Do your clients read their insurance policy? Many agents say that while some may, most do not. This is somewhat baffling since technically, an insurance policy is a contract; would someone agree to a contract without reviewing it?

This is an extremely important point in the world of agents' E&O. Most states require clients to read and understand the policy content, provisions, duties and exclusions—and further require clients to contact the agency directly to make any additions, alterations and modifications if the coverage is not what they thought they requested. Some states actually state that the client has a duty to reject the policy if the terms are unacceptable

If a customer takes action against his or her agent, a significant part of the agent's defense could involve whether the client performed this duty to read his policy.

So what should an agent do to ensure that customers read their policies? Start by creating a cover letter urging the insured to fully review the policy for accuracy, including the declarations and endorsements, and to contact the producer immediately with any questions about policy content. Include this letter when delivering the complete policy to the insured.

Keep the letter straightforward and general, such as:

Enclosed please find the renewal of your homeowners policy written with ABC Insurance Co. You will be receiving your premium invoice shortly.

It is important that you take the time to read this policy to ensure your understanding of the limits and the coverages. If you have any questions or wish to make any changes to this policy, please contact the agency promptly. You have selected the limits of insurance and we can't guarantee that the limit will be sufficient in the event of a major loss. We can add or increase coverage at any time.

Thank you for the confidence in our agency; we appreciate your business.

What if the insured's still doesn't read the policy? Actually, client ignorance or a statement such as they didn't have the time is not a valid defense for the client.

Some agencies go a step further and recap the coverages in the cover letter. While this may appear to be “customer friendly” or “good customer service,” this degree of detail could actually pose a problem. The theory behind this is that if you recap the limits and coverages in the cover letter, you are essentially telling your client that they do not need to read the policy since you are telling them what's in it. Bottom line: It is best to keep the cover letter very general and not restate the limits and coverages.

If your agency plans to personally deliver the policies, you should still include this cover letter with the policies. Make it a practice to bring this letter to the attention of the party that you are delivering the policies to.

If your customer will be receiving the policy directly from the carrier, it's still a good idea to use the above letter with a slight modification. Instead of stating “Enclosed please find your renewal,” use a phrase such as:

You will be receiving the renewal of your homeowners policy directly from the carrier, ABC Insurance Co. When you receive it, it is important…..

There are tremendous benefits to this approach. Hopefully the coverage provided is what the client requested. If not, the client should discover upon her review those areas of concern. For example, if he asked for full coverage or “protect me from whatever can happen,” he will now find that every policy has exclusions and limitations. Or she may discover that the artwork she asked to have scheduled in her HO policy is missing. Trust that all would agree that catching this “error” before the loss is better than catching it after.

The benefits to your agency are also tremendous. It shows that you want your customers to understand their coverage and there may be situations where the customer asks for coverage modifications that resulted in a program that better suits their needs. In addition, there is no doubt that this letter has dramatically determined the direction of a number of E&O claims.

Special Reports /

E&O Basics: Why Your Clients Should Read Their Policies

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