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November 2012 -- Special Extra Edition

Claims Handling Fundamentals that Agents, Brokers Should Remember When Handling Superstorm Sandy Claims

November 2012 -- Special Extra Edition

Volume 24, Number 12

Claims Handling Fundamentals that Agents, Brokers

Should Remember When Handling Superstorm Sandy Claims

As the cleanup continues in the aftermath of "Superstorm" Sandy, New York insurance agencies and brokerages are starting to receive related claims. Due to its magnitude and geographically wide reach, Sandy has caused a massive amount of claims. As such, many insurance agencies and brokerages, both large and small, have been overwhelmed by the sheer volume and diverse types of claims that are being reported. While servicing the needs of the customers should always be the first priority, insurance agencies and brokerages should not forget to follow good claims handling practices when handling Superstorm Sandy claims in order to help protect against potential error and omissions claims and lawsuits. Accordingly, in this special issue of The E&O Report, we will review some of the fundamentals of claims reporting that when followed will help provide good customer service and also help protect agencies and brokerages from potential E&O claims and lawsuits.

An Agency or Brokerage Should Not Presume There is Coverage or Lack of Coverage
Some claims that may be presented to an agency or brokerage are clearly covered, or not, while others may not be so clearly covered. Nonetheless, an agency or brokerage that is presented with any claim should not presume there will, or will not, be coverage for that particular claim and should never advise an insured that a loss/claim is covered, particularly with respect to any losses. If an insured relies on this advice to its detriment and the advice later proves to be incorrect, an E&O claim or lawsuit can result. Furthermore, we have discovered that incorrect advice in and of itself may lead an insured to believe that the agent or broker intended to obtain the missing coverage, but did not, thus encouraging an E&O claim or lawsuit based on a failure to procure.

The agency or brokerage should forward all claims to all of the insurers for the insured and let the insurers make the determination as to whether the claim will be covered. The reason for this is simple; if the agency or brokerage incorrectly assumes that a claim is not covered, and thus decides not to submit that claim to the insurer, that agency or brokerage will then be at risk of having an E&O claim made against it for what will ultimately prove to be the untimely reporting of the claim.

Notice of a Claim Should Be Sent to All Possible Applicable Insurers Immediately
An agency or brokerage should be certain to forward notice of a claim to all possible applicable insurers on the same day it receives the notice, or as soon thereafter as possible. Even if some of the necessary information is missing, the agency or brokerage should submit the claim with whatever information it may have and then provide additional information as it becomes available. It is important that no delay in providing the notice of the claim to the insurer is caused by the insurance agent or broker. Insurers faced with an historic volume of claims from Sandy could potentially look very closely at all of the facts surrounding the claim and its submission in order to determine whether coverage will be provided. For this reason, it is important that no delay be caused in the submission of the claim on the part of the insurance agency or brokerage. If the insurance agency or brokerage causes or contributes to a delay in the submission of a claim, that agency or brokerage may expose itself to a potential E&O claim.

Use Care in Describing the Claim
Use care with respect to the words that the agency or brokerage uses to report a claim. If the agent or broker reports that there was a “flood” at the insured premises, but there is no coverage for flood, it may trigger a carrier to provide a knee-jerk declination or to base their evaluation upon this premise. As a result, agencies and brokerages should avoid classifying the nature or extent of the loss. With that in mind, we even suggest referring to Sandy as a “Superstorm” or merely “Sandy” and not as “Hurricane” Sandy as that is already a limiting description using a coverage term.

Notice of a Claim Should Be Sent to an Insurer by All Means
An agency or brokerage should take all necessary steps to make sure that a claim submitted to an insurer is actually received. Accordingly, we recommend that the notice of a claim be sent to an insurer by an insurance agency or brokerage by all means available, telefax, mail, email and online through the carrier’s claims portal if applicable. Following the sending of the telefax, the agency or brokerage should then call the insurer and confirm that all of the pages of the telefaxed claim sent were in fact received. The agency or brokerage should make a note on the copy of the telefax that it retains for its file, or in the agency management system, which indicates the name of the person it spoke with and the date and time of the conversation. If a claim is submitted to an insurer by email, the agency or brokerage should either request an affirmative email back from the insurance company acknowledging the receipt of the claim or contact the company by telephone and verbally confirm receipt. To the fullest extent possible, retain in physical and digital form any proof of filing a claim electronically. This information will be helpful in the event the insurer later states that it never received notice of the claim.

This is particularly true with respect to claims filed during the last two weeks. Communications were so greatly disturbed in the tri-state area that if your agency/brokerage submitted claims during that time, you should follow up with the insurer to be sure the company received the claims and responded to each one.

Direct Reporting
When your insured is covered under the National Flood Insurance Program or a “write your own” flood insurance carrier, your insureds will most likely notify them directly. Under those circumstances, it might be advisable to follow up with your insureds as to the status of the notice and the claim progression, while stressing that the insurer is responsible for the claim adjustment.

