A Smattering of E&O Thoughts

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

Claims Frequency

E&O claims frequency continues to be very low. I believe there are a number of factors for this. The soft market is certainly a contributing factor. Claims frequency actually tracks very closely to the combined ratio of the overall P&C industry. With the soft P&C market, are carriers standing behind their agents more? Probably so to an extent, although don’t count on it if you mess up and exceed your binding authority – companies are watching their bottom lines very closely, so agency accommodations are not at the level they used to be. I would hope good underwriting is a contributing factor and am sure it is. But there is no doubt the #1 reason for claims frequency being down is YOU!

Agencies are definitely dedicating much greater resources (both fiscal and mental) to preventing E&O claims. Documentation is better, agency staff is trained better, systems are better, etc. For the past 20+ years, it has been Utica’s goal to help make agents around the country better agents from an E&O standpoint. While this is somewhat of an idealistic goal, we do take this seriously and look to provide you with the tools to help you get there. So, thank you and congratulations!

Flood

Back a number of years ago, Upstate New York w as extremely hard hit by rain, causing significant flooding and damage. As a result of this and other events, a number of insurance departments ( New York being one) have sent out advisory letters encouraging agents to notify all of their Homeowners accounts that flood is not covered. Recent events have shown that even if you are not in a designated flood zone, floods do occur even outside these high-risk areas. I am sure you would agree that undertaking an initiative at your agency to advise your customers how their Personal and Commercial Lines policies will/will not respond to flood claims makes good sense. Plus, in reviewing a number of carrier contracts, I noted that in most of the cases, you as the agent do not have the authority to bind this coverage. Do you know how your carrier contracts read in this regard? If you find this to be the case, communicate to your customer that you cannot bind the coverage until authorized by the carrier to do so. As with all dealings of this nature, make sure you confirm all verbal conversations in writing.

Intentional Acts

E&O policies, by their very nature, are designed to cover the negligence of an agency for loss – which the agency was legally obligated to pay as damages for claims arising out a wrongful act to which the policy applies. Within virtually all Agents’ E&O contracts is an exclusion for deliberate, dishonest, criminal, fraudulent or malicious acts. In other words, the policy covers the honest mistakes of an agency. If an intentional act is committed (and we have received claims where it was clear the agency personnel committed an intentional act), there is an above average chance that your agency could find itself with no E&O protection. While business ethics may be something we take for granted, it is important to communicate to your staff that they are expected to conduct business in compliance with the law and anything less than that will not be tolerated.