Telling An E&O Carrier, 'I Want You To Pay'

by Curtis Pearsall

From time to time, insurers' E&O claim departments receive calls that go something like this:

'This is Brad from the XYZ Agency. One of my Commercial clients has just sustained a fire loss, and the carrier is refusing to pay. I placed the business through a general agent who failed to renew the policy, but the company won't accept responsibility. I did nothing wrong, but in my community, word that this claim was denied will cause me some negative PR. I would like you as my E&O carrier to step in, pay the client's loss, and then pursue the general agent and carrier.'

The agent is concerned for his customer, and feels responsible because he placed the business with the general agent. And the agent did no wrong. In this situation, would you expect the E&O carrier to pay? Imagine the same predicament with an Auto Liability policy-would you expect the Auto carrier to pay even if you weren't responsible for the accident?

Look at this from the E&O carrier's standpoint. Has there been an actual claim made against the agency? The client may agree that the agency isn't responsible and is making claim against the general agent and carrier. The E&O coverage is a liability-defense policy, and payment for a loss is predicated on agency legal liability. It's the client that has the claim. Any voluntary payment on the part of the agent can be construed as an admission of liability.

What can be done?

1. Make a prompt report to your E&O carrier. It can assist in recommendations for a letter or contact with the general agent or carrier for reconsideration of the denial.
2. Make no admission of liability or payment. These actions won't just impair your E&O coverage but will cause unnecessary financial loss to the agency.
3. Remember that you aren't the insurance company, and if the reason for lack of coverage is carrier negligence, that is where the responsibility rests.
4. Keep your client advised, as it may become necessary for him or her to pursue the matter directly with the carrier. Good communication and cooperation with your E&O insurer will help you obtain a satisfactory resolution.

Unfortunately, claims do happen, whether you did anything wrong or not. Here are some helpful tips should a claim be made against you:

• Don't alter records involving the claim or incident.
• Don't allow the inspection, copying, or removal of your records without consulting with the insurer.
• Don't provide recorded or written statements concerning an error or claim involving your agency.
• Don't discuss the matter with anyone other than your own personal counsel or a representative of the insurer.
• Don't make advance payments without consulting the insurer.
• Don't make any admissions of liability; refer any inquiries to the insurer.
• Refer to your policy for detailed information as to insuring agreements, conditions, and exclusions.
• Stay calm. Believe in the E&O experience of your carrier.