We can be sure that the battle over insurance coverage for COVID-19-related losses will keep politicians, attorneys, and the courts engaged for years. We can also be sure that we will see an increase in agent errors and omissions (E&O) claims. So, what can an agency do to keep from being sucked into this swirling litigation vortex?
The first two sections of this article provide advice for all customer-facing agency employees, and the third is directed to agency owners and managers.
Do's and Don'ts of Dealing with COVID-19 Losses
Don't play claims adjuster! Don't tell an insured either that their claim is covered or not covered. Even if an insurance company tells you to deny all COVID-19 claims, do not do it. That is their responsibility, not yours.
Don't play policyholder attorney! Daniel Britto, senior trial attorney at William W. Price, PA, in West Palm Beach, Florida, advises agents, "Your customer may be angry that their insurance company is denying coverage for their COVID-19-related business income loss. You may be tempted to try to preserve the relationship with them by writing a strong letter to the insurance company to advocate for coverage. Do so at your own risk! Your policyholder may later sue you and use that letter to try to prove that you knew that they wanted the coverage, that you believed the policy you sold them would cover it, and that you failed to obtain the coverage you knew they wanted."
Do document as if the survival of your agency depends on it—because it might! It is critical to do your best to document every communication with your customers, whether face-to-face or by letter, phone call, fax, email, text, tweet, or emoji. Put it all in the agency management system. If you don't, years from now, you may be trying to convince a jury that you remember exactly what you said and didn't say in that phone call. If your customer acts contrary to your advice, put that advice in writing. It is good to make a note of it in your agency management system. It is even better to write an email or letter restating your advice and your client's decision not to take it. It is better yet if you can obtain an email or signed acknowledgment. Then attach it to your agency management system.
Do stay on top of the guidance being offered by the insurance commissioners' offices in states where you sell insurance. In some instances, insurance agents and brokers are being required to notify their customers of the relaxed provisions on premium payments and cancellations, etc. Make sure you know what your obligations are and fulfill them. (Subscribers to the IRMI Insurance Cancellation Guide can access regularly updated information on each state's bulletins on these issues along with links to the full texts.)
Don't assume every insurer will be lenient with late premium payments, nonrenewals, and other issues. Some insurance commissioners are requiring these actions, while others are just encouraging them. Even if a state is requiring them, check to see if the requirements apply to surplus lines as well as admitted insureds. In states in which the commissioner is only urging insurers to take such steps, do not merely rely on what the insurers have said in public announcements about being lenient. Remember that the Insurance Services Office, Inc., Common Policy Conditions state, "This policy's terms can be amended or waived only by endorsement issued by us and made a part of the policy." In light of that, if an insurance company is promising to ignore policy provisions, agents will want to press insurers for the actual wording they will endorse to their policies.
Don't discourage your customers from filing a claim for their loss. Be very careful about how you deal with their requests to "wait and see" before submitting their own claim. "The fact is," advises Goldberg Segalla, LLP, New York partner at Peter Biging, "no one really knows how various coverage issues will play out. So, the better course is for agents to encourage their insureds to give prompt notice of any potential claim."
Do report claims to every insurer who may be involved. Don't stop at the most obvious one.
Do report claims and potential claims as required by your agreements with insurers. Even if your customer urges you not to, check your contract with the insurance company. It may require you to file the claim anyway. If you don't, the insurer may come back and sue you for damages for failing to provide notice. If you decide that you must report a claim against your client's expressed wishes, make sure you have clearly explained to your customer that you will be doing so and why.
Do require your customers to review and sign COVID-19 business interruption claim forms before they are submitted. There is little case law on these claims yet, and no one knows if later case law will show a "best path" for winning coverage. If the claim is denied, some customers may then provide a different set of facts and state that the agent misreported the cause of the loss. That could expose the agent to a suit by the customer or insurer.
Never give any written or recorded statements to your customer's attorney or public adjuster without contacting your E&O insurer first. Joseph Nicholas, managing partner of Mazanec, Raskin & Ryder Co., LPA, in Cleveland, Ohio, counsels, "We are often seeing agents being served with a subpoena for their deposition or for the production of the agency client file in cases where they haven't yet been sued. They are often told by the attorney from whom the subpoena was received that by providing testimony or documents, they will be assisting their client, the insured, to obtain coverage. Be very wary, however. Oftentimes, these are attempts to determine if there is an E&O claim to be brought. If the agent/agency receives such a subpoena, they should immediately contact their E&O insurer. Counsel will likely be retained on their behalf to provide piece of mind and, most importantly, protection in the event a formal claim or lawsuit is presented. The same is true if the subpoena comes from the attorney representing the insurance company."
Don't say anything in a phone or video conversation with your customer or a claims representative that you would not want to be recorded—because it might be, even if it is not legal in your state.
Do be empathetic with your customers. Let them know that you have great sympathy for their situation, and only the insurance company can determine if they have coverage for their loss.
Dealing with Special E&O Concerns
The pandemic and shutdown have created many coverage issues. They are beyond the scope of this article, but here are two that deserve special attention.
