc., to obtain insurance for a construction project in downtown San Diego. Aon procured a unified blanket insurance policy with Legion Indemnity Company, which provide liability insurance for every contractor and subcontractor on the project for up to ten years after the construction was completed. A subcontractor, Pacific Rim Mechanical Contractors, Inc. (PacRim), became an enrolled party in the OCIP and Aon provided PacRim with a "Certificate of Liability Insurance" in autumn of 2000.
The project's homeowners association sued the contractor and subcontractors for construction defect in 2009. PacRim filed a cross-complaint against Aon asserting that Aon had breached a duty of reasonable care to procure and maintain the insurance policy by failing to disclose to PacRim that the state of Illinois had entered an order of conservation against Legion in April of 2002, followed by a liquidation and finding of insolvency in April 2003.
The trial court found in favor of the broker, Aon, sustaining its demurrer to all of PacRim's claims. PacRim appealed. The Court of Appeal for California's Fourth District affirmed the trial court's decision, finding in favor of the broker. The court concluded that under current law Aon did not have a duty to inform the subcontractor of Legion's post-issuance insolvency. The court reasoned as follows: 1) Under Insurance Code section 677.2, the duty to notify an insured that has a certificate of insurance of a carrier's insolvency rests with the carrier, not with the broker. (Citing Kotlar v. Hartfor Fire Ins. Co. (2000) 83 Cal.App.4th 1116.) 2) Imposing this duty on brokers is not properly a function of the courts but rather of the state Legislature, since it would "fundamentally alter the nature and corresponding duties of insurance brokers, which would... increase the costs of procuring insurance." (Pacific Rim, supra, at p. 1285.) adverse changes in Legion's financial condition.Nevertheless, unlike several other states, California thus far has chosen not to enact legislation imposing a statutory duty on insurance brokers and agents to notify an insured of a subsequent insolvency as soon as the broker or agent becomes aware of the insolvency. The most recent California insurance legislation, Assembly Bill 2303, which becomes effective January 1, 2013, is designed to ensure a timely process for initiating the conservation and liquidation of insurers in order to protect consumers from the devastating effects of insurer insolvencies. However, AB2303 does not impose new duties on brokers and agents to notify their clients of post-procurement insolvency. Bear in mind, though, that brokers and agents still must use reasonable care, diligence and judgment at the time of procurement with regard to conservation and insolvency.
Although the court found in favor of Aon and declined impose a new duty on brokers, the court's holding was narrowly tailored to the facts of this particular case and leaves open the possibility for other courts to reach a different conclusion under different facts. Specifically, the court in this case indicated concern that the duty PacRim asked it to impose on Aon was not merely to notify PacRim of Legion's insolvency, but to notify PacRim of the conservation order and indeed of any and indeed of any adverse changes in Legion's financial condition.
Nevertheless, unlike several other states, California thus far has chosen not to enact legislation imposing a statutory duty on insurance brokers and agents to notify an insured of a subsequent insolvency as soon as the broker or agent becomes aware of the insolvency. The most recent California insurance legislation, Assembly Bill 2303, which becomes effective January 1, 2013, is designed to ensure a timely process for initiating the conservation and liquidation of insurers in order to protect consumers from the devastating effects of insurer insolvencies. However, AB2303 does not impose new duties on brokers and agents to notify their clients of post-procurement insolvency. Bear in mind, though, that brokers and agents still must use reasonable care, diligence and judgment at the time of procurement with regard to conservation and insolvency.
For additional information, contact Marc at email@example.com or (213) 689-8500
By John A. Snyder, Esq. of Jackson Lewis LLP
An executive in Pennsylvania who filed suit against her former employer over control of her
LinkedInaccount under the Computer Fraud and Abuse Act ("CFAA" or "Act") had her CFAA claim dismissed as her lawsuit survived under alternative theories. The decision granting partial summary judgment in Eagle v. Morgan, Civil Action No. 11-4303, (E.D. Pa. Oct. 4, 2012) is noteworthy for a couple of reasons: First, it is a rare instance of a former employee attempting to wield the CFAA against an employer, instead of the other way around as is typical in non-compete and trade secrets cases. (The Act is currently at the center of a circuit split as to whether unauthorized use of a computer by an otherwise authorized employee is actionable.) In this case, however, the former executive invoked the Act where her successor as president of the company used her password to appropriate the profile for herself. Second, the case may portend more employment-related litigation over the ownership and control of social media accounts.
