Defining details. (errors and omissions coverage).
E&O insurers also are telling their agent policyholders to define what they do for a living--whether it's selling property or life insurance, or acting as a registered broker--and then stick to it. "It's like any business--if you overreach, that's where you're going to run into problems," Mattessich said.
Also, he said, an agent must be able to answer these important questions: What did your client ask you to do? What did you tell the client you could do? What kind of coverage did you get? What did you tell your client you did or didn't do? If you said you could obtain a certain coverage, did you actually try to get that coverage and, if you couldn't get it, did you tell the client? If you switched coverages, why did you switch them and did you put this in writing?
In addition to keeping good records, agency principals must make sure they supervise all employees who deal with policyholders, Mattessich said. "That sometimes comes into play in litigation--the failure to supervise properly," he said.
To Nicholas Argeros, president of allMass Group Inc. and owner of Argeros Insurance Inc., Reading, Mass., consistency is all important. "You have to say everything the same way, present everything the same way to every client," he said. "You have to make sure that the majority of the more important aspects are revealed to a client and remain consistent."
He said he makes sure that his employees follow the same course. "I tell them the most important thing is to explain everything to everyone the same way so that no one can ever say 'That's not what he said to me,'" Argeros said.
Put It in Writing
At his agency, renewal forms are sent out with standardized letters that outline current coverage and use the phrase, "We strongly recommend," in italics, to highlight the additional liability that's available. "In the event that I'm ever in a courtroom and the lawyer asks me why I didn't tell his client he could buy more liability, I can always show him one of the 4,000 letters we send out every year," Argeros said." I don't want to be caught with my pants down that I potentially gave someone wrong information or forgot to tell them something very important."
It's vital that agents keep abreast of industry changes, Argeros said. In property insurance, for example, ordinance or law coverage--which covers loss to the undamaged portion of a building which has to be demolished and/or removed to conform with a municipal ordinance or code--is new and holds the potential for developing liability exposures, he said. The same is true for mold cases and in-home businesses,Argeros said.
"You have to see what the companies are coming up with that's new," he said, noting that there are two benefits to that. One is that agents will be closing the gaps in many potential E&O liability exposures, and the other is the possibility of selling customers a little more on their policies and putting more premium onto the agent's commissions, he said.
In placing coverage for clients, agents should have knowledge of the financial condition of carriers. "That is a big topic being drilled into people's heads--they better make sure that whoever they're placing coverage with is not having a lot of adverse press," Mattessich said.
Check Out Carriers
When seeking their own E&O protection, agents need to look for a carrier that has a solid claims reputation and is financially strong, said Sabrena Sally, second vice president, underwriting manager, for GE Commercial Insurance. For example, GE's ERC and Westport Insurance Corp. have been in the agency E&O business for more than 30 years, she said.
Although the market standard for these E&O policies is defense outside the limits of liability, there are some nonadmitted carriers writing this business, Sally said. "You definitely want to pay close attention to how defense costs are covered, and how the issue of insolvency is addressed," she said.
Agents should try for first-dollar defense, also known as loss-only deductible, meaning agents pay only the deductible if there is a loss, and the deductible does not go toward defense costs, said David Hulcher, director of E&O operations for Independent Insurance Agents & Brokers of America. "This is being somewhat limited these days," he said.
Since carrier insolvencies have increased in recent years, many E&O insurers lately have added insolvency exclusions to their policies. In these cases, the policy will state that if a carrier's rating drops below a certain grade, there is no coverage, Hulcher said.
Agents also should make sure that the E&O policy they purchase contains a broad definition of professional services, he said. "You don't want this to be limited," Hulcher said. "It's also good to look for a comprehensive list of who is an insured--if you work with independent contractors, you want to make sure they are included."
Full prior-acts coverage is also important to have for agents changing carriers, Hulcher said. If the policy doesn't offer this, the agent should purchase an extended reporting period from his or her previous carrier, he said.
"The bottom line is, you're going to see carriers out there that may be cheaper than other ones," Hulcher said. "You've got to ask yourself why one is cheaper than another. You've got to make sure you look at coverages and compare them."
Beyond policies, some insurers and agency networks are taking a proactive role in helping agents steer clear of litigation.
For example, once the industry was heading into a hard market, ERC claims people met with officials of the IIABA to analyze the potential exposures for the organization's members. "We have a lot of data internally from having written this business for so long," Sally said. "We have a data-analytics powerhouse that can help us drill down and identify what loss drivers might be occurring, even on a state-by-state basis, and with that we develop loss-prevention materials for the policyholders."
The Strategic Independent Agents Alliance administers a quality-control program that addresses E&O issues for its member agencies. The program looks at the type of business the agency writes and advises the firm on how to write it, said James A. Masiello, chairman of SIAA. "It really comes down to claims," he said, "because if you front-line underwrite, you're usually going to end up in much better shape with your loss ratios. If you do not, if you're having a lot of losses, you have more E&O exposure and much higher premiums if coverage is even available."
Par Ltd., which works with the Council of Insurance Agents and Brokers to provide E&O for council members, has its own quality management program as well. Under this program, each agency has at least one and sometimes two appointed quality coordinators who oversee the agency and help with operations, said Tom Harvey, president of Par. "We have reams of procedures that go into such detail as how to do a quality audit on your own automation system," he said.
In addition to protocols, procedures and checklists, the program provides outside accountability in the form of consultants who visit agencies each year to analyze their strengths and weaknesses. "We really help them run their agencies in a more organized, disciplined fashion in anticipation that that will reduce E&O claims," Harvey said. "The reason people stay with Par is not low price--we are not the low-price company--but we have dais outside discipline of quality management which is unique." That, and the coverages, which are developed in concert with insureds who own Par, he said.
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|Title Annotation:||Errors & Omissions|
|Comment:||Defining details. (errors and omissions coverage).(Errors & Omissions)|
|Date:||Jan 1, 2004|
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