Inspiration springs from the most unusual circumstances. Just prior to writing this article, I was recruited and interviewed by a national volunteer organization that provides services to business newbies and start-up operations. The organization is composed of retired successful business executives who are willing to lend their particular expertise to less experienced business folks. This organization provides accounting, legal and business planning services in the form of workshops and one-on-one counseling. I was recruited because of my insurance and risk management experience.
This is not an organization that shoots from the hip; it has a well-planned program that includes a thorough orientation and training program for new volunteers. I just participated in my first orientation program that consisted of approximately 3 hours of computer training, a discussion of the mission statement and what was expected of each volunteer. The person interviewing me was a retired and successful operator of commercial real estate. Despite being retired, my interviewer indicated that he still owned several pieces of commercial real estate that he operated on an absentee basis.
Upon learning of my interviewer's background, I asked if the organization holds its volunteer counselors harmless for their professional liability, and does the organization maintain a volunteer professional liability policy. I am still shocked by the answer, which was, "Gee I don't know the answer to that question I've been doing this for 12 years and nobody has ever asked that question before."
Suppose you have been asked to prepare a comprehensive insurance program by a national volunteer organization. You are asked to contemplate all of the various exposures that a national volunteer organization might face. The person giving you your instructions is an unsophisticated buyer of insurance.
The organization consists of successful retired executives who counsel small business people who are contemplating starting or have recently started a small business venture. The advice offered ranges from creating a business plan, how to interpret a financial plan, risk management issues and marketing. The organization maintains a home office in a major East Coast city, has approximately 100 paid employees and thousands of volunteers nationally. This organization maintains branch offices in most major cities in the U.S.
Probe your imagination a little bit further and imagine you have now completed your usual information-gathering procedure involving owned real and personal property and general liability exposures, including D&O and workers' compensation insurance requirements. The final question remains: What about the professional liability exposure of the volunteers? You ask the question and the representative of the organization advises you that there is no need to worry about that exposure because the volunteers are protected by federal Volunteer Protection Act of 1997.
There are many articles by various authors on the duty of professional insurance representatives to advise and counsel their clients. There are an equal number of articles on the right of the insurance client to rely on the advice and counsel of their insurance representative. However, a few articles exist on whether the insurance agent has a right to rely on information received from their client.
Unfortunately, the answer to this question is murky. Volume 2 of the text, "The Legal Environment of Insurance," states that "depending upon the degree of the customers fault, his or her claim against the producer could be reduced either wholly or proportionately." This same text goes on to indicate that to prevail, the agent shall have reasonably and diligently sought out the coverage and it is the insurance producers duty to prove that the information received precluded the possibility of obtaining the required insurance protection. Just imagine what a plaintiff's attorney could do with the wording of that explanation.
It is reasonable to believe that thousands of volunteers giving professional insurance and financial advice are bound to give questionable advice. Both the volunteer counselor and the volunteer organization are then confronted with potential litigation. I am sure nobody will be surprised to discover that like most federal legislation, the volunteer protection act contains a number of loopholes and exclusions that would preclude protection for volunteers and/or the organization. I discovered a provision in reading the legislation. The act has an exclusion titled "roundabout liability." Suffice it to say, that this exclusion seems to take away the protection offered by the right hand with the left hand.
Does an insurance agent have a responsibility to be familiar with the Volunteer Protection Act? I don't think so. However, he or she has a duty to be reasonably diligent when procuring insurance. In my last AA&B article ("Learn strategies for avoiding the blame game," November 2009), I pointed out that when an agent or agency is involved in litigation, the agent or the agency loses whether it wins or loses. In my opinion, the best way to avoid litigation is to operate on the principle of no surprises. Play it safe, especially when dealing with a major exposure faced by your client. Take the time and make the effort to ensure that the information you are receiving is accurate, especially when dealing with an unsophisticated insurance buyer asking for a comprehensive insurance program.
The following case is an actual example of an agent faced with the possibility of being found not being reasonably diligent in procuring and presenting an insurance program. I was recently involved in litigation involving a commercial group which leased space to an organization promoting a boxing match. The property owner maintained its own risk management department and prepared a request for the insurance certificate required to lease the space to the boxing promoter. The certificate did not specifically request the most likely cause of liability--mainly, any injury to either participant during the course of the match.
Unfortunately, one of the participants was severely injured during the match and the boxing promoter, the property owner, the agent, and the agency were sued. The court found that the insurer was not responsible because of the clear exclusion in the policy. That, of course, left the agent and/or the hotel chain potentially responsible for damages. Based on the premise that the best defense is a good offense, the hotel chain instituted an action against the agent and the agency. Despite the fact that we had a sophisticated insurance buyer, I understand that negotiations are underway which, if successful, will be in favor of the plaintiff. Although I am not privy to the negotiations, I believe if there was a settlement in favor of the plaintiff, it will be on the basis that appropriate coverage was available and the failure by the agent to present a complete and accurate proposal.
Not too many insurance agents will ever be faced with the details of the Volunteer Protection Act or even providing coverage for a violent sporting contest. The message to every agent is clear: the more complicated the exposures, the greater the depth of the investigation required. Even more crucial, the agent must be aware of and deal with the most likely and significant exposures faced by the prospect. Make sure you are aware of these risks before making any proposal. Lastly, make sure the proposal indicates any gaps in significant coverage. The explanation of gaps in coverage becomes especially crucial when your instructions include terms like comprehensive insurance package or full coverage.
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