CAN HOW YOU HANDLE A CLAIM CAUSE AN E&O CLAIM?
by Curtis Pearsall
Definitely! This has developed into a significant issue for agents and is a current E&O hotspot. Approximately 10% of E&O claims arise from alleged mishandling of the underlying claim by the agency. What could go wrong?
Improper Coverage Interpretations
The scenario: The agency receives a claim on which it’s fairly certain that there’s no coverage, so I don’t bother sending the claim to the carrier. Although some of these instances are minor, more than a handful are serious. I’m aware of one that actually involved a fatality. The agent didn’t report the claim because it was thought that it wasn’t covered. In this specific case – and many similar ones – the carrier denied the claim for late reporting.
What should an agent do? Even if you’re completely convinced that there’s no coverage, report the claim to the carrier anyway. Let the carrier make the coverage decision.
Although we all pride ourselves on our insurance knowledge, it’s difficult to be the “expert” on all lines of business. Take Professional Liability: It’s common knowledge that no two policies are the same – many have unique language that might determine the application of coverage.
In one E&O claim, the customer called the agent to report a claim. The agent interpreted the issue differently and advised the customer that it wasn’t necessary to report the matter because it wouldn’t be covered. The Professional Liability policy was written on a “claims made and reported” basis, and, when the suit papers arrived, the matter was reported only to be denied because it did not meet the “claims made and reported” conditions. The bottom line: Although the agent believed the matter wasn’t covered, simply reporting it to the carrier would have: 1) Triggered coverage and 2) allowed the insurer to make the coverage interpretation.
Another hotspot: An agent saying that coverage applies, when it doesn’t. If you advise your customer that there is coverage, only to find out there isn’t, that customer won’t be happy. Although you might be fairly certain that coverage applies, it might be difficult to provide a definitive answer without reviewing the entire policy form for any applicable conditions or exclusions. Once again, it’s best to submit the matter to the carrier and let them determine coverage.
Failure to Advise All Carriers
Have you ever seen what you thought was a minor liability matter turn into a major claim? It happens. This means that it’s best to advise all applicable carriers, especially any Excess or Umbrella carriers. This will give them the opportunity to conduct their discovery on the matter. When a claim is submitted to your agency, make it a practice to review the file for all possible available coverage, and then put these carriers on notice. Even with auto claims, the Business Owners Policy or package policy might contain Hired Or Non-Owned coverage.
Failure to Handle Customer Requests
The carrier often requires additional documentation as a claim unfolds. This can involve estimates, appraisals, etc. Make sure to handle requests for information promptly and professionally. This will help the carrier resolve the claim in a timely manner.
From time to time, customers will notify an agency of a loss, but ultimately tell the agent not to report the claim to the carrier. What should you do? There’s a strong argument that you have an obligation to notify the carrier. If you don’t do so and the claim takes a bad turn, the customer could fault your handling of the matter.
Determine Your Role
Most agents want to be involved in claims from their customers. This gives you the opportunity to show your strength and demonstrate you are there when customers need you. It’s best to exercise when handling claims. This is an emotional time for your customer, in which you must avoid providing detrimental advice. Determine the role you want to fulfill and handle the matter professionally and promptly.
Curtis Pearsall, CPCU, AIAF, ARM, CPIA, is president of Pearsall Associates, Inc. (Whitesboro, NY), a risk-management consulting firm that specializes in helping agents protect themselves against E&O claims. To contact him, call (315) 768-1534; e-mail: [email protected]; visit www.pearsallassociates.com; or blog: www.agentseotips.com.