Is
it covered – your decision or your carriers?
By: Curtis M. Pearsall, CPCU, AIAF, ARM
In the daily life of an insurance agency, decisions are made that
have the potential to have a big impact on that agency. More often
than not, it is down the road where the impact on the agency is
truly known.
Believe it or not, one area where those decisions can be extremely
critical involves your claims department. Some would contend that
the issues facing this area are fairly straightforward. After all,
your customer calls to report a claim and based on your level of
claims authority, you proceed with putting the process in motion.
As we look periodically at evolving
trends dealing with E&O
claims, the reporting of claims, or actually, the lack of reporting
of claims to the underlying carrier, can have significant, potentially
disastrous, impact on your agency operation.
Consider some of the following
actual E&O claims involving
the agency not reporting the claim to the underlying carrier.
• Claim
reported to underlying carrier but not to the umbrella carrier. The underlying claim goes to trial and because it was
felt by the agency that the verdict would not hit the umbrella
layer, the claim was not reported. When a $1.3mil verdict was handed
down, the claim was then reported to the umbrella carrier. They
in turn disclaimed for late reporting. Claim settled by Utica for
over $200,000.
• Failure to report a loss to the
CGL carrier following an auto loss (there was non-owned auto coverage
on the CGL policy). The
agent had reported the claim to the personal lines carrier only.
When it was reported to the CGL carrier, they disclaimed for late
notice with Utica eventually paying close to $300,000.
• Failure to report a claim to the
carrier because it was felt that there was no coverage for the
claim. Following a tragic accident
involving the death of a teen, the agent did not report the claim
to the WC carrier since they were of the opinion that the teen
was not covered (he was the son of an employee). When the claim
was eventually reported, the carrier disclaimed due to late reporting,
which was affirmed by the court. Claim settled by Utica for over
$100,000.
• Failure to fax suit papers to the
carrier. Following an auto
loss that was reported to the carrier, the client was served with
suit papers and brought them to the agency. Due to failure to act
on the suit (there was no proof that the suit papers were sent
to the carrier), a default judgment was taken against the client.
Utica eventually settled the claim for over $100,000.
• Failure to properly handle a notice
of subrogation. When
a fire occurred in the client’s home, the adjacent property was
damaged. Upon receiving the notice of subrogation from the next-door
neighbor, the agent took it upon himself to investigate and deny
the subrogation claim as they felt that the claim started in the
neighbor’s property. When the agency discovered a year
later that their client had caused the loss, they forwarded
the subrogation
papers to the carrier who promptly disclaimed. The claim was
settled by Utica for approximately $10,000.
These are actually just some of
the many E&O cases that Utica
has received involving failing to report or late reporting of an
underlying claim to the carrier. In the overwhelming majority of
these, Utica wound up paying on behalf of the agency.
Be certain that you have established procedures in your agency
involving claims and proper claims handling. Issues such as the
following should be addressed:
• When
the claim should be reported? Strongly recommend that you notify the umbrella carrier
of
the claim even if you do not think
it will penetrate the umbrella later.
• What coverages are impacted by the loss? Be certain to
check the client’s file to determine other policies
the client had that could be impacted by the claim.
• What judgment should be exercised by the agency
in the determination of whether the loss is covered? Is this really
your call? What
is the harm in sending to the carrier to allow them to
make that critical decision?
Claims happen – this is
why individuals and businesses buy insurance and they certainly
have a right to expect that when the
claim is reported to your agency, the matter will be taken care
of. This is your time to fulfill the promise that your agency has
made. There is no doubt that you play a key role in whether that
promise is fulfilled.
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