The same is often true in cases where insureds complain they requested different or additional coverage beyond what their policies actually provide. Though an application cannot always establish the type of coverage the insured requested, the insured will have a difficult time proving he or she asked for something different from the agency or brokerage if he or she signed an application requesting a certain limit of coverage or listed certain types of operations performed by the insured.
We also strongly recommend against an agent or broker signing an insured’s name to an application — a common but unfortunate practice. Even if the insured consents to this practice, doing so may create a situation where, when coverage is contested, the insured changes his or her story then accuses the agent or broker of committing forgery. If an insured is not available to sign the application and you feel you must sign his or her name, we suggest that, at the very least, you have your customer send you something in writing, expressly authorizing you to do so.
Activity Logs
We recommend all agents and brokers maintain a system for logging their activities and interactions with their insureds and insurers. Most agencies and brokerages have agency management systems that provide an easy and uniform way to keep track of these interactions. One of the benefits of using an agency management system is that it inserts a timestamp showing the date and time when each entry is made.
It is not unusual for an E&O claim to be filed or lawsuit brought many years after the insurance transaction took place. The statute of limitations for claims against an agent or broker could be as long as six years. As a result, it is not uncommon for memories to fade or employees with knowledge of the relevant facts to have left the agency or brokerage before an insured opts to pursue an E&O claim or commence a lawsuit. Having an activity log can help refresh faded memories and, in the right circumstances, even stand in for a former employee who cannot be located to testify.
An activity log can also help bolster disputed testimony. While a jury might believe a sympathetic insured’s version of events over the agent or broker’s version, it’s much less likely if the agent or broker is able to back up his or her testimony with an activity log made at the time the events actually occurred.
While we find most agencies and brokerages use an agency management system, we unfortunately also often discover some employees are inconsistent is their use of the system to keep track of activities. This inconsistency may present problems in preparing to defend an E&O claim or lawsuit. After all, it is difficult to know ahead of time the event or activity an agency or brokerage may ultimately need to defend itself against in an E&O claim or lawsuit. Consistent recording of customer activities in an agency management system should alleviate this potential problem.
Transmittal Letter
Another important document often used in the defense of an E&O claim or lawsuit is a policy transmittal letter. One of the best ways to demonstrate the insured received a copy of the policy is to send the policy accompanied by a transmittal letter then retain a copy of that letter in the customer’s file. Doing so also provides an opportunity to remind insureds to review their policies. A transmittal letter can remind the customer inform the agency or brokerage of any coverage problems or needed policy changes. A policy transmittal letter can also help in the defense of a claim if: the insured made a specific request for additional coverage beyond what their policy provides or the insured claims the agent or broker represented that the policy provided coverage it did not.
Until recently, some New York courts held that an insured’s receipt of a policy provides an absolute defense to a “failure to procure” claim against the agent or broker. Today, an insured’s receipt of a policy is no longer an absolute defense. Instead, such cases are considered on a comparative basis with any fault of the agency or brokerage. But insureds who receive a copy of their policy will have a much more difficult time proving they requested different coverage or the agent or broker told the customer the policy provided coverage it did not in fact provide.
Confirmatory Correspondence
Finally, any time an insured asks the agency or brokerage to act in connection with his or her policy, we recommend the agency or brokerage memorializes the request in writing. This writing can be in the form of a traditional letter mailed through the U.S. Postal Service or by email. Not only does this help you ensure the agency or brokerage understood the insured’s request, but, if the request ultimately results in the insured being left without coverage for a loss, it can help prove the agency or brokerage was merely following the insured’s instructions. For example, confirmatory correspondence would be appropriate when an insured asks the agency or brokerage to increase its deductible or requests the agency or brokerage procure less or different coverage than would normally be obtained under the circumstances. In such situations, confirmatory correspondence would be helpful in demonstrating the agency or brokerage was merely following the instructions of its customer.
Conclusion
As we have said many times over the years in The E&O Report and at seminars, documentation is clearly the key to E&O loss control. In fact, we often refer to documentation as the “get out of jail free card” that is used to defeat an E&O claim or lawsuit. The prudent insurance agency or brokerage should make certain that each form of documentation discussed above is consistently created and retained by all employees on a regular basis. By doing so, the agency or brokerage will not only help protect itself from potential E&O claims or lawsuits, but it will also help protect the customer and provide better customer service in the process.