An Error or an Omission...it can happen...and does happen, even with the most stringent guidelines and procedures in place. When an insurance agent acts like the "professional" that he or she should be and then, in spite of this, gets caught up in a legal liability dispute, it is regrettable. This is what appropriate E & O coverage is all about. On the other hand, when an agent goes about his or her business in a generally sloppy manner, with little concern for "professionalism," it is only a matter of time and circumstance before legal trouble comes knocking...or ringing.
A popular song of a several years ago contains the lyrics "...I've looked at clouds from both sides now...." Well, I've looked at insurance agents from five sides now. With 45 years in the Property and Casualty insurance business, I have looked at agents activities as a consumer, a company underwriter/representative, a wholesale excess and surplus lines broker, a retail agent, and now a litigation consultant. Most of this agency association and experience has been with independent agents and, I must say, has typically been very satisfactory. However, when a glaring exception comes along, it is not a pretty sight.
Having been involved as a consultant and expert witness in several E & O cases, it has been emphasized to me the gap that exists between agents who are conscientious in doing a professional job, and those who "just don't care." Perhaps sharing a few "war stories" will help you. Of course, all names have been changed to protect the innocent...and the guilty.
Consider the case of an agent we shall call I. Am Busy. Ms. Busy was evidently standing on the sidelines while one of her commercial policies was canceled by a company using questionable procedures. When the insured had a devastating fire, Ms. Busy had to say that she didn't know whether the policy was in force or not. Never mind repeated notices from the insurance company about the situation. Ms. Busy was not too busy to become involved in lengthy research and a time consuming personal deposition that did not make for a happy day. It could have been worse if the case had not been settled prior to trial.
Then there was agent Must B. Fine who made no effort to confirm the financial stability of an offshore excess and surplus lines carrier. You guessed it...when a serious loss came along, the financial stability was not there and the company was certainly found to be "off shore"...in fact, so far off shore that none of its principals or employees could be located. Mind you, Mr. Fine didn't just not investigate the company enough, or check the correct sources, he didn't investigate the company at all.
I recall agent Good E. Nuff who worked closely with an insured concerning many aspects of their workers' compensation coverage. Later, when one of the insureds went to prison, the company went to Mr. Nuff inquiring as to where he was looking while all of the "funny business" of classification and reporting was taking place.
Consider agent That's A. Plenty. Mr. Plenty seemed to be too busy working his life insurance and annuity business to see that proper liability policy limits were in place for an insured. After coming up a million dollars or so short to cover a judgment against him, the insured probably needed the annuity advice of the agent, and perhaps more life insurance. The agent probably needed a very good lawyer to help explain why he never looked beyond his few property and casualty companies to get adequate liability limits for this wealthy insured. In this case, the action (or lack of action) on the part of Mr. Plenty failed (in my judgment) to meet an acceptable standard of care for insurance agents in his state.
On the other hand, I have been involved with cases that have implicated agents who (it seems to me) have acted very appropriatly to do a good job. In spite of this, it is sometimes necessary to prepare and present a proper defense. Chalk some of these situations up to our litigious society, and some to a desire to "bass the buck" on one's own mistakes. There was agent I. Try Hard who was in and out of court for many years defending a situation where (it seems to me) an insured did not purchase "tail" coverage on a claims made liability policy, not because it was not offered, but because he did not want to part with additional premium. After studying several depositions, including my own, and spending several days at trial as well as working on the appeal, I am not sure why this was not also apparent to the court.
In my experience, there have been a few insurance companies that we might call Pass The Buck Mutual. In several cases, these companies have called the agent on the legal carpet for not "dotting an I or crossing a T" in an application. Then, after a loss, the company tries to conceal slip-shod underwriting by refusing to fulfill its obligations to pay a legitimate claim, and by hitting the agent with a lawsuit.
Then there was the case of agent Might T. Fineprint, who failed to specifically call to an insured's attention an obscure exclusion in one of his policy coverages. Guess what? You are right again...after a loss not covered by this exclusion, the agent was sued. After a study of this case and considerable research, it was my opinion that Mr. Fineprint did the best he could. As a clincher, coverage that did not contain this exclusion was unobtainable from any carrier.
It has been said that the three top requirements for desirable real estate are (1) location, (2) location, (3) location. If I were asked to give the three top requirements for agents to prevent becoming involved in Errors & Omissions cases, it would be (1) document, (2) document, (3) document. Almost every case with which I have worked would probably never have reached the legal system if the agent involved would have properly documented the conversations and actions of which he or she later tries to convince the court. From a short note in a file or telephone log, to a letter confirming an agreement, to have something in writing makes all the difference in the world (and in the court room).
Formality is often unnecessary. A simple notation, a file explaining what action was taken or what information was supplied to an insured, no matter how crudely written, is so very far ahead of an agent's testimony involving "I think" or "I must have," or "I usually do that."
But you probably have been given (or sold) this advice before. Therefore, the purpose of this writing is to jog your memory...to exhort you to remember and practice what you know. The relatively small amount of time spent in prevention always pays off in the long run.
This exhortation is coming from one who has viewed the situation from many angles and has seen agents experiencing extensive trauma because of a situation that could easily have been prevented. Take the courses, review the procedures, run down the checklists, and continue to keep an air of responsibility and professionalism around all persons involved in your agency operation.
This article is not designed to defend or excuse anyone, and certainly not to reveal information or give opinions involved in these real-life cases that have been mentioned. This is an attempt to illustrate how things can happen and to encourage all agents to carefully and conscientiously "mind the shop." As the proverb goes, "A hint to the wise is sufficient." Let me urge you to embrace these "hints" to help remove one of the many concerns that surround your agency operation. The pen of documentation can be the pen of prevention.
Billy L. Akin, CPCU, ARM is president of Professional Consultants & Services, Inc., a consulting company that provides insurance and reinsurance services for the insurance industry and attorney consultation and support. He is a certified mediator and is available for claims and expert witness consulting. For information about his consulting services, contact Billy at 1012 Forestpointe Drive, Hendersonville, TN 37075, 615-826-5966, fax 615-826-7294, or via email at firstname.lastname@example.org.
Copyright 2000 by Billy L. Akin. Used with permission.