Are
You Counting on the Surplus Lines Market
to Solve Your Problems?
Be Careful..
by Curtis M. Pearsall,
Vice President, Agents' Errors and Omissions Department
There is no doubt that today's insurance marketplace has created some confusion among agents. In many cases, they are not sure what the companies are looking to write. In many of these cases, it is probably fair to say the companies aren't sure either. What this does is to create an environment where the surplus lines marketplace, typically the safety net during the hard market, will become the agents best friend. But be careful. It would be foolish to count on the surplus lines market to solve all of your problems. They have their own share of problems to deal with.
As a result of September 11th and the preceding soft market, many surplus lines carriers have found it necessary to restrict their product line offerings and the limits that they can offer. As a result, coverages that were previously prevalent in the surplus lines market might not be as readily available.
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Even when the surplus lines market can help out, it is important that you educate your staff on the uniqueness of this marketplace. Among some of the areas that should be noted:
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Here is an E&O claim that includes a number of the above issues:
The claim against the agency was for failure to provide a client tavern owner with adequate liability coverage. There was a fatal shooting at the client's tavern when a 14-year-old girl came into the bar and attempted an armed robbery. An intoxicated patron tried to disarm the girl but was killed in the struggle. The patron's estate then sued the tavern for failure to maintain a safe premises.
The agent then submitted the lawsuit to the general liability carrier but coverage was denied on the basis of an assault and battery exclusion. Notice was also given to the liquor liability carrier but coverage was denied, as there were no liquor liability allegations in the complaint. The client then sued the agent, alleging he was told that assault and battery coverage was included.
The agency quote obtained was for both general and liquor liability but did not include the requested assault and battery coverage, even though the carrier did offer it. The policies had been obtained through the surplus lines market and all aspects of the surplus lines application process had not been complied with. To add to the problem, the carrier was no longer solvent.
The agency owed the client a duty of care to train the agency employees to evaluate the client's insurance needs as they advertised, to explain the extent and nature of coverages sold, to remain current on insurance issues and to determine the coverage necessary to meet the client's needs and requests.
Had the agent documented advice to the client as to the lack of the assault and battery coverage and followed the state surplus lines regulations, this would have been a defensible claim.
The surplus lines market does
a great job but it is different and needs to be handled accordingly. Discuss
this with your staff so they don't learn the hard way.
Communique 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.