June 1st is the start of the Atlantic hurricane season.¹  Many of the weather and hurricane experts are predicting that this year’s Atlantic hurricane season may once again be a very active one. Colorado State University has forecast that this year’s Atlantic hurricane season will have above normal activity and predicts that there will be 4 major hurricanes with winds of at least 111 MPH, 9 hurricanes with winds upwards of 74 MPH, with a total of 19 tropical storms.   Over the years we have seen insurance agencies and brokerages react to these types of storms and change certain aspects of how they conduct their business in order to help protect their customers and also help prevent a potential E&O claim or lawsuit. No matter whether your agency or brokerage is located on the coast or inland, it is important that you think beforehand about the issues that these storms present.  In this issue of The E&O Report, we will discuss some things that every insurance agency or brokerage should be doing in preparation for this year’s hurricane season. 

It has been estimated that less than a quarter of the properties that were damaged several years ago in Texas and Florida from flooding as a result of hurricanes Harvey and Irma were covered by flood insurance. After Irene and Sandy many of the storm related E&O claims and lawsuits that we saw were brought by customers who had suffered a flood loss, but did not have flood insurance in effect at the time of the storm. Although Vermont is not located on, or even close to the Atlantic coast, it suffered severe flooding as a result of Hurricane Irene after the storm headed inland.²   Some Vermont homes and towns were washed away, and numerous lives were lost, as a result of the flooding. 

Due to these types of events, many insurance agencies and brokerages have adopted a procedure where they offer every customer, both new and existing, the option of purchasing flood insurance regardless of where their property is located. This is a good practice for all insurance agencies and brokerages to follow.  But, since customers will often choose not to purchase flood coverage, unless they are located directly on a body of water, it is a good practice for the agency or brokerage to document the customer’s rejection of that coverage. One of the best ways to document the acceptance or, more likely, the rejection of coverage is to use the ACORD 60 Flood Acceptance/Rejection form. The ACORD 60 form should be completed by the customer indicating that the coverage is either accepted or rejected. Then it should also be signed and dated by the customer. The executed form should be retained in the customer file. 

An added benefit of using the ACORD 60 Flood form is that it specifically states that once it is signed it will apply to all future policy renewals.  By adopting an agency-wide practice where the option of purchasing flood coverage is offered to each customer, and the ACORD 60 is then completed by every customer, insurance agencies and brokerages will help protect themselves from potential E&O claims or lawsuits if a customer sustains a loss due to an uncovered flood claim. 

Another thing that many insurance agencies and brokerages learned from these various storms, is that only as a result of the storm did some customers discover that they had insufficient coverage, inadequate limits of coverage, or they did not fully understand how their coverages or deductibles applied. Many insurance agencies and brokerages now use these types of storms as learning tools for their customers to think about the coverages that they may need. For instance, when discussing insurance coverage with a customer, a good practice is to walk the customer through their insurance coverages, limits of coverage, and what the applicable deductibles would be in the event a catastrophic event occurred. This is a good practice for any agency or brokerage to follow whether it is a hurricane, ice storm, blizzard, fire, or another type of catastrophic event.  Agents and brokers that follow this practice when discussing coverages and potential losses with their customers have told us that it helps the customers identify possible changes in the coverages that may need to be made in order to be adequately insured.

Additionally, various storms have taught us all over the years that every insurance agency or brokerage, no matter how large or small, should have a disaster plan in effect for their own office that is known and understood by all employees. The first aspect of any disaster plan should be what each employee should do if a catastrophic event occurs. A key element of the plan should be how the agency or brokerage can remotely access its data in the event its offices are not accessible, or they are not fully functioning.  The agency or brokerage should also have the ability to forward their phone lines and the email access so that communications with customers can continue.  The information contained in the agency management system should also be accessible remotely.  Based upon what has taken place during the past few years with the coronavirus pandemic it appears that most insurance agencies and brokerages now have such a plan in effect and are able to seamlessly operate remotely. Having this ability enables the agency or brokerage to continue to operate and assist customers in the crucial time immediately following a catastrophic event.   

The prudent insurance agency or brokerage is the one that thinks well in advance of a catastrophic event, and also has its customers do so too, so that both are prepared when a catastrophe occurs.  By doing so, the agency or brokerage will not only help protect itself from a potential E&O claim or lawsuit, but it will also help provide better service to its customers, and in the process will often sell more insurance.   

     

Submitted By:

James C. Keidel, Esq.

Keidel, Weldon & Cunningham, LLP