Q: My E&O policy doesn't mention whether unlicensed employees are covered. And since it doesn't mention them, does that mean they don't need to attend the E&O risk management seminars?

A: The Swiss Re Corporate Solutions/Westport Insurance Corporation E&O policy specifically does not mention unlicensed or licensed employees because all agency staff are covered under the policy, regardless of whether they are licensed or not. And just because they are not licensed, does not mean that they can't make an error or omission. Each state has different regulations on what functions an unlicensed person may do, and this chart developed by the law firm of Keidel Weldon & Cunningham and Tim Dodge, CPCU, AAI, Big I New York, is a fair representation of what an unlicensed person may and may not do:

​Authorized Actions

• Answering phones
• Scheduling appointments (provided there is no discussion about insurance coverage, cost or related issues)
• Maintaining files and records
• Referring prospect or customer to agent or a licensed sales producer, where appropriate
• Word processing and data entry
• Assisting with advertising and mailing campaigns
• Accept payments on existing policies that are made in the office in situations where there are no coverage discussions
• Secure expiration dates from prospects limited to the date the policy expires and the current carrier, whether they would be interested in speaking to the agent or licensed sales producer
• Take loss information from customers and report this information to the claims department
• Handle changes to existing policies that do not involve any discussion of coverages or require the binding of additional coverages, increasing or decreasing coverages, removal of coverages, or addition of vehicles
• Inform insureds as to coverage indicated in the policy record
• Receive requests for coverage for transmittal to the agent or a licensed sales producer

Unauthorized Actions

• Prospect or solicit for insurance
• Quote premiums

• Discuss or provide advice concerning coverages, limits or deductibles
• Interview customers for the purpose of developing information as part of the completion of an application
• Bind new policies or make changes to existing policies that require the binding of additional coverages, increasing or decreasing coverages, removal of coverages, or addition of vehicles
• Accept payments on new policies
• Receive compensation based on sales
• Be involved in any activity or transaction that is not in compliance with company policies and procedures or that is in violation of state licensing or other laws

​Each one of these actions is a potential error or omission waiting to happen, and in fact, we have had claims in virtually every one of them.

Example: On a Friday afternoon before the Memorial Day holiday, the receptionist (who is unlicensed) at the ABC Insurance Agency accepts a customer payment for a policy that expired the day before on a 22 foot runabout boat on a direct bill policy. She was not aware that the policy had expired. The customer asked if there would be coverage for the boat as they wanted to take it out on lake that weekend. The receptionist, who just wanted to help the customer, said that she thought it would, but she did not look at the customer file or ask any of the licensed staff before the customer left. The receptionist put the payment in an envelope and locked in her desk for the weekend.  Assuming they had coverage, the customer then took the boat on the lake and on Sunday, there was an accident due to their negligence that resulted in severe injuries to another person. On Tuesday after the holiday, the customer contacted their agent to tell them about the accident. The agent told them they didn't have any coverage because the policy had expired, and the customer told them what had happened on Friday afternoon. The agent discussed this with the receptionist, and she confirmed what had happened. The agent had never told the receptionist they could not accept payments on expired policies or on direct bill policies. The result is that the E&O carrier paid the underlying claim for more than $250,000.

So, remember, be sure to check your E&O policy to ensure that all employees are covered, and make sure that you have all employees attend a risk management seminar to know what kind of exposures they may have, whether or not they are licensed. As the saying goes, an ounce of prevention is better than a pound of cure.

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. 

*Richard F. Lund, JD, is a Vice President and Senior Underwriter of Swiss Re Corporate Solutions, underwriting insurance agents errors and omissions coverage. He has also been an insurance agents E&O claims counsel and has written and presented numerous E&O risk management/ loss control seminars, mock trials and articles nationwide since 1992.

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