There are three discrete stages of 'discovery' in an Errors and Omissions (E&O) claim. Discovery begins when the agency first becomes aware that there's a problem. The second stage comes after the claim has been reported to/filed with the E&O carrier. The third takes place after the complaint has been filed and attorneys are involved.
All three phases of discovery should be taken seriously and thought of as a formal process the agency must go through. The initiatives taken each step of the way can have a major impact - favorable or unfavorable - on the agency.
The important thing to remember about discovery is that it's strictly a fact-gathering process. It isn't the time to establish guilt or innocence, although you may be able to come to some conclusions as a result of your findings. Therefore, the more specific and accurate your facts are, the better able you'll be to establish responsibility.
Let's take a closer look at each of the three stages of discovery:
1. Agency awareness of a problem. When you learn of a problem, your first step is to review the client file. This should be done by someone other than the person who initially handled the file, possibly an agency principal or another employee who's technically well-versed. Several questions must be answered:
- Were agency procedures and policies followed?
- Was everything related to the incident properly documented?
- Were insurance company underwriting and binding authority guidelines followed?
- Did the employee, producer, or support person exceed their authority?
- Did the insurance company properly perform its responsibilities?
Next, obtain a written statement from the agency personnel directly involved with the client and the alleged problem. The statement should include descriptions of any related events, along with their times and dates; conversations and actions of the parties involved; and any supporting documentation.
At this point you should be able to come to some general conclusions about the agency's responsibility or involvement and summarize your findings in writing.
Agency awareness must be a high priority to the extent that everything else is put aside and it becomes the focus for all parties involved. The process should be well underway within the first couple of hours of discovering you have a problem. Why? If you drag it out, you'll be violating the incident reporting provisions in your E&O policy. If there'll be any delay, call the E&O carrier and get on record that you'll have full details soon.
They'll probably assign a claim firm, attorney, or both in very short order. By the time one of them contacts you, your own investigation should be complete.
There's one residual benefit to all this: The discovery process may reveal some areas in your agency that need improvement. You can use this opportunity as a tool for training or remediation while everything is still fresh in the minds of those involved. Make your E&O carrier aware that you're immediately addressing any problems.
2. Claim has been reported to/filed with the E&O carrier. Depending on the E&O carrier's perception of the claim's seriousness, they'll probably appoint an independent adjuster firm and/or an attorney to look into it. They'll also ask you to complete an incident report or their own claim form. The work you did in the agency awareness phase will be very helpful at this point.
The adjuster or attorney will probably request their own recorded statement from whomever was involved in the incident. Be sure that anyone from your office who'll be giving a statement understands that they must be truthful, factual, and logical. If there's a strong belief that the agency is at fault, the truth must be conveyed just as clearly as if they believe that the agency did nothing wrong. Remind them to stick to the facts! This is no place for emotion, rationalization, opinions, or negative reactions.
It's also important to be aware that if the claimant is making charges about unfair trade practices or violations of the insurance code, they may already have retained an attorney. If your own E&O carrier is aware of the possible allegations, it's possible they'll initiate a 'reservation of rights' letter, which puts you on notice that they might withdraw from the claim if any wrongdoing or excluded activity took place. Make no mistake about it: A reservation of rights letter is a serious situation that needs to be addressed immediately because it may place you in a compromised position.
Being as upfront and helpful as possible with the independent adjuster or attorney can be a great benefit to you for the following reasons:
- It'll set the initial stage for your defense if you did nothing wrong.
- It'll speed up the negotiating process if you made a mistake.
- It may keep costs and expenses down.
- It may keep Step No. 3 from being initiated.
- It's the right thing to do!
Step No. 2 shouldn't take too long, but that depends on the specific situation. If the claim is serious, the injured party probably will have retained an attorney already. At this stage the defendant's and plaintiff's attorneys might even start negotiating, before any suit is filed.
It's important to remember that the time invested in Steps No.1 and 2 will pay dividends in time and energy, particularly if you have to move into Step No. 3.
3. The complaint has been filed, and attorneys are involved. At this stage the formal discovery process begins. Through the court, the plaintiff's attorney will request certain documents material to the case (production of documents), and statements and other information from the defendants (interrogatories).
Likewise, the defendant's attorney will request the same kind of information from the plaintiff. Both the plaintiff and the defendant must produce the information requested within a certain time frame, normally 30 days.
The responses may generate a need for additional requests or kick off the deposition process. Both plaintiff and defendant have the right, as part of the discovery process, to interview under oath with a court reporter present. The attorney who does the questioning may ask a wide range of questions. Part of the strategy some attorneys employ is to ask the same question a number of times and in different ways, in order to 'cross up' the person being questioned.
This process can be brutal or relatively easy. Attorneys learn in law school that if they can emotionally involve the person being questioned, they have the advantage. The attorney representing the side being questioned will usually take pains to carefully explain the process to the person being questioned, and they'll have opportunities during the deposition to raise objections to a line of questions or methods being used.
If you or one of your employees is being interviewed under oath, it's important to remember that this is a just a business process. It's important to remain calm and composed, no matter what line of questioning comes up. Stick to the facts, and be truthful, forthright, and brief. The old adage applies: 'When a person asks you what time it is, don't tell them how to build a clock!' A deposition well or poorly done can make or break a case.
A wide range of 'experts' may also be deposed or testify at trial, according to the nature of the situation which led to the E&O claim.
Depending on what information is developed as a result of discovery, there may be a number of interim legal maneuvers employed by both the defendant's and the plaintiff's attorneys.
The entire discovery process will allow both sides to assess the case and to prepare for trial or other strategy. Arbitration, mediation, or other approaches may be employed or forced in an attempt to avoid a court trial.
This whole process can be extremely costly and time-consuming. From an agency standpoint, having staff members at depositions, trial, and so forth is an expensive proposition because if they're devoting a lot of time to this, they aren't doing their regular job, be it production or customer service. The agency principal will probably have to devote a lot of time to it as well. All of this will takes its toll on the agency involved.
If nothing more, the discovery process in steps No. 1, 2, and 3 will be a good E&O risk management exercise for the agency. Processing, authority, communication, control, and many other issues can be evaluated and improved as a result. If the agency did in fact err, it'll be in a position to step up and take responsibility, hopefully early in the process, before a lot of damage is done and heavy expenses incurred.