More E&O Tips from the Streets in Rhyming Tweets

Poor Payer = Higher E&O Risk

Slow pay? No pay?

An E&O claim may be coming your way.

Defense and policyholder attorneys agree—insureds who aren't good at paying their bills are a higher E&O risk. Recently, I heard a policyholder attorney in an E&O class tell the agents, "Do you have clients who are always late paying their insurance premiums and frequently let their policies lapse? When they have an uncovered claim, they will be the first to march into my office demanding to sue you. And I am wary of them myself because they are the same people who will try to sue me for malpractice, too." The defense attorney on the panel heartily agreed!

So … slow pay? No pay?

Don't cry too hard if they go away.

As a matter of fact, you might show them the way.

Understand and Address Their Risks

We identify and understand

The risks our clients have at hand.

We verify what we think is true

And recommend what they should do.

Agents who take the time to find out about their clients' risks rather than assuming they already have full information will sell more insurance and have fewer E&O claims. Ask all the questions on the applications. Examine the client's financials. Review their websites. Do a walkthrough of their locations. Then recommend the coverages they need. It will set you apart from the "ordinary" agent, and, after a loss, they will be more likely to thank you and less likely to sue you.

Serve or Separate

If we can't make a profit on a client's account

And give it the service that we talk about,

Then it's probably best if we move them on out.

Everyone hates to say goodbye to a client, especially if their only failing is that they are unprofitable for the agency. But, if you can't afford to give them the service that a jury will say you should have given, those clients are a hidden liability. Perhaps there is a way to turn them into a profitable account, but if not, how can you graciously help them to find a more suitable agency home? It is usually best to serve or separate.

Provide Claim Guidance

Our clients don't stumble through claims without light.

We explain the steps so there won't be a fight.

An uncovered claim is more likely to result in an E&O suit if the policyholder feels that their agent abandoned them when they were needed most. A recent study found that policyholders were the most satisfied with the claims process when their insurance agent was the primary claim contact and least satisfied when an insurance company representative was the primary contact. When a claim happens, agents who explain the claim process, set reasonable expectations, and continue to communicate with their insureds will have happier, less litigious clients, even if the claim is denied.

No Full Coverage

We tell our clients there's no such thing

As policies that cover everything.

We curb their uninformed expectations

And ask them to read all the limitations.

"I told my agent I wanted full coverage," the insured testifies. Of course, this is a common request by uninformed insureds. But, if they make that request, agents would be well served to gently dispel their illusions. Bigfoot, the Loch Ness Monster, space aliens, and insurance policies without limitations and exclusions—they are equally difficult to find. It is a good practice to remind policyholders of that and encourage them to read their policies.

Never Promise Coverage

When a claim has come to light,

We never state, "It's covered."

And we're careful how we fight,

Though we believe a claim denial isn't right.

Your client calls you to report a claim and asks, "Is it covered?" The wise agent will explain the claims process and tell them that he will report the claim and a claims adjuster will be in touch. If an agent assures a client that a claim is covered and he is wrong, the insured may later sue the agent alleging that he misrepresented the coverage he sold. If the agent escalates the fight with letters to the insurance company, he places himself in even greater peril. For more, see "Avoid Agent E&O When Handling Problem Claims."

Report All Claims

When we don't report a potential claim,

If it's not covered later, we may get the blame.

Some agents commonly tell their insureds not to report small claims because they want to protect them from a rate increase or cancellation. But that strategy can backfire against the agent if the claim later balloons. When a recent hurricane caused what looked like minor damage to a condominium complex, the agent advised the insured not to report it. A year later, many of the roofs began leaking, and the actual cost of the repair was over $500,000. The insurance company denied the claim for late reporting. The condominium complex sued the agent for giving them bad advice that they had relied on. Another reason agents should report all losses is that the contracts they have with insurance companies typically require it. If agents violate the terms of their contract, the insurance company may pay the claim and then sue their own agent to recover their costs. The agent may also lose their contract with that insurance company.

Quote Lower Coinsurance Percentages

Raise the coinsurance, and rates will fall,

But a claim may bring an angry call.

When you were a kid, did you like tests where you would be punished if you didn't get a 100? Insureds don't either, but that is what a 100 percent coinsurance clause is like. Building owners chronically underinsure their buildings, and the chances of them having the building insured to 100 percent of replacement cost when a claim hits is small. Then there will be a coinsurance penalty, and they may want to blame you for the shortfall. They may say they didn't understand what the coinsurance percentage meant. I have read many depositions of insureds who said they thought that 100 percent coinsurance meant that they were covered for 100 percent of any loss. It is usually the wiser course for an agent to at least offer a lower coinsurance percentage so that the insured can decide if they are willing to pay a little more in order to avoid a stricter coinsurance penalty.

Use the Broadest Auto Symbols

When using auto symbol 7,

Say a prayer up to heaven

That there are no autos you have missed

'Cause it only covers what's on the list.

Is it important whether a commercial auto liability policy is written using a symbol 1 or a symbol 7? A symbol 1 gives the broadest coverage and means that "any auto" is insured for liability. In contrast, a symbol 7 is the most restrictive symbol and means that a vehicle is not covered unless it is listed in the policy. So, if an insured's policy has a symbol 7 and he has an accident in an unlisted vehicle, he is generally out of luck. If you sell auto policies with a symbol 7 or another restrictive symbol when there were better options available, you may be setting yourself up for an E&O claim. It's smart to pay attention to the auto policy symbols and get the broadest coverage you can for your insureds. (Learn more about auto coverage symbols by reading a Business Auto Coverage Form and other information that is available in IRMI's Commercial Auto Resources materials.)

Pass the Mirror Test

When we put a new policy into place,

It must cover as much as what it replaced.

If not, we'll explain the new exclusions

So when claims come in, there'll be no illusions.

Don't fail the mirror test! When an agent replaces an old policy with a new one, the presumption is that the insured wanted coverage at least as broad as what was replaced. If the new policy is not as good as a mirror image of the old, it is called "failing the mirror test." If there is a claim that would have been covered by the old policy but is excluded by the new, the agent may be liable. If the new policy is more restrictive in some ways, the agent should inform the insured. This does not legally have to be in writing, but if it is not in writing, chances are the insureds will not remember it. Then the agent will be caught in a "he-said-she-said" battle in court. So, better to put it in writing.

Don't Get Caught in a Fishing Expedition

When lawyers want to depo us,

We save ourselves regret

By checking first with our E&O

And avoiding the lawyer's net.

Your insured has a large claim that you think is covered, but the insurance company denies it, and your insured decides to sue the insurance company. You get a call from the insured's lawyer explaining that she is trying to build her case against the insurer, and she asks you to send her a copy of your file and to testify at a deposition. You would like to help your insured. STOP! Call your E&O insurer before you agree to anything. The lawyer would almost always rather sue the insurance company than sue you, but if they lose against the insurance company, you may be the next target. So, when they ask you for your file and to testify at a deposition, one reason is to uncover any mistakes you made. They are on a fishing expedition; don't get caught in their net! Call your E&O insurer to get their advice. If the attorney forces you to provide your file and give a deposition (by issuing a subpoena), some E&O insurers will pay for a lawyer to go with you without any charge to your deductible.

Thanks for reading to the end.

Did you find a thought to send a friend

That may help both them and you

Keep from falling into E&O stew?