Reporting Claims by Voice Mail or Email
It is worth repeating that it is still the best practice for voice mail systems used by an insurance agency or brokerage to not permit a claim to be reported by a customer leaving a message on that system. This is also true with regard to email. We know that many agencies and brokerages follow this rule. But, we reiterate that any agency or brokerage that uses a voice mail system should state in the recorded message for both the main message for the agency or brokerage and also the messages of all individual employees that claims may not be reported by leaving a message.

The message should also state coverage cannot be bound or modified in that same manner. If an agency or brokerage makes it clear that no claim will be permitted to be reported by voice mail or email, it cannot then later be alleged by an insured that a claim was reported in that manner, but not then handled by the agency or brokerage. Some agencies or brokerages, however, do want to allow voice mail and/or email to be to be used by customers to report claims and bind or amend coverage. If that is the case, the agency or brokerage can use a disclaimer saying something to the effect of the following: Please note that voice mail (or email) is not effective to bind or amend coverage or report a claim until such time as you receive confirmation from the agency that your request has been received and processed.

Suggestions for Claims Handling For Superstorm Sandy and Other Unique Events
Due to the widespread effect and myriad forms of damages Superstorm Sandy brought it is very possible that many of the customers who report claims may have never before experienced a claim. Accordingly, we suggest that you consider explaining the claims process to customers who report claims.

Let your insured know what to expect in connection with their claim. Be clear about the timing of claims handling by insurers and that given the volume of claims that are being reported they should expected that there may be delays. Let them know what is to be expected from them as far as documentation for whatever type of claim they are submitting…ALE, EE, BI, PD etc... Remind insureds that they must save their receipts and all paperwork and document any damages with photographs, if possible.

Let customers know that even under these circumstances, their insurance policies may require that they mitigate their damages if possible. Keep in mind that the standard policy forms tend to require that the insured protect the property from further harm. However, it is not for the broker to decide whether the insured should be making certain repairs. If the insured has any questions, they should contact the insurer directly to let them know what work they intend to do and to ensure that the carrier does not take issue.

Homeowners Loss Documentation and Sandy
On Nov. 5, 2012, Benjamin M. Lawsky, superintendent of the New York State Department of Financial Services, instructed insurers to accept homeowners’ documentation, including photos and video, of losses so residents can discard debris before a second storm hits the region. The directive affects New York City and Nassau, Suffolk, Westchester, Rockland and Orange counties. This action is atypically as insurance companies require an on-site inspection first before a claim can be processed.

The rationale was to expedite the removal of dangerous debris as soon as possible without jeopardizing the homeowners claim. Superintendent Lawsky said, “If debris is dangerous, homeowners should carefully document their losses and then dispose of the debris. Taking photos and videos and even keeping samples of damaged materials is a good idea. We will be vigilant in protecting homeowners who have already suffered so much.”

The Department of Financial Services directive covers homeowners’ insurance policies. Flood insurance policies are covered by Federal Emergency Management Agency regulations. FEMA is also expected to issue guidance on this issue. Homeowners with both homeowner’s and flood insurance should follow FEMA rules to preserve their claims under flood insurance.

For claims under homeowners’ insurance, if dwelling debris must be removed before the adjuster is able to examine it, homeowners should:

Inventory all the damaged items.
Take individual color photos of the damaged property, targeting any high ticket items. If possible, videotape the damage items.
Have the camera set to record the date/time.
If possible, take samples or swatches of carpeting, wallpaper, furniture upholstery, window treatments, and other items where quality will be a claims factor.
The inventory should reflect the corresponding picture for validation.
Keep this information in a secured location to share when the adjuster arrives.

This process applies to all contents that are damaged and will be claimed.
Conclusion
To the extent that agency management systems were not able to be used for claims recording and submission due to power outages, agencies and brokerages should make sure that any paper record of such submissions is properly saved and available for future reference, if necessary. Be certain to input all such information into your digital systems as soon as possible once your office is back to full operation. Finally, the agency or brokerage should be sure to diary all claims for follow- up in order to make certain that all claims have been submitted by the agency or brokerage and received by all of the necessary insurers.

This is certainly a trying time for New York insurance agents and brokers and their customers. However, if an insurance agency or brokerage follows the claims handling practices we have discussed above, we believe that not only will the customers of the agency or brokerage receive good customer service, but the agency or brokerage will also demonstrate to the customer the added value that an independent agent provides and at the same time help protect itself from potential E&O claims and lawsuits.

Submitted by:
Howard S. Kronberg, Esq.
James C. Keidel, Esq.
Keidel, Weldon & Cunningham, LLP

Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of insurance agents and broker’s errors and omissions claims and litigation, errors and omissions loss control counsel and education, insurance coverage analysis and litigation and insurance regulatory matters. Please direct any comments or questions to James C. Keidel, Esq. by mail to the main office of Keidel, Weldon & Cunningham, LLP, at 925 Westchester Avenue, Suite 400, White Plains, NY 10604, telephone at (914) 948-7000 or e-mail at jkeidel@kwcllp.com. The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Bayonne, New Jersey; Warwick, Rhode Island and Philadelphia, Pennsylvania.