Knowledge
= Action
by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department
The other day, I was traveling with a good friend of mine who happens to be an extremely professional insurance agent. On the way to lunch, we passed a funeral home - one of his commercial clients. The client was building a significant addition to the funeral home. My friend commented that his client hadn't contacted him to tell him about the addition to the building.
Let me ask you – what should he do or what would you do in the same situation?
Obviously, one option is to do nothing and wait for the client to call you. I hope this would not have been your first choice because this is exactly what you should not do.
First, contacting your client and noting the addition to the building shows that you are a professional agent with the client's best interests in mind. Insuring the assets of your clients should be one of your objectives. You may benefit as well through the sale of additional insurance, which equates to additional commissions.
In
addition, and more the subject of this article, is the E&O perspective.
Let’s say some building materials were stolen or there is a fire that
causes serious damage to the addition. Your client contacts you to report
the claim. Due to the fact that the additional exposure was never endorsed
onto the policy, the company denies the claim. It could be argued that
there is no way every agency knows every client they provide coverage
for, or that it is the client’s responsibility to contact their agent
to secure the proper coverage. They are both viable issues and ones that
any E&O carrier could use in building a defense strategy. Can a successful
resolution be guaranteed with these arguments? No way! And even if you
won the case, the defense dollars could be significant. A
general rule of thumb that the judicial system (including the jurors)
will adhere to is that knowledge of an exposure should prompt the agent
to take some action.
You may contend that this means that you need to be on call 24 hours-a-day. To a degree, you are! With high school graduations now behind us, let’s say you went to the graduation party for one of your friends/associates, etc. and noticed that they have a pool, above or in ground. You write the homeowners but were not aware of the pool. You decide to disregard what you have seen. A neighboring child falls in during the summer and drowns. Your client is sued for $1,000,000 but the only available limit is the homeowners limit - not enough in this case. Your friend brings a claim against your agency. You can expect your client’s attorney to question your knowledge of the pool since you were at the party, and question why you didn’t advise your friend to purchase an umbrella.
Unfortunately, these stories happen all too often. Has Utica National defended E&O claims with these types of fact patterns? Yes. One that comes to mind is an agent stopping in a convenience store that had not been selling beer. The agent noticed that the store was now selling beer but never asked the owner about liquor liability. As fate would have it, there was a fatality involving customers that bought beer at the convenience store. The client sued the agent with the case settled via a negotiated settlement.
Face it – you can’t go around with blinders on! Be on the lookout for changes in the exposure and contact the client – it’s the right thing to do.
Communiqué is published for our agent-customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.