A client who utters these words might well be laying the groundwork for a nasty E&O claim. Consider this case:
The insured had a niche market for tow truck operators. The claim involved a client from another state whose tow truck rear-ended a car, causing an occupant of the vehicle to become a wheelchair-bound paraplegic. The underlying case was worth $5 million to $10 million. The client, a new customer, had provided a copy of his previous policy to the agent and asked for coverage. The agent stated that he saw the previous policy had $1 million primary and $4 million umbrella. According to the agent, he told the client he was only going to obtain a primary policy for $1 million and that the client was going to think about whether he wanted the umbrella coverage. Again, according to the agent, the client never got back to him on the umbrella. The client testified that he told the agent to duplicate his prior policy, and assumed that he had umbrella coverage. Unfortunately, there was no documentation of the alleged conversations between the agent and the client. The E&O carrier settled the claim for the limit of the agency’s policy, $1 million.
Could this happen in your agency?
There’s probably not much question whether clients need or want primary coverages. After all, the vast majority of your commercial clients need liability and auto, etc. When you meet with them, there’s little doubt that you are to put these vital coverages into effect. However, when the topic gets around to an umbrella, the answer might not be so easy for your client to answer because it involves additional expense they might not be able to afford. As they debate this in their mind, they’ll probably try to determine the likelihood that the “big claim” could happen to them.
In the claim, the agent was taking over the risk from another agent. It’s fair to say that this happens frequently. In these cases, the client might often request you to “duplicate what I have but save me money.” This is dangerous and can lead to an uninsured claims — and potentially E&O litigation.
If the customer doesn’t have an umbrella, or has only $1 million in coverage, you should offer a proposal for one or provide options for higher limits.
Think Out Of the Box
I strongly advise you to take a fresh approach when working with a new client. Using an exposure analysis checklist is a great starting point to make sure you understand the risk and can identify the new customer’s exposures. There are probably very few risks (if any) that don’t have the potential of generating a claim that can exceed the primary layer of coverages. This means that you should make it standard practice to include the offering umbrella coverage in the proposal.
Consider these recommendations.
- Don’t suggest a limit! If you “recommend” a $1 million umbrella and the client suffers a higher loss, they could come back and question why you “recommended “only” a $1 million limit. Face it, when dealing with products liability, professional liability, auto, etc., significant losses can occur. The best approach is to offer a variety of limit options, with a comment that additional options are available. The customer should select the limit. It’s also wise to have them “sign off” on those limits you offered that they did not select. You might want to ask your carriers if they have had any large claims you can include in your proposal.
- See if the coverage “follows forms.” Are there any exclusions in the excess policy that aren’t in the primary? Both you and your client need to know.
- If any of the underlying policies are written on a claims-made basis, see how well the umbrella addresses this exposure (underlying policies written on both a claims-made and occurrence basis) If one of the coverages is on a claims-made basis, is full prior-acts being afforded or is there a retro date? This is a critical distinction that you, as the agent, need to bring to the client’s attention.
- Remember that not all umbrella forms are the same. If you’re getting proposals from multiple carriers, review the forms to identify any distinctions. This can be a daunting task but it’s essential.
- If the client states “let me think about it,” document back to the client that you have not placed the coverage. Let them know that if they want coverage they should contact your agency promptly.
- Last, but by no means least, make sure the primary policies are at the required underlying limit to avoid any “gaps” in coverage. Although this sounds straightforward, this type of “error or omission” does occur.
Additional Sales, Solid Protection
As with any risk, when you receive the policy from the carrier, check to ensure it reflects the requested coverages. Advise clients, verbally and in writing, that when they receive their policy they must review it to make sure everything is in order.
In the current economy, many customers are looking to reduce their expenses. Although an umbrella might be “optional” in your client’s mind, offer a variety of umbrella limits on all proposals — whether the customer is new to your agency or is a long-time client. This approach will lead to additional sales and will serve as solid protection against an E&O claim.