It happens to most agents. 

A relative or friend needs insurance and, of course, you are contacted since you are in the business.  Aunt Sally and Uncle Bill have recently purchased some retail space and plan to rent it out.  Granted, you have never placed a commercial policy of any kind before, much less in Florida, but how hard can it be?  And the commission would be nice, too! 

You start securing quotes and during this process you begin to start second-guessing your decision.  However, it's Aunt Sally and Uncle Bill, so you can't tell them no.  And again, you remind yourself, the commission would be nice.  

You secure what appears to be an acceptable quote and complete the application process.  There is a lot of information required by the carrier to secure all the coverage needed for this new venture of your relatives -- a lot more than the simple personal lines policy that you normally sell.  Accustomed as you are to a largely renewal book of business for well-known customers, you forget to have the application signed.  Also, a review of the final online application and issued policy is never completed. 

But hey! Such things have never been an issue for you before!

Months later, you receive a frantic telephone call from Aunt Sally advising that the building has caught fire.  The carrier responds and investigates the claim.  It's then that the nightmare begins to unfold.  The carrier issues a denial of coverage due to the lack of a central station fire alarm (CSA).  You may not know what that is, but the application represents that there is a CSA.  That's a problem because the policy contains a Protective Safeguards Endorsement that requires an automatic fire alarm. 

Aunt Sally and Uncle Bill are naturally confused as neither of them recalls representing to you that the building had an automatic fire alarm.  You, too, are confused because you are fairly certain you did not advise the underwriter there was a CSA at this location. (However, all of this vaguely rings a bell: you couldn't get coverage without responding 'yes' to that question…) A lawsuit commences and you soon find yourself having some awkward moments at family holiday gatherings.

The agent's first mistake in this scenario was allowing themselves to be lured into unfamiliar territory by the familial relationship (and an easy commission).  Their second mistake was failing to seek assistance from an experienced commercial lines agent, despite having no experience with commercial lines insurance.  This all led to an unfortunate situation for everyone involved. 

Commercial lines insurance can be complicated and present many more variables to be considered than personal lines policies.  Commercial lines policies are also subject to closer underwriting scrutiny and addition of endorsements that may not have originally been anticipated. 

Had the agent admitted up front that this was out of their area of expertise and sought assistance or, if necessary, politely referred the relatives to an experienced commercial lines agent, the erroneous information on the application and the resulting endorsement would likely not have occurred.  Further, a proper review of the application and policy would have revealed the erroneous information at the outset and the policy could have been corrected prior to a loss.  

The takeaway: learn it before you do it or refer it to an experienced agent.  One-offs can become the perfect storm for an errors and omissions claim. 
 

Janice Blanton is an assistant vice president, claims specialist with Swiss Re Corporate Solutions and teleworkers out of the office in Kansas City, Missouri. Insurance products underwritten by Westport Insurance Corporation, Kansas City, Missouri, a member of Swiss Re.

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group ("Swiss Re") and/or its subsidiaries and/or management and/or shareholders. 

Look, A Useful Chart!
Claims when placing new business with existing clients account for over 25% of total claims.