You Can Learn a Lot From an E&O Claim

by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department

Virtually every article involving E&O focuses on preventing the claim from happening. There is nothing wrong with that; in fact it should be the goal of each agency to make itself as E&O lossproof as possible. But claims do happen, and just because they happen doesn't mean that the world comes to an end.

Once the dust settles from the claim you were just faced with, you and your staff need to evaluate what happened. For this to be a valuable exercise, and one that you can really learn from, it is critical that you create an environment that encourages openness and honesty from all facets of your operation. I often ask the question - are you a more careful driver after an accident or before? In many cases, an accident will make you realize that you were more of a lucky driver than you were a good driver. This same philosophy can apply to agencies after an E&O Claim.

A good starting point in evaluating your E&O claim is how promptly you reported the claim to your E&O carrier. Bear in mind that I once worked for an agency where telling your boss about a problem significantly increased your chance of being hit with a pink slip. So what did we do? We didn't say anything and hoped the problem went away. This is certainly not the appropriate course of action. Looking back at your claim, did your staff come to you as early as possible and let you know that a problem or potential problem had arisen? Not only are you contractually obligated in your E&O policy to promptly notify the carrier, but it also makes great business sense. This requirement is designed to help your carrier find out what happened and get statements from those personnel involved while it is fresh in their minds.

As you evaluate your E&O claim, you may find it beneficial to walk through the history of the file and evaluate each phase to see at what point the problem arose.

Did the claim involve a producer that handed off the file to a CSR without giving that CSR much information? (This is a growing issue these days.)
Did it involve a CSR that didn't get the proper training?
Did it involve a producer that always says "yes" when clients ask whether a particular situation is covered? This is grossly in error, but many people in the sales industry still hold to the mentality that you don't sell insurance by telling people what's excluded.
Did your agency do everything right except document the conversation with the client?
These are just some of the scenarios that may have occurred. Try to figure out what did or did not happen. You may find that the claim involved a one-time breakdown in the workflow, or you may find that the circumstances that led to the claim are the norm - and unless you make changes quickly another claim could be just around the corner.

Another facet of the claim that should be reviewed deals with the issue of admitting liability. When someone makes a mistake, they sometimes think they are making it better by telling the customer that they made a mistake and that they will get it fixed. With E&O claims as with most claims, let the insurance companies determine who was right and wrong.

Lastly, ask the staff for their opinion on what could have been done to avoid the claim. Issues such as better training, increased communication of changes in the company procedures/expectations, more staff, a different agency structure, or a different file structure may surface. It may be a natural reaction to become defensive, but avoid doing so at all costs. Your suggestion for fixing the problem may not be the best one, and without solid feedback from your staff you may not solve the problem - or learn anything from the claim.

If you are faced with an E&O claim, set a goal of becoming a better agency as a result.

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.