Top 10 Ways To Guarantee An E&O Claim

TOP 10 WAYS TO GUARANTEE AN E&O CLAIM

by Curtis Pearsall

Nothing can ruin your day as thoroughly as an E&O claim. Luckily, IMMS Consultant Curtis Pearsall has ample experience in assisting agencies with E&O issues. In this document, Pearsall offers his 'Top 10' ways to get yourself into a heap of trouble.

Due to Utica Nationals emphasis on loss control, we averaged 10.6 claims per 100 E&O customers in 2000 an excellent result and one of our lowest frequency rates in years. Outside producers accounted for more 50% of these claims.

If you're an agency principal trying to reduce the likelihood of an E&O claim, working closely with your producers is a good place to start. Remember: you don't need to do anything wrong to get sued.

With tongue firmly in cheek, I offer this list of 'recommendations' that just about guarantee you'll face an E&O claim:

1. Only tell your clients what's covered they don't need to know about exclusions. Studies show that customers prefer to know what isn't covered rather than what is. Provide a specimen policy with the proposal to help them better understand the coverage and identify exclusions of concern. The prospect just might ask you to provide additional coverage.
2. Write business wherever you want; who's going to bother verifying that you're licensed? Know where your customers exposures are and make sure you have a license in those states. You cant write business in a state where you parent licensed. If you have a Web site, identify the states in which you do business.
3. Don't ask clients what they need sell them what you want them to have. This is the leading cause of E&O claims. Don't fall into the 'renew as is' trap. Perform an exposure analysis and offer the proper coverages the client just might buy them! If they don't, ask them to sign off. This will provide a great defense if a claim arises down the road.
4. Give them the lowest limits after all, they said they wanted the lowest price. This is the second-leading cause of E&O claims. With Property coverages, the problem usually arises in dealing with building, property values, and Business Interruption values. With Auto, the most common problem involves Uninsured/Underinsured Motorist coverage not being equal to the policy limits.
5. Don't document anything its their word against yours. Although documentation takes time, its by far the single best way to reduce E&O claims.
6. Fake it. Unless customers have a claim, they wont know that you didn't know what you were talking about. Your producers might know how to sell, but do they know what they're selling? When customers ask whether something is covered or not, what do you tell them? Know your business by knowing your coverages. And above all, be honest!
7. When your clients call to give instructions, don't pull the file. What could possibly go wrong? Not looking at files causes many claims, such as the incorrect deletion of locations. The third-leading cause of E&O claims is poor advice. Without the file, how can you advise your customers?
8. Don't worry about service just sell, sell, sell. Because producers need to be out of the office to sell, get your CSRs involved. After all, they probably answer most customer calls. Visit or contact your customers periodically. There's no better way to keep up with their needs.
9. Don't tell customers that the carrier was just taken over by the insurance department price is the key and there's always the Guarantee Fund. Most guarantee funds have limitations. First, they're usually capped. There are also time limits for making claims, issues regarding the location of the claimant, and the state of domicile of the company. Have a minimum rating standard for carriers. If one of your companies drops to a certain level, write your customers and ask if they'd like the coverage placed with a stronger carrier.
10. Don't be too honest with your carriers nice guys finish last. Give your E&O carrier the correct underwriting information, including losses. If the company learns later that you provided erroneous information, they'll contend that they wouldn't have written the coverage had they known.

If you get hit with an E&O claim, heroes a list of things you should not do.

• First, don't delay in reporting the claim so that your E&O carrier can begin the discovery process and get the necessary details and statements while they're fresh in everyone's minds.
• Never alter records involving the claim or incident. Let the file speak for itself. Making changes after the fact will significantly reduce your chances of winning.
• Don't allow anyone to inspect, copy, or remove your records without consulting your E&O carrier.
• Never provide recorded or written statements concerning an error or claim that involves your agency.
• Don't discuss the matter with anyone other than your personal counsel or a representative from your E&O carrier.
• Don't make advance payments without consulting the E&O carrier.
• Above all, DONT ADMIT LIABILITY!

Since 1988 when Utica National began underwriting E&O, the No. 1 cause of claims has been failure to obtain the proper coverage (61%), followed by failure to place the coverage after agreeing to it (10%), and failure to give proper advice (6%).

If my hunch is correct, one type of claim that might make it into the top three in the next year or so is failure to place business with an authorized and solvent carrier.

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) 734-2807, or e-mail [email protected].