Are You Being Honest With Your Carriers?

by Curtis Pearsall

Virtually every day, agencies are put in the position of having to market an existing account to another carrier. The reason could be that the insured is looking for a more favorable premium, or maybe they've had some losses that are prompting a nonrenewal by the current carrier.

Whenever you move an insured from one company to another, the likelihood of problems goes up. The most common sticking point is that the new carrier offers less coverage than the previous one. It's extremely important to point out to your insured any differences in coverage before they make their decision. It seems inevitable that after a change in carriers, a loss occurs that would have been covered by the old policy but isn't covered by the new one.

Whether the account is being replaced voluntarily or being nonrenewed, full disclosure is crucial when you market this account to other companies. Take a look at the loss picture and clearly communicate it to the new carrier. You should already have (or easily be able to secure) updated, detailed loss information for an existing client. If this is a new account, ask the insured to either secure loss information from their current carrier or ask them to fill out and sign the application verifying past losses. Don't just ask the insured for this information orally and write it down yourself: If troubling questions later surface, the insured may allege that they told you about their losses and it's your problem if you didn't put them on the app.

With a tightening market there's more movement of business. Make sure you're being honest with your carriers.

Here's an example of what can happen, even when an account is properly handled:

A client brought suit against her agency when the Homeowners carrier refused to pay a residential burglary loss. The carrier took the position that the police found no evidence of theft and that the claimed loss was invalid. Upon report and investigation the carrier rescinded the policy, claiming that the application falsely stated there had been no prior losses and their investigation disclosed two such losses.

The client's suit alleged she had disclosed her loss history but the agency improperly marked 'no prior losses' on the application, forged her signature, and never showed her the document.

The case was resolved without loss payment after the depositions, when it was revealed that the agent had taken information over the phone and forwarded the application to the client by mail. It was returned with a signature verified by a handwriting expert to be that of the client.

Could this claim have been avoided? Probably not. The agency handled the transaction properly, but the client wasn't being truthful. Confronted with the evidence, she finally agreed to dismiss the case. The matter turned out favorably, thanks to the efforts of a good defense counsel, an expert witness, and the credibility of agency employees. Yet it cost the agency more than $17,000 in legal fees!

This article originally appeared in the Utica National Insurance Co. E&O Bulletin and is reproduced with permission. Curtis M. Pearsall, CPCU, AIAF can be reached at Utica National Insurance Group, P.O. Box 530, Utica, NY 13503, (800) 274-1914, fax (315) 734-280, e-mail [email protected].