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In
this E&O claim, it was alleged the agent allowed
a layer of excess coverage to lapse for a large trucking
firm, resulting in a large gap in coverage above the
primary layers. There was a dispute over premium between
the carrier and the client, and the policy was cancelled.
Following the cancellation, a suit was brought by the
client against the carrier, which was eventually settled.
A new policy was written by the carrier. The agent
assumed there was continuous coverage, but in fact
there was a gap between the old policy’s expiration
and the inception of the new policy. In the interim,
a trucking loss occurred during the period when a gap
in coverage existed, and a party in another vehicle
was rendered a quadriplegic. Upon learning there was
no excess coverage in place, the client sued the agent.
The exposure because of the gap in coverage to the
client was somewhere between $5,000,000 and $7,000,000.
Following significant litigation (over $1mil), the
case against the agent was settled for over $5,000,000.
 Lesson: Do
not assume a dispute between a client and a carrier
will cure a gap in coverage after a cancellation
notice is issued. Communicate to your client any
developments on their coverage.
In
this E&O claim, Utica "dropped down" into
the shoes of a GL policy that the agency failed to
replace for their client, a maintenance company. The
prior policy was non-renewed, and the agency failed
to secure replacement coverage before a loss involving
the client's rug cleaning operations occurred. A woman
slipped on a tile floor after walking on carpets that
were still damp from cleaning. She claimed no warnings
were given, even though she was well aware of the cleaning
activity. She suffered minor bruises, but 10 days following
the fall, she lost a fetus. There were questions of
liability as regards the client and questions as to
the relationship of her minor shoulder injury and the
loss of a fetus. The underlying claimant produced witnesses
who said a sign was missing in the area of the fall.
She also produced an expert who was to testify that
his review of the placenta indicated the fetus was
damaged in the fall. The case was settled for $485,000
including legal fees.
Lesson: All
non-renewals should be given the utmost priority,
and a very short diary should be used to ensure
replacement coverage is obtained.
This
E&O claim involves an agent who acted as a broker
for a risk that installed fire suppression systems.
The policy was written through a surplus lines carrier.
When the policy was renewed, the surplus lines carrier
had lowered the property damage limits on the CGL
policy from $2mil to $1mil. Although the MGA had
sent an advisory note with the renewal package advising
that coverage may be changed, and to look over the
proposal before renewing the policy, no specific
notice was given that the property damage limits
had been lowered. The renewal quote clearly listed
a reduced limit in liability for property damage.
Since surplus lines carriers do not have to abide
by any state guidelines that mandate a specific notice
be given to insured when there is a reduction of
coverage, the agent missed the reduction and renewed
the policy. The actual policy was not received until
after the underlying loss had occurred involving
a loss to a building as a result of a pressure build-up
in the sprinkler system, resulting in $1,000,000
damage to the building and over $10,000,000 damage
to contents owned by tenants. One tenant claimed
in excess of $10,000,000 for a new computer system
that had to be replaced. The agency’s client
was a target defendant in the suits that were filed.
Utilizing the $1,000,000 that was available under
the surplus lines CGL policy, the agency’s
client was released from the suit for $2,000,000.
The agent’s share was $1,000,000.
Lesson: Be
aware when dealing with a surplus lines carrier
that very few regulations apply to those carriers.
Carefully review all proposals submitted on renewal
by a surplus lines carrier.
In
this E&O claim, the agent allowed a restaurant’s
liquor liability coverage to lapse for a 3-day period.The
prior liquor liability carrier had decided to non-renew
the coverage, and the managing general agent, through
which the coverage was procured, gave the insured
agency 60 days notice to find another carrier. The
agency secured an application for a new carrier for
the client from the managing general agent, gave
it to the client, and received it back from the client
two weeks prior to the non-renewal date. There were
conflicting stories as to whether or not the application
was ever sent back to the managing general agent.
The agent says it was sent, and the managing general
agent said it was never received. When the agent
received the cancellation notice the day after the
cancellation date, the agent called the managing
general agent and discovered the new application
was never received. Coverage with the new carrier
was then put into place, but there was a 3-day gap
in coverage. During the period in question, a patron
of the client became intoxicated and several hours
later the patron struck and killed a pedestrian,
a young mother with 3 children. The client and another
bar/restaurant were sued. The other restaurant settled,
as did the auto carrier, leaving the agency’s
client as the sole defendant. Utica provided a defense
for the client restaurant and eventually settled
the claim for $200,000.
Lesson: When
an application is submitted through a managing general
agent, follow up to ensure coverage has been placed.
