Are Parts Of Your Agency Immune From E&O Claims?

by Curtis Pearsall

In my recent travels, an agent asked me what areas of an agency cause the most E&O claims. I commented that the majority of claims seem to involve either sales staff or CSRs. After all, they're the people most involved in consummating the transaction and delivering the insurance policy. However, the agent was somewhat surprised when I added that receptionists and bookkeepers do from time to time commit an error that results in an E&O claim.

First, a few comments about CSRs and producers. In most agencies, the CSR is the individual who deals most extensively with the public. Because sales staff 'don't make any money sitting behind a desk,' they're typically not in the office. Thus questions from customers, requests for certificates, and clarifications of coverage are often handled at the CSR level. There's no doubt that CSRs aren't appreciated enough for the value they add to an agency. At the same time, if they're not trained or given the proper tools and information, they can potentially cause substantial E&O claims.

Now let's discuss producers. In my last agency position, I was the marketing manager. As a result, I'd travel with the owner/main salesman visiting accounts. This was a great help in marketing those accounts to various companies. I'd highly recommend this. However, every once in a while the owner would be asked if a particular coverage was provided. Without fail, he'd advise the account that some peril was included when it wasn't. Not wanting to embarrass him in front of the client, I'd let him know when we got in the car that he misspoke about the coverages provided. His response was, 'Don't worry about it, they'll never have a claim involving that peril.' To the best of my knowledge, no one ever did. But that didn't help me sleep any better at night.

Here's a question for agency principals: How comfortable are you with what your sales-people are telling your customers? I trust that when a sale is in jeopardy, your sales folks are going to accurately represent the coverage they're selling and the exclusions in those policies.

Here's an example of the way even staff members who don't touch a policy file can cause E&O risks: A claim was made against an agency for failing to advise a client of the cancellation of a Commercial General Liability policy and the issuance of an incorrect certificate of insurance.

Prior to the report of an accident, the client came into the agency at the end of the day and spoke to a clerk in the absence of the CSR and the agent. The client requested a copy of a previously issued certificate of insurance on one of his properties. The clerk, unaware that the policy had been the subject of a midterm cancellation, went to the file. To satisfy the customer, the clerk made a copy of the prior certificate of insurance and gave it to the customer with no changes.

When the carrier denied coverage on a liability claim because of the prior cancellation, the client sued the agency. The client's attorney claimed that the presentation of the certificate copy was assurance that the policy was either reinstated or in effect.

The claim could've been avoided if the clerk had been instructed not to give out copies without a CSR's or agent's approval. The agency also should've noted in the file or on the computer system that the policy had a midterm cancellation in effect.

No area of an agency is immune from an E&O claim. Circulate this article to your non-insurance personnel and let them know that it's critical to perform their duties professionally and accurately.