National Underwriter - March 19, 2012

How Agency Claims Staff
Can Cause E&O Claims

BY CURTIS M. PEARSALL

WHeN evAluATING the cause of agents’ e&o claims, one of the current hot spots deals with the manner in which claims are handled at the agency level.

While many agencies have a staff
dedicated solely to this function, in
other agencies this function is handled
by an account exec/customer-service
representative as part of their duties. But
either way, the bottom line is: This claims-
handling task is resulting in a number of
e&o claims. from my experience, at least
40 percent of agency e&o claims are caused
by claims-handling within the agency.
Agencies should handle this type
of dialogue very carefully. you want to
ensure that the conversation is well-
documented—not only in your agency
file but also with some type of written
communication back to the customer.
The goal or benefit of this additional
documentation is to identify any potential
misunderstandings between what you
said and what they heard or vice versa.

Does it make a difference whether it’s a first- or third-party claim? Before answering this question, it is important to realize that if a loss occurred and the carrier was not aware of it, depending on the state, it may look to claim prejudice in the settlement of the matter.

In other words, the carrier’s rights
were prejudiced by your agency or your
customer not putting the carrier on
notice. If it’s a first-party claim, there is
probably less likelihood that the claim
will develop adversely.

Rule of thumb: Even if agency
employees are positive that the
claim is not covered, they should
still submit it so the carrier can
make this important decision.
Agents should not be
denying claims.

essentially involves the cost to repair the other vehicle. After discussing the matter with your agency, the customer decides she does not want to file the claim and will pay for it out of her own pocket.

Conversely, claims involving a third party where bodily injuries are caused should definitely be reported to the carrier. The injuries could be worse than initially thought—and if there is a delay in advising the carrier of the claim, it may take a tougher position. Certainly advising the carrier of the claim will allow it time to conduct a review of the matter.

Thus, if the matter is a first-party claim, there is probably less of a downside if the customer ultimately chooses not to report the claim.

If the customer leaves the decision to you, I strongly contend that you have an obligation to notify the carrier and that failure to do so runs the risk of negligence against

your agency.
so when a claim occurs, be sure to
review the entire file to determine any
additional policies where coverage may
apply; then put those carriers on notice.
surprisingly, there have been a number
of e&o claims as a result of an agency
employee denying a customer claim
without sending it to the carrier because
the agency employee was convinced that
the claim was not covered.
unfortunately, they were wrong—and
if the claim would have been submitted,
coverage would have responded.
rule of thumb: even if agency employees
are positive that the claim is not covered,
they should still submit it so the carrier
can make this important decision. Agents
should not be denying claims.

last is the issue of improper or incorrect coverage interpretations. one recent e&o claim involved the customer contacting the agency to notify it of a potential claim under a Professional liability policy. The agency advised the customer that the issue did not meet the definition of a claim and thus there was no need to report the matter.

The matter definitely should have been reported, and because of the nature of the claims-made policy (it was a claims-made and reported policy), when the claim was reported, the carrier denied it because it was reported after the coverage had expired.

Claims handling is obviously an extremely important part of the insurance industry. Handling this function with focus, precision and professionalism should keep it from causing legal headaches for your agency. NU

 Curtis M. Pearsall has more than three decades of experience in Agents’ Errors & Omissions insurance in various marketing, underwriting and managerial capacities. He currently heads his own firm, Pearsall Associates Inc., and is a special consultant to the Utica National Insurance Group for its agents’ E&O program. He can be contacted at curtis@pearsallassociates.com.