| May 2017 |
Volume 29, Number 5 |
Why Do E&O Claims Occur Against Agents and Brokers?
Insurance agents and brokers often ask us this basic question: Why are errors and omissions claims made against them? Simply stated, one of the main reasons claims occur is because an insurer (or insurers) takes the position after a loss that the policyholder is not entitled to coverage and/or is entitled to less coverage than the policyholder, its attorney and/or its public adjuster concludes it is entitled to under the policy(ies) in question. Whether such denial of coverage is or is not based upon a good faith effort on the part of the insurance company, the reality is that denials of coverage frequently trigger claims against the insurer as well as agents or brokers. In this situation, customers often place the blame on their agent or broker for the fact their claim is not being paid as expected. Subsequently, an E&O claim is made by the customer against the agent or broker.
Don't forget about IIABNY's annual Errors and Omissions Loss Control Seminar series that returns May 16 in Hauppauge and continues with four other live classroom sessions through May 25 in Buffalo. The series concludes June 7 with a live videoconference seminar simulcast to 10 locations throughout New York. And, for the first time, IIABNY offers a live webinar option, also on June 7, as part of the series. Register online. |
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In a perfect world, if all claims were paid in full all the time, no E&O claims would be made against agents and brokers. There would, of course, soon be no insurance companies left in business, too. As opposed to this unrealistic scenario for responding to claims, our highest expectation is that company claims personnel have the capacity and the ability to fully understand the meaning of their policy terms, conditions and exclusions. We should also expect claims to be timely investigated and insureds promptly paid for legitimate claims covered under the policy. In the event this lofty ideal is not realized in all cases, you can rest assured the partners and associates of Keidel, Weldon & Cunningham, LLP are prepared to educate your company partners with respect to their duties and obligations under the policies sold by your agency or brokerage. We often win E&O lawsuits by compelling insurers to provide coverage their policies should have provided to their customers. When that happens, the E&O claim against the agency or brokerage is then resolved.
As observers of the E&O landscape for many years, my partners and I have isolated several other broad factors, developments and trends that often influence the frequency of claims made against agents and brokers. A prolonged hard market period frequently creates a disproportionate number of E&O claims against agents and brokers. The unavailability of coverages and/or procurement of less coverage than an insured would desire often encourages a form of 20/20 hindsight — a self-induced amnesia on the part of an insured after a loss. The insured is often able to remember only that it requested their agent or broker obtain full coverage, comprehensive coverage or all the coverage money can buy before the loss occurred.
Additionally, an increase in the frequency of E&O claims filed against agents and brokers often corresponds with financially difficult periods for insurance companies. Whether by reason of a conscious of subconscious desire to hold on to as much money as possible for as long as possible and/or the loss of some of their most competent claims people, hard times for insurers often make for hard times for agents and brokers. It hits producers in the form of E&O claims. For these reasons, we at KWC have seen the consequences that can arise when an insurer faces potential receivership or insolvency. History teaches us that claims administration on behalf of struggling insurers often results in an excessive number of unpaid legitimate claims, thereby unnecessarily exposing agents and brokers to potential E&O-related litigation.
Catastrophic events that cause extraordinary and nonrecurring losses can also potentially impact the frequency of E&O claims in a dramatic way. After Superstorm Sandy, for example, a large number of E&O claims were made against agents and brokers for claims not covered by customers’ insurance policies. While, it would seem that many of the claims related to Sandy were properly excluded under the terms of standard insurance policies, insureds still wanted to blame someone for their uncovered losses. Accordingly, many Sandy-related E&O claims were made against agents and brokers for uncovered losses.
Finally, one of the simplest reasons why E&O claims occur is because agents and brokers occasionally commit negligent acts, errors and omissions. In recognition of this fact, an absolute necessity for every agency or brokerage is to make certain they are protected by a professional liability insurance policy issued by a financially responsible insurer with strong underwriting and claims dimension in the specialty of agent and broker errors and omissions. This kind of protection, however, is only the second line of defense. The first line of defense must be that the agency or brokerage is truly committed to practicing good E&O loss control procedures and making certain all employees know and follow those procedures routinely and consistently on a daily basis.
If a true commitment to E&O loss control hasn’t made it to the top of the business plan at your agency or brokerage, I encourage you to make it a priority and think about the following. Over the years, we have observed the prudent insurance agencies and brokerages, which are truly committed to E&O loss control, not only experience fewer E&O claims and lawsuits made against them, but they also provide better customer service and frequently sell more insurance as a result of the loss control procedures they practice. The simple truth is that E&O claims occur more often against agents and brokers who do not prioritize loss control and fail to adopt the best office practices and procedures.
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; Fair Lawn, New Jersey; Warwick, Rhode Island, Philadelphia, Pennsylvania, Williston, Vermont and Naples, Florida.
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