October 2022 |  Volume 37, Number 10

            As many long-time Big I NY members know, there is a “hotline" that you can use to contact our law firm with legal questions that you may have. Each year we receive hundreds of these calls from Big I NY members. One of the most frequently asked questions that we receive in connection with these NY hotline calls is if, when, and how they can fire a difficult customer.  In this issue of the E&O Report, we will discuss this question, and also provide some guidance on how to deal with this issue if you should happen to face it.

Several years ago, I recall reading an article in an insurance publication that had statistics showing that in the average insurance agency or brokerage, a CSR may spend upwards of 30-40% of their time and energy dealing with the most difficult 5% of their customers; many agencies and brokerages refer to this as their “bad business."  The need to devote substantial resources to a relatively small portion of the customer-base of an agency or brokerage is not only robbing the other clients (the “good business") of the agency's devoted service, but it also takes the attention away from developing additional agency business by cross-selling other insurance.  For this reason, insurance agencies and brokerages often find themselves in the position where they may want to fire those difficult customers. But then they ask, can this be done and, if so, what is the best way to handle it?       

If any agency or brokerage is going to not only survive, but thrive, in these difficult times, it is important for them to work not only hard, but smart.  Doing this means that they need to focus their attention on where their people are spending their time and whether it is being used most effectively to service their clients and develop additional business.  In connection with this, agencies and brokerages should develop a system by which they measure how and where their resources are being devoted.  One of the factors to consider is whether there are difficult customers that require an inordinate amount of time from the agency or brokerage compared to other customers.            
            There is no requirement in New York that an insurance agency or brokerage must continue to provide service to a customer who they no longer desire to do business with[1].  As long as the termination of the customer relationship by the agency or brokerage is simply done as a business decision, and is not discriminatory in nature, the agency or brokerage can do business with whomever it wants to and can seek to end a relationship with a client if that is how it wants to proceed. A word of caution though, any agency or brokerage facing this issue should proceed carefully.

If you find yourself in this situation, the agency or brokerage should first start by advising the customer that it may be best for everyone if the relationship ends, and a new agency or brokerage is obtained to handle the subject insurance.  This communication with the customer should be done by the agency or brokerage in writing.  Either a letter[2] or email should be sent, advising the customer of the desire to end the relationship, or a confirmatory document should be sent afterwards if this communication with the customer is done verbally.  When this type of communication is made, the agency or brokerage should offer that they will provide the customer with whatever information their new agent or broker may need, including loss runs and policy schedules. This communication should also be done well in advance of the policy renewal date and not at the last minute.  You can also advise the customer that in some situations they may be able to remain with their current insurer by providing their insurer with a broker of record letter for a new insurance producer to take over the handling of their insurance. 

Most customers that are asked to leave an agency will do so after that initial communication but, in some instances, the customer may express reluctance to do so.  In this situation, the agency or brokerage may consider asking the insurance company to have another agency or brokerage take over the account or even provide the customer with names of various other agencies or brokerages that they may want to contact to handle their insurance.  In the rare occasion when a customer refuses to leave the agency or brokerage and the insurance company will not provide a new agency or brokerage to take over the account, please do not hesitate to contact us for assistance regarding how best to handle that particular situation. 

During the many years that I have handled insurance matters for insurance agencies and brokerages, I have seen that the most effective and profitable ones have developed criteria that they use to evaluate their customer base to determine whether any part of their business is good business versus bad business.  Also, in those same 33 years that I have been representing insurance agents and brokers, I have had countless insurance agencies and brokerages that were sued by their customers, only to say to me when the litigation was ultimately commenced against them that they “should have seen it coming" because that particular customer was always difficult in how they dealt with them and they should have parted ways with that customer long before the lawsuit. The prudent insurance agency or brokerage is one that is ready to take the appropriate steps to end the relationship with its difficult customers so that it can focus on its other customers, and also help avoid potential E&O problems and hopefully, in the process, sell more insurance.        

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

[1] The New York Department of Financial Services Office of General Counsel issued an opinion on this issue in which it stated that “a licensed insurance broker may terminate her relationship with an insured absent a contractual agreement to the contrary." A copy of this OGC opinion (OGC Op. No. 06-12-19) can be accessed at: https://www.dfs.ny.gov/insurance/ogco2006/rg061219.htm 

[2] There is a sample letter available to Big I NY members to use for the purpose of firing a customer titled “Letter to Customer Stating That Agent Will No Longer Represent Customer" that is available on the association website. The sample letter can be accessed at: https://www.biginy.org/discover/Pages/your-agency/E-O%20Tools/default.aspx