This
claim involves the agency sending a renewal premium
for a property policy to the wrong carrier, causing
the policy to lapse. Unfortunately the lapse was not
discovered until a fire occurred, causing damages of
$352,000. Following legal research into the issue,
it was determined that the insured was primarily responsible,
not the bank or the carrier.
Lesson: This
claim could have been avoided if the agency had better
controls in place to ensure premium checks were sent
to the correct carrier. In addition, a diary system
to follow for verification that the renewal had been
issued by a carrier could have possibly eliminated
the claim from occurring.
In
this E&O claim, the agent failed to replace business
property of others coverage under a CPP when the coverage
was moved from one carrier to another. The agency’s
client was a contract packager of beauty products,
and at any given time was in custody of their client’s
products, which they would repackage for a fee. A theft
occurred, resulting in the loss of the customer products.
A claim was submitted to the current carrier, which
had very limited coverage for items in the care, custody
and control of the agency’s client. The prior
policy had full coverage for items in the client’s
custody. Using an offset for what was paid by the current
carrier, the loss was settled for $120,000.
Lesson: It
is critical that a replacement policy be closely
scrutinized to ensure the coverage provided at least
matches the expiring policy.
In
this E&O claim, the agency procured Homeowners
coverage for the client through the Fair Plan in the
amount of $240,000, the amount requested by the client.
During the first policy term, the client asked the
agent to increase the limits to $400,000. The agency
submitted the change request to the Plan on the wrong
form, and the Plan returned the form to the agent with
instructions to re-submit on the correct form. The
agent dropped the ball, and the change request never
went through. The policy renewed several times without
either the agent or the client noticing the limits
had not changed. A fire occurred, causing approx. $400,000
in damages and a claim was submitted for the difference
in limits for both the structure and loss of rents.
Although Utica contended that there was comparative
negligence on the client for failing to read his policy,
the bulk of the liability rested with the agent. The
loss of rents claim was settled for $14,700; the remaining
portion of the claim was $160,000 for the structure.
Utica argued comparative negligence, took a premium
offset and settled that portion of the claim for $110,000.
Lesson: When
a client asks for increased coverage, follow through
until the coverage is secured. Keep any such requests
in a separate folder that should be looked at each
day until the necessary work is completed.
In
this E&O claim, the agency switched policies
on renewal covering an expensive home for the client.
The old policy had a guaranteed replacement cost
provision, and the new policy had restrictions on
guaranteed replacement cost. The amount of coverage
sought by the agent was determined by the agent’s
use of outdated estimator software, and insufficient
coverage was placed. Following a fire, it was determined
that the shortfall between what the client can collect
under the new policy compared to the old policy was
in the range of $357,000 and $407,000. The loss was
settled for $270,000.
Lesson: It
is critical that a replacement policy be closely
scrutinized to ensure the coverage provided at least
matches the expiring policy.
In
this E&O claim, the agency failed to replace coverage
for a nursing home, resulting on the nursing home going
without coverage for 9 months (the previous carrier
had sent a non-renewal notice). During the period in
which the client was without coverage, a loss occurred
involving a resident of the nursing home. An elderly
patient was burned badly in her bed, and a claim was
made against the home. An investigation revealed the
patient may have been partially responsible due to
smoking in bed. The claim against the agent was settled
for $50,000.
Lesson: All
non-renewals should be given the utmost priority,
and a very short diary should be used to ensure replacement
coverage is obtained.
In
this claim, the insured while acting as a managing
general agent agreed to let a client’s broker
collect premiums for a carrier when the duty to collect
premiums was restricted to the insured. The broker
committed fraud by sending in requests to three different
premium finance companies for premiums for coverages
(CPP, Commercial Auto, CGL) that had already been paid
previously. The additional monies sent to the broker
from the premium finance companies were pocketed by
the broker. The broker is now bankrupt, and the three
finance companies looked to our insured for payment
as they were out over $692,000. The case was settled
for $330,000.
Lesson: Do
not let another broker perform duties that your
agency was bound by contract to perform.
In
this E&O claim, the agent let a client’s
worker’s compensation coverage lapse, even though
the client (a subcontractor) had given the agency a
check for the premium. This caused the general contractor's
insurance rates to increase, as the laws of that state
mandate if a subcontractor has no coverage, the general
contractor becomes responsible for worker’s compensation.
The general contractor had to pay the additional costs
for worker’s compensation to cover the client’s
employees. A claim was made against the agency’s
client by the general contractor for the increased
costs. In turn, the agency’s client made a claim
against the agent for failure to have the coverage
in place. Following an audit of the general contractor’s
records, it was determined the loss was $132,540 to
the general contractor. The claim against the agent
was settled for that amount.
Lesson: Give
renewals top priority, especially if the agency is
in receipt of renewal premiums paid by the client. |