25 Tips for Insurance Agents to Avoid E&O Claims

By Jason Rogers

The last thing you need is a lawsuit. Here are some pointers on how to avoid E&O claims. 

Most insurance agents will never get sued. But a few will because they either did something wrong or failed to do something important. For those agents, litigation’s negative impact can be severe. It can result in the forced payment of significant financial judgments or settlements, sanctions if an angry client also complains to regulators and a tarnished professional reputation that impedes future business growth.

This is where errors and omissions (E&O) insurance can help, though it’s ultimately best to try avoiding agent E&O insurance claims  altogether by:

• Running your business according to high professional standards.
• Adhering to common-sense business practices.
• Adopting advanced lawsuit-prevention strategies.

Following are 25 risk-management tips that span each of these categories. As you read them, identify the techniques you’re currently not using and implement them as soon as possible. The more diverse and robust your defensive shield is, the less likely clients can mount a successful legal claim against you.

Running a Professional Business

There’s no substitute for professionalism. Following this guidance will help you avoid insurance agent E&O claims.

Tip #1: Act in your client’s best interests– Only sell insurance to clients when it meets their needs and serves their best interests. In most cases, insurance agents do business under a suitability, not a fiduciary, standard. Adopting a fiduciary mindset even if you’re not legally required to will help shield your business from litigation.

Tip #2: Be transparent– Be open and honest with your clients about the insurance protection you provide. To that end, never make false or misleading statements about policy provisions. Plus, be upfront about fees, penalties, exclusions or other coverage limitations.

Tip #3: Maintain accurate records of each client interaction– What should you document to avoid E&O claims ? What you discussed with your clients and the decisions reached.

Tip #4: Review each client’s policy (or policies) at least once a year– This will help prevent coverage gaps that can lead to future client losses.

Tip #5: Be an informed insurance agent– That requires staying current with your continuing-education (CE) credits and becoming a perpetual student of the industry. To this end, read everything— and anything— you find about insurance needs and products. This will make you a better agent and reduce mistakes.

Common Sense Business Practices

With the prior items in place, consider strengthening your defense by implementing the following common-sense tips.

Sales

Tip #6: Operate only in your expertise area(s)– Don’t let the potential of earning a hefty commission tempt you into selling unfamiliar products.

Tip #7: During your initial sales interview, do rigorous fact-finding and document the prospect’s needs in writing– This will help you sell the insurance policy they need, not the one you want to sell.

Tip #8: Document in writing all client coverage declinations– When clients refuse to follow one of your recommendations, send them a “coverage declined” memo, letter or email. Then ask them to sign and return a copy to your office.

Tip #9: Be relentless in finding coverage for your clients– Don’t give up if they need a specific policy that seems unavailable in the market. Redouble your efforts to find a solution. This will prevent an unprotected risk exposure from turning into a client loss.

Tip #10: Only promise to provide insurance if you can confirm that coverage is available– This will ensure you have a satisfied client on your hands.

Tip #11: Only write property insurance after first visiting client premises– There’s no telling what surprises lie in wait.

Tip #12: Do your due diligence– Make sure the company meets your solvency and quality standards before proposing an insurance policy to a client. Carefully assess claims-payment and solvency grades from the major insurance rating agencies before recommending the company’s policy.

Tip #13: Avoid mentioning your E&O insurance in client interviews– You don’t want your clients to view you as having “deep pockets.”

Underwriting and New Business Procedures

Tip #14: Adhere to binder best practices– Treat all binders with dispatch. Moreover, adhere to proper binding procedures and never exceed your binding authority.

Tip #15: Carefully prepare policy endorsements– Determine whether endorsing a policy or canceling and writing a new one is better. If you opt to endorse, indicate on the face of the policy what has changed.

Tip #16: Make sure prospects fill out their applications wholly and honestly– Then verify they have signed the forms before submitting them to insurers.

Tip #17: Do not withhold underwriting information from insurance underwriters– And never tell an insurer a risk is more desirable than it is.

Customer Service

Tip #18: Treat policy expirations and renewals with great care– Advise insureds of any coverage changes on the renewal policy and correct them if they are in error. Make sure to deliver renewal policies to clients before the expiration date. If the insurer cancels the policy, obtain replacement coverage well before expiration.

Tip #19: Make sure clients properly file claims with their insurers– Also, advise them to protect their property from forestalling further damage.

Tip #20: Only confirm coverage for clients with claims if you’re sure it exists– Ideally, wait for the insurer to verify in writing before you say anything to your clients.

Tip #21: Communicate regularly with your customers– Speak with them frequently via newsletter, social media and scheduled meetings. An open and friendly attitude will build warm, personal relationships that reduce the likelihood of litigation.

Tip #22: Establish policies and procedures for responding to client phone calls and emails– Make sure someone in your office responds promptly to customer inquiries— ideally within 24 hours or less. This will prevent communication lapses that breed client discontent.

Advanced Lawsuit-Prevention Strategies

Tip #23: Know when you’re operating under a regular or special standard of care– Most states don’t require agents to advise clients about which insurance coverage and limits they need. They only mandate agents respond to their insurance requests reasonably and diligently. Courts hold agents to a higher— or fiduciary— standard when they have assumed an advisory relationship. If you routinely operate as a client advisor, increase your insurance limits to protect yourself against added risk exposure.

Tip #24: Study all Excess and Surplus (E&S) proposals before submitting them to clients– This is important because E&S coverage is often narrower in scope than standard policies. For example, E&S protection may have high minimum earned premiums, limit liability coverage to designated premises or exclude the largest risk for a company’s general liability policy (for example, liquor liability for a bar). Key lesson? Never assume an E&S broker’s or insurer’s quote precisely corresponds to what you requested.

Tip #25: Exercise care when advocating for clients during claims– It’s OK to help clients file their claims. However, further advocacy can be dangerous when an insurer denies coverage, especially if the insured already has an attorney. Why? Because if the case ends up in court, which finds for the insurer, the plaintiff’s attorney can use your written communication as evidence you didn’t understand the policy’s provisions. The lawyer might sue you for misrepresentation. Agents who feel compelled to help their clients can argue a mistaken understanding of the facts or policy provisions resulted in a denial. But once an insurer refuses to reconsider its decision— and the insured has an attorney— you should stand down.

Finally, despite your efforts to protect yourself, a time may come when you and a client have an intractable dispute. At that point, you will need the services of a skilled attorney to defend you. If you have E&O insurance, your insurer will provide you with a lawyer at no charge and a claims adjuster to manage the claim process. Given a choice between fighting a legal battle on your own or with the assistance of trained professionals, which outcome makes more sense?

Are you shopping for insurance agent E&O insurance for the first time? Or do you already have coverage but want to reduce your costs? Consider the policies available from AIP, the Association of Insurance Professionals, starting at just $26.25/mo.