Restaurants and taverns cause more than their fair share of E&O claims. You’d think that insuring these types of risks isn’t that difficult. However, not only are claims common, they can be very costly. In this document, Curtis Pearsall presents a recent E&O claim.
The claim against the agency was for failure to provide a client’s tavern with adequate Liability coverage. The underlying claim involved a fatal shooting at the client’s bar and grill. A 14-year-old girl entered the bar and attempted an armed robbery. An intoxicated patron tried to disarm the girl, who killed him in the struggle. The patron’s estate sued the tavern with allegations of failing to maintain a safe premises, lacking adequate security, failing to exercise reasonable care to prevent the assault, and allowing or creating a potentially dangerous condition on the property.
The agent submitted the lawsuit to the General Liability carrier who denied coverage based on an Assault & Battery exclusion. The Liquor Liability carrier denied coverage because there were no Liquor Liability allegations in the complaint. The client then made the E&O claim against the agency on the basis that they’d told them that the Assault & Battery coverage was included. The agent’s quote was for General and Liquor Liability. It didn’t include Assault & Battery, even though the carrier offered the coverage. To add to the problem, the carrier had gone insolvent. Utica paid the E&O claim, and the insured paid their deductible.
How could the agency have avoided this claim? The agency owed the client a duty of care to train its employees to evaluate their insurance needs, to explain the extent and nature of coverages sold, to remain current on insurance issues, and to determine the necessary coverage to meet the client’s needs and requests.
In this case, the agent failed to notify the client in writing that they didn’t obtain Assault & Battery coverage. They hadn’t completed all aspects of the application written through Surplus Lines, nor did the proposal match the policy. Had the agent documented their advice to the client about the lack of Assault & Battery coverage and followed the Surplus Lines requirements, this would’ve been a defensible claim.
It’s interesting to add that in the underlying claim, the patron’s estate didn’t plead intoxication under Liquor Liability. A state law absolves the bar owner of liability if the patron’s own intoxication causes harm, unless the owner is grossly negligent or acted with reckless disregard.
If you’re currently writing or interested in writing this class of business, here are some tips that will help alleviate an E&O hangover down the road:
- Advise clients of needed coverages consistently. Just because they rejected it last year, don’t assume that they don’t want it this year.
- Visit the premises. This is a good way to know the exposure. Just because they say they’re not selling alcohol doesn’t mean that they aren’t.
- Recommend the highest limits possible. If there’s an Umbrella, try to get the Umbrella to respond over the underlying Liquor Liability coverage.
- When taking an account from another agency, don’t just recommend that they purchase the same coverage they already have. Analyze the exposure and offer the coverages needed.
- Document all coverage decisions. If the insured doesn’t want a particular coverage, document it and send a confirmation letter back to the client confirming the decision.
Hopefully, some of these tips will enable you to write this class of business properly, professionally, and profitably.
This article originally appeared in the Utica National Insurance Co. E&O Bulletin and is reproduced by permission.