What
Is The Quality Of The Policies
Issued
By Your Companies?
by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department
When I ask agents this question I hear a number of responses, the majority of which are not positive. Despite technology advancements that companies have made, many tasks are still performed manually and face it, mistakes do happen. Even with technology, the proverbial “garbage in, garbage out” does apply; therefore if the wrong information is input at the company level, the policy is going to reflect this.
Next question – does your CSR or your producers check to ensure that when the policy is received it reflects the coverage that was requested? If not, all of your efforts to recommend the right coverage for your clients could be flawed.
What would happen if you requested that the coverage be written a certain way and the policy came in differently and you did not catch it? Over the years, we have had a number of claims that have this type of scenario but one that occurred recently really helps to drive the point home.
The agent did the appropriate exposure analysis review and recommended
that the client purchase property coverage with an 80% co-insurance provision.
The coverage is bound and the policy is ordered. When the policy comes
in a month or so later, the co-insurance on the policy was not at 80%,
it was at 100%. Under most circumstances, the agent would catch this
and an endorsement request would be made. Unfortunately, in this case,
the error was not caught and the policy was delivered. As luck would
have it, a fire occurred and when the claim was submitted to the company,
they adjusted the loss based on the 100% co-insurance provision. Obviously,
there was a co-insurance penalty since the client had not secured the
property limits to satisfy the 100% co-insurance provision. Due to the
shortfall in the claim settlement, the client sued the agent.
You might think because the company erred in producing a policy in accordance to what was requested, that it would be logical for the company to reform the policy to what was requested and to settle the claim accordingly. However, since the agent did not catch the error, the policy stood as produced. The claim has not been resolved yet so I can’t tell you how it will end up. In many states, the insured has a responsibility to read their policy and to advise if it is not what was ordered. This is a possible defense but whether it is a material position in this claim remains to be seen.
Could this type of claim happen to your agency? It is very important that when you receive company produced policies, they need to be checked against what was requested. If errors are found, the company needs to be promptly advised of the changes. This cannot be just a cursory review, as it is critical that the policy be examined for any exclusions that were not agreed to.
On a side note, when you are asked to bind an account, what do you normally do? Typically, you would provide a binder. This is the accepted approach. What if a claim occurs before the policy was issued? Probably the claim would be resolved based on the understanding behind the binder. As a result, it is important that the binder reflect what is and what is not covered.
Knowing that the policy issuance process is not perfect, and that people
can make mistakes, it is important to take the time to be sure that what
you requested for your clients is what they received.