The plaintiff in this case, Dr. Linda Eagle, co-founded a company, Edcomm, and created a LinkedIn account indicating her title and position as President of the company. Her assistant maintained the password to the account. Dr. Eagle then sold Edcomm and ended her employment. The new interim CEO of Edcomm place her own name and photograph on the LinkedIn profile and changed the password. All of Dr. Eagle's awards, honors, recommendations and connections remained on the profile, however, and Dr. Eagle could no longer access the account or retrieve messages.
The Court dismissed the CFAA claim on the grounds that unsupported assertions of harm to ongoing business ventures, speculative lost business, legal fees associated with drafting the complaint, and the alleged harm to Dr. Eagle's reputation and claimed devaluation of her LinkedIn account were not sufficient to sustain a damages claim. A Lanham Act claim was also dismissed. The court declined to dismiss a number of state law claims, however, so the lawsuit will move on and we are likely to see similar disputes in the future.
Do You Believe?
Are you convinced that much of what we do today (new business, marketing, servicing, etc.) will be done almost exclusively on the Internet in the months to come? I am.
I believe it. I've seen the numbers of Internet usage increase exponentially practically every month. I've listened to the younger generation tell us that e-mail in all its forms is the way they want to communicate with us. I've watched Baby Boomers become more and more enamored with the Internet...even social networking.
ACTION PLAN - Step One
Get e-mail addresses for every client, personal and commercial.
Get them for prospects.
Make this a cardinal rule in your agency: "When you are talking or communicating with ANYBODY, ask for their e-mail addresses, every time".
Your CSR's will get most of them...because they are the ones who interface more with your clients. They (CSR's) will become used to the system, and much more in favor of it as they begin to realize how much of their current work can be minimized by having your clients use the Internet.
You'll be much more inclined to set up a system to get the addresses when you realize how inexpensive it is to communicate via e-mails, e-mailed newsletters, renewals, cross-selling, at al.
The best time to get started with your systemized approach to this task is today.
Show your staff this column. Initiate conversation. Work through the mechanical aspects. Have contests. Motivate the troops.
You'll be so glad you did. I believe.
Secret Payments By an Employee to Herself Out of a Payroll Account Do Not Fall Within the Salary Exclusion
By James A. Knox, Jr., Esq of Tressler LLP
A common type of fidelity bond covers a loss resulting directly from a dishonest act by an employee only if the employee has two "manifest intents." The employee must both intend to cause the loss to the insured and intend to obtain a financial benefit for his or her self or another. Furthermore, this cannot be just any financial benefit. A so-called salary exclusion is written into the definition of financial benefit. For example, [the employee must have manifest intent to] "[obtain financial benefit (other than employee benefits earned in the normal course of employment, including salaries, commissions, fees, bonuses, promotions, awards, profit sharing or pensions)."
Richards v. Hertz Corp. and Dunn Trucking, Inc., 2012 N.Y. App. Div. LEXIS 7615, 2012 N.Y. Slip Op 7650 (N.Y. Supreme Ct., App. Div., 2d Dept. Nov. 14, 2012) In the ongoing saga to determine the scope of discovery as it relates to social media sites, the New York Supreme Court Appellate Division provided some further guidance on the issue. In this civil action, plaintiffs McCarthy and Richards submitted personal injury claims resulting from injuries sustained in a motor vehicle accident. Plaintiff McCarthy testified at her deposition that her injuries impacted her ability to participate in sports activities, especially during cold weather. Defense counsel discovered on the plaintiff's Facebook account a photograph that was posted and open to the public depicting the plaintiff skiing subsequent to the motor vehicle accident and requested authorization for full access to the plaintiff's Facebook account.
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