What
do I do?
by Curtis M. Pearsall, Vice President, Agents' Errors and Omissions Department
In the current state of the market, more often than not, carriers are adding new exclusions to their policies. A couple of years ago, it was Y2K. Now exclusions for exposures such as mold and terrorism are being included on accounts as they renew. As the agent for that customer, have you ever wondered what your responsibility is for advising your client in a situation where one of your carriers has placed a new exclusion (for the sake of this article, let's use mold) on your customer's renewal policy while other carriers in your office have not?
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Needless to say, this is not an easy question to answer. Your first tendency may be to move that account to a new company without the exclusion, but is that the right thing to do? More notably in commercial lines, policies are not standardized and are going to vary on a regular basis. Also, using the mold exclusion as the example, just because Company A is now putting the exclusion on, do you move that account to Company B (who does not currently have a mold exclusion)? What if Company B decides in the coming months to put the mold exclusion on? Have you helped your client? Also, if an agent recommends or advises of the availability of a carrier without the exclusion, there may be underwriting considerations such as premium and other coverage issues. So what do you do? |
Obviously, each situation is different and the law of a particular state needs to be factored in. In general, there is a duty on the part of the carrier and agent to advise the client of a coverage reduction. The carrier has the prime responsibility because they are making the change and typically some type of conditional renewal notice would be in order. The agent would be responsible if there was knowledge of the change or if the agency received the policy for review before sending it on to the client.
In most situations, the agent should tell (not just recommend) the client of other companies available without the exclusion. The information should be provided in writing, providing a specimen policy and requesting the client's reply. It would be advisable to check with those other companies to find out what their plans are for this new exclusion.
| The main point is to keep the client informed and to document the communication. The agency should be aware that the length and extent of the business relationship can heighten the duty owed. If there is an agreement or if the agent volunteers to research the market, the agency has to be careful not to make a misrepresentation in making policy comparisons. If the client requests full coverage, then the client should be asked for specifics. Again, the best practice is to inform the client and document the communication on a timely basis. |
As with most E&O issues, communication and documentation are the main keys. I can't guarantee that you won't get hit with an E&O claim, but the defense that is provided will be strengthened if you have done the right thing by professional communication and solid documentation.
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.