Nothing is more unnerving for the owners and/or management of an insurance agency or brokerage than receiving an inquiry from a state Insurance Department concerning a complaint made against it, or questions related to its business practices. We have been told by many insurance agencies and brokerages that their first impulse after receiving such an inquiry is to respond as quickly as possible to try to make the matter just go away. While it is always important to respond to any inquiry from any state Insurance Department, or any other regulatory authority, in a timely manner, an agency or brokerage facing this situation should always proceed with caution. Instead, our suggestion is that any agency or brokerage that receives such an inquiry follow several steps in the process of preparing its response.
First, the agency or brokerage should consider reporting the matter to its errors and omissions insurer. This is the recommended practice. Many E&O policies provide coverage to help assist insurance agencies and brokerages in responding to an Insurance Department investigation. For example, many of the professional liability insurance policies issued by SwissRe through both IAAC and IAS, provide coverage for investigations brought by regulatory agencies and state Insurance Departments. The purpose of these policy provisions are to provide the E&O insurer with early notice and allow it the opportunity to become involved in the investigation, and where appropriate assign counsel to assist the agency or brokerage in handling the matter. A common mistake that is made by many insurance agencies or brokerages is to first attempt to deal with the investigation on its own, and then later advise the E&O insurer of the situation if the investigation proceeds further, or a problem arises with the matter. A word of caution must be offered here, however, since an insurance agency or brokerage that acts on its own and fails to advise its E&O Insurer of the regulatory investigation, risks the possibility that the E&O insurer may find that it was not timely notified of the matter and potentially may disclaim coverage for it under the policy, if it is then later reported.
Second, the agency or brokerage should do whatever it can to quickly and completely gather all the information that may be necessary to respond to the Insurance Department investigation. This information gathering should include speaking with any of the employees of the agency or brokerage that may have been involved with the matter. In addition, the agency or brokerage should review all notes, insurance policies and other insurance documents, correspondence, and other information that may relate to the situation to determine what actually occurred. If an attorney is involved in assisting the agency or brokerage in handling the inquiry, all of the information should be shared with the attorney.
Finally, the agency or brokerage, or its attorney, should prepare a response to the regulator's inquiry. It is important that the response is completely accurate regarding all the facts and details. Documentation that supports the position of the agency or brokerage should be provided with the response that is submitted. The agency or brokerage should make certain that any response it provides is clear and concise and does not contain any unnecessary or irrelevant information. An agency or brokerage that is preparing a response to an Insurance Department inquiry must be certain that it responds to all of the questions that are asked but should not provide information that is beyond the scope of the inquiry.
In our experience, most of the state Insurance Department investigations that are conducted involving insurance agencies and brokerages originate from the following sources:
- dissatisfied customers
- insurance companies
- competing agencies and brokerages
- disgruntled former employees
Although not always possible, when an Insurance Department inquiry is received, the agency or brokerage should try to ascertain the complaint's origin. Doing so can help determine the appropriate response. Some of the most common types of Insurance Department investigations involve premium trust matters, coverage issues, claim handling problems, licensing issues, and carrier appointment terminations. No matter what the source is for a complaint against an insurance agency or brokerage, state Insurance Departments are required to investigate each and every matter.
Unfortunately, during the past several years the volume of state Insurance Department investigations of insurance agencies and brokerages has dramatically increased. In our experience, the agencies and brokerages that respond to those investigations by involving their E&O insurer and working closely with counsel to assist them in the process will usually fare much better in how the investigation is ultimately concluded.
Submitted by:
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; Fair Lawn, New Jersey; Warwick, Rhode Island, Philadelphia, Pennsylvania, Williston, Vermont and Naples, Florida.