DIVORCE AND SEPARATION: A TRICKY TIME FOR AGENTS
Has any of your agency's Personal Lines customers ever gotten a divorce? If so, you realize that divorce can bring up some unique and difficult insurance issues. If you haven't yet had to deal with this, it's only a matter of time before you do.
Coverage under the various Personal Lines policies (Auto, Homeowners, Umbrella, and so on) is based on the named insured and the residence. As a result, changes in the living arrangement can reduce or eliminate coverage.
Take an Auto policy, for instance-two vehicles, with both husband and wife as named insureds. A separation or divorce occurs, and one spouse asks your agency to delete a vehicle and the other spouse from the policy. Should you do it? If you make the change without notifying the other spouse that he or she is now without coverage, you've left yourself wide open for an Errors & Omissions (E&O) claim. In this type of situation, communication with both parties is imperative. Look to arrange coverage for both individuals that's equal to what they had under the one policy. Anything less than that should be explained, and they should understand and agree on it.
Regarding Homeowners coverage, equal coverage should be offered for the spouse who's no longer living in the residence. If an Umbrella policy is in effect, review it to determine whether coverage is wanted.
As you can imagine, separations and divorces can cause E&O claims. Here's a story to illustrate: The agency had placed Homeowners coverage in the name of the client husband, as requested. The couple divorced, and the husband moved from the residence. On learning of the divorce, the agency asked the client about changing the policy but the man refused, saying that he and his ex-wife would get together again. The dwelling was then destroyed by fire, and the carrier denied coverage for the building because the named insured was not living in the dwelling on the date of the fire. The separating partners brought a claim against the agency for failing to advise them properly or cover their interests. The case went to trial and the jury decided in favor of the claimants, holding that the agent, acting as an agent of the insured, was responsible for not rewriting the policy upon notice of the divorce.
Could this claim have been avoided? On becoming aware of a divorce involving a client, an agency should obtain information regarding any changes in ownership interests and residency. The carrier should be informed, and policies revised accordingly. Each party should be treated as a separate client. Letters should be sent to each, informing them of the action taken by the agency and inviting questions or further changes that may be needed.
It's also important for your agency to detach itself from the situation. This may be difficult if you have a relationship with one of the two parties, but it's essential. Also, confidentiality is important-you don't want your agency to be known as the town's rumor mill! Your ability to handle the insurance issues involved in separations and divorces will be somewhat affected by the amiability of the breakup. If it's volatile, get guidance from the couple's insurers.
Alert everyone in your agency to formal and informal notice of changes in your client's marital status, so that the proper insurance guidance can be offered to each party.