By Richard F. Lund, JD
The Swiss Re Corporate Solutions underwriting and claims departments frequently hear about comments from our insureds that go something like this: "I just had a bogus complaint filed against me with the Department of Insurance, but I don't want to report it to my E&O carrier. They might consider it a claim even though nothing will ever come of this. It's not really a "claim" anyway. They might take some sort of underwriting action against me or even cancel my policy. After all, I didn't do anything wrong! I'll just respond myself."
While it is impossible to address every possible situation that might occur in this discussion, let's look at a very simple example: A customer of the agency has a claim, the carrier refuses (validly or not) to pay the claim, the customer becomes upset and ultimately files a complaint against the agent or agency with the Department of Insurance. The complaint is delivered to the agency along with a letter from the DOI investigator advising the agent that they have 10 days to file a response to the complaint. The agent is immediately upset, angry, defensive and ready to fire off a scathing reply – one that he may regret once he cools off. Which of the following should the agency choose?
- Ignore the DOI letter because he did nothing wrong.
- Send a strongly worded response disparaging the customer, the investigator, the carrier, and every other entity involved indicating how the system is clearly against them.
- Contact their E&O Carrier to help them respond to the complaint and the letter from the investigator.
If you chose #3, congratulations! You have read and understand the terms of your Westport Insurance Corporation Insurance Industry Professional Liability policy. If you chose #1 or #2, maybe it's time for a refresher course.
The Westport Insurance Corporation Insurance Industry Professional Liability Preferred Policy provides coverage to respond to complaints filed with the state department of insurance under Section I. Coverage D. Additional Coverages 4. Regulatory Defense, and states as follows:
"4. REGULATORY DEFENSE. We will pay on behalf of the INSURED, CLAIM EXPENSES caused by WRONGFUL ACTS committed by an INSURED in connection with your insurance operations, arising from the following:
Responding to a complaint or defending an investigation brought by any state regulatory agency, insurance department, or other government agency arising from your insurance operation. INSUREDS must:
a. provide prompt written notice to us and obtain our written consent before responding; and
b. agree to the use of legal counsel that we choose or approve.
This coverage does not apply to salaries of your personnel, loss of income, fines, penalties, return of fees or commissions, or reimbursement of premiums. The most we will pay under this additional coverage is $25,000 per POLICY PERIOD for CLAIM EXPENSES and such shall be a part of, and not in addition to, the Limit of Liability shown in the Declarations. "
While each of the capitalized terms is specifically defined in the policy, the most important language in the present context is the phrase: "Responding to a complaint or defending an investigation brought by any state regulatory agency, insurance department, or other government agency arising from your insurance operation." So, if you receive a letter and complaint from a regulatory agency such as the DOI, you should IMMEDIATELY contact your association's E&O administrator or contact the Swiss Re Corporate Solutions claims department. In virtually every case the investigator provides a very short time period to respond, sometimes as little as 10 days, so it is imperative that you report this AS SOON AS POSSIBLE! This will allow time for your claim handler to discuss the allegations with you, gather relevant documentation, retain counsel if it is deemed necessary, and craft a calm, factual, well-reasoned reply. Swiss Re Corporate Solutions has arranged, in most circumstances, to engage the services of an attorney that has had extensive dealings with the DOI and is well versed in their operations. In many situations where the complaint has been made against the agent and that attorney's services have been engaged, the complaint is either dismissed or resolved in favor of the agent.
Another reason that the complaint may be filed with the DOI is because the person who has filed the complaint has already retained an attorney, and their attorney has instructed them to file the complaint to help them on what's called a "fishing expedition". By filing the complaint, they have invoked the services of the DOI (unbeknownst to the DOI) to obtain information from the agent without anyone knowing an attorney is involved. Any information uncovered by the DOI investigator, including a strongly worded letter that may contain statements made by the agent that he cannot back up (we've seen that happen) will likely be delivered to the person making the complaint, which ultimately finds its way into the hands of their attorney. Now the claimant's attorney has all the ammunition needed to bring a lawsuit against the agent, regardless of the outcome of the DOI complaint. BUT, if you have followed the terms of your Westport policy and reported this to Swiss Re Corporate Solutions, an informed and measured response can be drafted to protect your interests.
This brings us to the second question of the matter: will I be penalized simply because I reported the DOI complaint to my E&O carrier? If your E&O carrier is Swiss Re Corporate Solutions under the Westport professional liability policy, the answer is no. The mere reporting of a DOI complaint (or any other claim or potential claim for that matter) does not automatically mean that you will have any adverse underwriting action taken by Swiss Re Corporate Solutions. In fact, because your professional liability policy is a claims made policy, it is very important that you report each and every claim or potential claim (as defined in the policy) to ensure that coverage can be afforded under the policy. Simply reporting them will not, repeat NOT, result in any underwriting action. (Note: an adverse finding by the DOI may impact underwriting, depending on severity, but you are obliged to report those decisions anyway.)
Even if an attorney is retained to assist in responding to the complaint, chances are that no adverse underwriting action will be taken. And just as importantly, it may prevent a lawsuit being filed against you!
So, if you receive a letter from the Department of Insurance along with a complaint alleging that you have committed some act that adversely affected the person making the complaint:
- Calm down
- Gather your file materials regarding the transaction
- Report it to your state association E&O administrator or directly to the Swiss Re Corporate Solutions claims department
- Follow the advice and instructions of the claims person or attorney retained to represent you to respond to the complaint
- Take comfort in the fact that your interests are being protected
If you follow these simple steps, you will maximize your chances of successfully defending yourself against a Department of Insurance complaint.
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 agent's 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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