Reporting Incidents under Claims-Made Policies
Policies written for directors and officers liability, professional liability, employment practices liability, and some others are usually written on a "claims-made" or a "claims-made-and-reported" policy form. That means that for coverage to apply, the claim must be made against the insured (claims-made) or both made against the insured and reported to the insurer (claims-made-and-reported) during the policy period (or any extended reporting period that is part of the policy).
Ben Andrews, partner with Pennington, PA, in Tallahassee, Florida, gives this advice to agents, "Renewal policies are likely to contain much more restrictive coverage terms specifically excluding losses arising from the pandemic. So, agents should strongly urge their insureds to make extensive internal inquiries before their renewal to determine if any events have occurred that could trigger coverage under their claims-made policies. If there have been such events, then the insured should give notice to the insurer as soon as possible and certainly before the window to report claims under the current policy has closed. Agents should also be careful that any notice they assist in preparing meets the very specific requirements of the policy for triggering coverage; otherwise, they may find that they have alerted the insurance company that trouble is brewing but not preserved the insured's rights under the policy."
Agents, take this advice to heart for your own E&O policy. Do not wait to see if a problem results in a lawsuit. Always report a potential claim promptly when it meets the criteria in your policy.
Passing the Mirror Test
Insurance companies are already placing new restrictions on policies, and we can be sure that we will see many more restrictions in the months ahead.
When an agent replaces an old policy with a new one, the presumption is that the insured intended for the new policy to be at least as broad as the old one. If it is not, generally, someone has a duty to inform the insured of the new restrictions that are foreseeably material. The responsibility for doing that varies by state. For instance, in Florida, the statute says that an admitted insurance company that offers a renewal policy with new restrictions is responsible for notifying the insured of those restrictions. However, a nonadmitted insurer has no such responsibility, so that duty generally falls to the agent. And, if the agent replaced the old policy with one from another insurer, the duty to notify the insured of new restrictions generally falls to the agent as well. If the agent does not inform the insured of new restrictions that are foreseeably material, the agent would usually be said to have "failed the mirror test" because the new policy failed to mirror the coverage of the old one, and that can lead to an E&O claim.
Agents, beware! Some insurance companies may insert new exclusions or limitations into a form but not change its name. Only the form number or edition date may have changed (this is more common with surplus lines insurers). So, check the form numbers and editions dates against the previous policy, and review the form closely for new restrictions if there has been a change.
Bottom line—agents, if the insurance company has made material changes to the policy, and it is your duty to bring them to the attention of your insured, be careful to do it.
Agency Captains—Keep the Ship Righted and on Course during the Storm
Here are thoughts for agency owners and managers, whether you are in lockdown or transitioning to the "new normal."
Contact Commercial Insurance Customers, and Document Communications
- Contacting your commercial customers now will pay dividends in the long run. Eric Moberg, president and CEO of the Moberg Group in North Carolina, urges agency owners and managers, "Communication is more important than ever now—not just with employees but also with clients. With an email or a call, your team can find out how customers' operations have changed, whether they have new exposures, and whether you can reduce their premiums or quote new coverage."
- It is vital for producers to document all communications and actions in the agency management system. If they are not able to do that themselves, then they should send detailed emails with any relevant attachments to their customer service representatives and account managers so that they can be attached to the system.
- Now is the time for "all hands on deck!" If you have producers in the agency who are not overwhelmed with their own client duties, they can be of great help to the customer service representatives and account managers who may be struggling to keep up with renewals, customer requests, and processing. For instance, can producers take on more responsibility for updating renewal applications and obtaining renewal quotes? Can producers step in to assist with small accounts? A small account can still have a very large E&O claim.
I believe the greatest E&O threat of this crisis may be the disruption it is causing in agency operations. Will renewals be processed in a timely fashion? Will change requests get lost in the shuffle? Will communications be logged into the system and attachments be attached? Will claims be processed efficiently? Mary LaPorte of LaPorte Consulting, LLC, offers agency owners and managers the following advice.
Use Agency Management Systems To Troubleshoot Problems Early
- Regularly run reports to determine if employees have a backlog of overdue follow-ups.
- Regularly run reports that show which policies have not been renewed. Have any of those renewals just been missed?
- Take a bird's-eye look at your employees' unopened emails. Is the volume of emails overwhelming them so that important messages from clients may get lost?
Provide Employees with the Equipment They Are Accustomed to
- Try to provide employees with the same kind of workstation setup at home that they had at the office. An employee who worked with dual monitors and a full-sized keyboard will not be as efficient (and is more likely to make mistakes) if they are operating from a laptop.
- Headsets or earbuds are also critical equipment because they free up employee's hands to enter notes while on the phone.
Summary
The COVID-19 crisis and its aftermath are likely to result in an unprecedented number of E&O claims against agents. Agents can minimize their chances of being sucked into this litigation vortex by dealing wisely with COVID-19-related losses and special E&O concerns. Agency managers can take steps to minimize the disruption in their agency's processes so that policy renewals, change requests, and documentation continue at a high level, even during this crisis.
Thanks to Swiss RE Corporate Solutions' "E&O Risk Management and COVID-19" for several of the recommendations, which are developed in the "Do's and Don'ts" section of this article.
The recommendations given in this article are not legal advice and are not statements of what agents are required to do to meet their standard of care in a given state. They are only the author's opinion of practices agents can utilize to stay out of E&O trouble.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
