E&O IN COMMERCIAL AUTO
by Curtis Pearsall
In virtually every Commercial Lines agency, there’s a good chance that most of your accounts have a Commercial Auto exposure and that you write this coverage for them. The type of risk determines the Auto exposure and, for many of those customers, the exposure probably involves vans and/or trucks of various sizes. Although “errors or omissions” from this line of business amount to only around 6% of E&O claims, when they occur, they tend to be much larger than with other coverages.
What could go wrong?
Because writing Commercial Auto is not overly complex, you might question what could go wrong. However, as with any line of business, knowledge of the product – as well of your customer’s exposures – is essential. A great starting point is using an Exposure Analysis Checklist, which will help enhance your knowledge of the exposures of your specific type of risk and provide the important questions you need to ask, such as:
- Are any officers, partners or employees furnished an automobile for personal use?
- Are owned vehicles used for towing special equipment (air compressors, concrete mixers, etc.)?
- Are operations periodic or seasonal, resulting in the lay-up of any vehicles for 30 consecutive days or more?
- Are any automobiles equipped with cellular telephones, two-way radios, citizens band radios, or similar devices?
- How many automobiles are parked in one location overnight?
- Does the applicant lease/rent vehicles to others with operators?
- What is the maximum/average radius of operation?
- Is there a hired/non-owned exposure?
The symbol on the policy indicates what vehicles the coverage includes. The applicable symbols (expressed in numbers), range from “1” to “9,” with symbol “1” being the broadest. This provides coverage for any auto. Thus, if your customer were to lease a vehicle for a particular job, symbol “1” would provide coverage. On the other hand, symbol “7” is only for vehicles listed on the policy. There would not be coverage for leased or non-owned vehicles with this symbol. Consequently, getting answers to these questions from your customer will help when requesting that coverage be structured appropriately. Symbol “9” is only for non-owned vehicles.
Other items to consider
- “Named Insured” status/”Drive Other Car” coverage. It should be standard practice to offer the owners of the business (where the business is the named insured) additional “Named Insured” status or “Drive Other Car” coverage. If a business owner suffered an injury as a pedestrian or as a passenger in another vehicle, he or she would need this coverage to collect uninsured motorist (UM) or underinsured motorist (UIM) coverage from the Commercial Auto policy.
- Limits issues. When losses occur with this line of business, the damages can be significant. Limits of $1 million might sound like a lot, but claims involving bodily injuries can easily exceed this. Thus, it makes sense to offer an Umbrella policy. If your insured doesn’t want to carry a $1 million limit or an Umbrella, get their rejection in writing. This sign-off will give you a solid defense if a major claim occurs and the insured alleges you hadn’t provided the proper coverage. When providing an Umbrella, especially with a different carrier than the primary, check that the necessary underlying limit requirements are being satisfied.
- Adding or deleting the wrong vehicles from a policy. With a Commercial Auto fleet of significant size, maintaining an accurate list can present a challenge. When the customer contacts you to add or delete specific vehicles, get the request in writing. This will help ensure that you’re modifying the policy correctly, not only for the vehicles, but also for the coverage specific to those vehicles. Because the policyholder might have two vehicles of the same year and make, ask them to provide the vehicle identification number (VIN) for each vehicle being modified. When you mail the policy or endorsement to your customers, include a cover letter advising them to check the policy to make sure the policy reflects the requested changes.
- Replacement of coverage. If a customer presents an unwanted exposure (such as claims activity, problem drivers, etc.), you might need to replace this account. If the account presents some challenges, pursue a replacement policy, aggressively as soon as you know the carrier is going to get off that account. If it seems that finding replacement coverage might not be possible, advise your customer promptly. As you’ll see in the claim discussed below, failure to keep the customer informed can result in a significant E&O claim.
Educate your staff and your customers
This E&O claim, which covers several of the topics discussed in this article, involves a client who had a Commercial Auto policy with coverage symbol “1” (any auto) procured by the agency. The client specifically wanted the broadest coverage possible to cover employees who used their own cars on the client’s business.
At renewal, the carrier refused to continue to write “any auto” coverage because several of the client’s employees had poor driving records. The coverage was changed to coverage symbol “7” (specifically described autos) with the agent’s approval. The agent told the client that the drivers in question would have to be covered elsewhere, but never told the client that coverage had been changed. When one of the poor drivers was fired and the other had his driving record cleaned up, the agent notified the carrier, assuming that the carrier would then change the coverage back to coverage symbol “1.” However, the agent, never specifically requested the change.
A loss occurred when one of the client’s employees lost control of her vehicle, injuring four people in two other cars. The value of the four Bodily Injury claims came to approximately $700,000. The employee’s own Personal Auto policy had a 25/50 limit. The claim against the agent was eventually settled for $447,000.
Conclusion
Writing commercial Auto Coverage is not as easy as you may think. Effective use of an Exposure Analysis Checklist will help educate your staff and your customers on this coverage – and go a long way toward ensuring that you do the proper job every time.
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. Reproduced, with permission, from Rough Notes magazine.