When evaluating the cause of agents E&O claims, one of the current hotspots deals with the manner in which claims are handled at the agency level. While many agencies have a staff dedicated solely to this function, in other agencies this function is handled by an account exec/CSR as part of their duties. Bottom line, this claims handling task is resulting in a number of E&O claims. From my experience, at least 40 percent of agency E&O claims are caused by this level within the agency.
One common scenario, which probably occurs frequently within virtually every agency, involves a customer calling to advise your agency of a claim but then after discussing it with you, deciding that they do not want to file the claim. This could be because the claim is not much more than the amount of the deductible, or that the customer will lose his loss-free discount, or because of the additional premiums she will have to pay due to a claims surcharge.
Agencies should handle this type of dialogue very carefully. You want to ensure that the conversation is well documented, not only in your agency file but also with some type of written communication back to the customer. The goal or benefit of this additional documentation is to identify any potential misunderstandings between what you said and what they heard or vice versa.
Does it make a difference whether it’s a first or third-party claim? Before answering this question, it is important to realize that if a loss occurred and the carrier was not aware of the loss, depending on the state, they may look to claim prejudice in the settlement of the matter. In other words, the carrier’s rights were prejudiced by your agency or your customer not putting the carrier on notice. If it’s a first-party claim, there is probably less likelihood that the claim will develop adversely. For example, your customer hits a parked car in the mall parking lot. No one was in the car, so no one got hurt. The loss essentially involves the cost to repair the other vehicle. After discussing the matter with your agency, the customer decides she does not want to file the claim and will pay for it out of her own pocket.
Conversely, claims involving a third party where bodily injuries are caused should definitely be reported to the carrier. The injuries could be worse than initially thought and if there is a delay in advising the carrier of the claim, they may take a tougher position. Certainly advising them of the claim will allow them time to do their review of the matter.
Thus if the matter is a first party, there is probably less of a downside if the customer ultimately chooses not to report the claim.
If the customer leaves the decision to you, I strongly contend that you have an obligation to notify the carrier and that failure to do so runs the risk of negligence against your agency.
Another “claims” issue involves other policies that the customer has that might provide some coverage for the specific loss. A common issue deals with a bodily injury claim when the customer has an umbrella. You reported the claim to the GL or auto carrier. Did you put the umbrella carrier on notice? While you may not believe the claim has the potential to penetrate the underlying coverage and go into the umbrella layer, these types of scenarios occur. The concern would be that if the claim adversely develops and penetrates the umbrella layer, the umbrella carrier may take a tough position if they were not advised of the claim early on. In other words, they will contend that they did not have the opportunity to conduct due diligence and investigate the matter.
So when a claim occurs, be sure to review the entire file to determine any additional policies where coverage may apply; then put those carriers on notice.
Surprisingly, there have been a number of E&O claims as a result of an agency employee denying a customer claim without sending it to the carrier because the agency employee was convinced that the claim was not covered. Unfortunately, they were wrong and if the claim would have been submitted, coverage would have responded. Rule of thumb: Even if the agency person is positive that the claim is not covered, he should still send it to the carrier for them to make this important decision. Agents should not be denying claims.
Last is the issue of improper or incorrect coverage interpretations. One recent E&O claim involved the customer contacting the agency to notify them of a potential claim under a professional liability policy. The agency advised them that their issue did not meet the definition of a claim and thus there was no need to report the matter. The matter definitely should have been reported and because of the nature of the claims made policy (it was a claims made and reported policy), when the claim was reported, the carrier denied it because it was reported after the coverage had expired.
Claims handling is obviously an extremely important part of the insurance industry. Handling this function with focus, precision and professionalism should keep this from causing a legal headache for your agency.