20 practical tips to avoiding Errors & Omissions claims

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

There is no doubt an agency’s activities can have a tremendous impact on whether it faces an Errors & Omissions claim. In addition, if a claim develops, these activities can prove to be quite beneficial in the agency’s defense. Here are some E&O tips that could just help you avoid an E&O claim. As you will note, many can be easily implemented into your agency structure.

Tip #1 – Educate your customers. The insurance industry has some unique terminology, so the possibility exists that some customers don’t totally understand their policies. It is undoubtedly better to educate them before they have a claim rather than after.
Develop an education campaign to help your customers better understand their insurance program. You will not only sell more insurance, the reputation you gain in your community will be tremendous. There are many approaches including 1) a newsletter, in paper or electronic form, that could be mailed with the policies or sent via e-mail; 2) posting information on your website, which could include information about various coverages as well as a section dedicated to Frequently Asked Questions; or 3) establishing a blog. For many agencies, this has provided tremendous benefit as it shows your expertise and your desire to help your customers learn more about their insurance coverages. To develop material for your newsletter, web content or blog, start with the questions your staff is being asked by your customers.

Tip # 2 – Hold periodic staff meetings and include some discussion of E&O. These meetings are a great way to address current issues, changes in company binding levels, new coverages, education opportunities, etc. In addition, ask each staff member what they think they could do that might result in an E&O claim. Then discuss how to “fix it.” You may just be surprised at what you hear.
These staff meetings present the perfect opportunity to stress key agency practices, such as the importance of thorough and timely documentation in the files.

Tip # 3 – Be honest with your carriers. This may sound like common sense and it probably is. A major element of the relationship between your agency and your carriers is trust. It is critical to provide your carriers with complete and honest information. If they ask for further information, make sure it is truthful. 

Tip # 4 – The insured’s signature is important. The insured’s signature could make all the difference in the world. Oftentimes, disputes arise over the accuracy of the information on an application. In these scenarios, a key element of the defense could be the presence and authenticity of the insured’s signature. If the insured has signed the application, generally they will be held responsible for the content. An unsigned application does not carry the same weight. It is highly recommended that you never give the insured a blank application to sign and advise them you will fill it in later. Moreover, never – and I mean never! – sign the insured’s name even though you believe you have the authority to do so.  

Tip # 5 – The Mirror Test. This speaks to the process your agency should undertake when you move an account from one company to another. If you are considering moving the account to another carrier, identify and bring to the customer’s attention any coverages they will be giving up with the new carrier. Always get their approval and written sign-off. To perform this completely and accurately, the coverages, limits, exclusions and other key issues of all of the companies you are considering should be noted on a spreadsheet. This spreadsheet should be shared with your customer.

Tip # 6 – The Classification Limitation Endorsement. There may be a need to use the Excess and Surplus Lines marketplace to place some risks. While this segment of our industry serves a vital need, it also has some significant uniqueness that can spell E&O trouble if not properly handled. Many general liability policies written in the E&S market will contain a form/endorsement called the Classification Limitation Endorsement. When this endorsement is on a policy, coverage only applies for activities included under the listed classification. Be on the lookout for this form. If it is on the policy, bring it to the insured’s attention and get their approval to proceed.

Tip # 7 – Identify any coverage changes on your E&S policy renewals. When a carrier reduces the coverage in the admitted marketplace, they are required to send out an advance notice. However, in the E&S market, carriers are not required to provide advance notice of pricing/coverage changes they will be making on the renewal. Thus, when you receive the renewal terms from the wholesaler/E&S company, carefully review them to identify any changes. Any restrictions/reductions in coverage should be brought to your insured’s attention. 

Tip # 8 – Your Agency Procedures Manual – Is it current? Is everyone following it? There are many benefits to an Agency Procedures Manual when the manual is current and effectively used. This manual can be a solid part of an agency’s defense in the event of an E&O claim, demonstrating that all employees perform the stated procedures. However, the manual must be current and consistently used by the staff. Having an outdated manual or instances where not every staff member follows the manual have the potential to significantly hurt your defense of an E&O claim. 

Tip # 9 – Include a cover letter with your policies. In most states, the insured has a responsibility to read their policy and is bound by its terms. To reinforce this, it is highly recommended that you include a cover letter when you send the policy to the insured, urging the insured to fully review the policy – including the declarations and endorsements – for accuracy. Include a statement noting that the insured should immediately contact your agency if they have any questions about the policy’s contents. If you deliver the policy, it is still advisable to include this cover letter, making sure you bring the letter to the insured’s attention.   Keep the letter general and do not include a summarization of the coverages, as this could suggest to the customer that they do not need to read the policy since the agency has told them what’s in it. 

Tip #10 – Your promotional material – Could it get you in trouble? In the event of a claim against your agency, the plaintiff’s attorney will review all of your promotional material to learn what words you use and what message you send to customers. They want to see what they can use against you. Bottom line, the content of this material and what you say can have an impact on how an E&O claim is resolved. Be careful not to words such words as “expert” or phrases such as “we make sure you are properly covered.” While these may be solid marketing phrases, they could be used against you should a claim arise. Enhance the Errors & Omissions culture at your agency by implementing some or all of these tips into your day-to-day operations. This could help reduce the likelihood of E&O claims against you and help provide effective defense if a claim does occur.