E&O Cases Up; Defensive Habits Urged

When an insured discovers his or her policy does not cover a loss, the client may seek compensation from somewhere–and that somewhere could be an agents errors and omissions policy.

A panel of insurance and legal professionals dealt with this issue and its legal trends during the Professional Insurance Agents of New Jersey and New York conference in Atlantic City, N.J. The conference was the first joint conference held by the two associations and ran from June 10 to 12.

What begins the process “is not that anyone did something wrong, but that they [an agents clients] are not getting paid,” remarked David H. Paige, an attorney with Nicoletti Hornig Campise & Sweeney of New York City, who lead the discussion. “These cases are driven by attorneys who should have never taken them in the first place.”

The numbers of such suits, the panel members said, are growing.

Mr. Paige said he sees at least one E&O lawsuit a week. Greg Stewart, an E&O claims specialist with Utica National Insurance Company in Utica, N.Y., said he sees between four and five suits each month.

Mr. Paige said that those figures do not reflect the number of claims that are settled without suits.

Part of the difficulty in dealing with E&O cases is a climate of cynicism on the part of clients toward attorneys, insurance companies, insurance professionals and the claims process, observed Mr. Paige. The issue comes to a boiling point when the client is not paid for a claim.

Mr. Paige also said that the legal standing of agents before the courts is different than agents perceive. Most agents see themselves performing an important role for the client as the trusted advisor leading the customer to the proper coverage. The legal system, on the other hand, views the agent as the seller of a product.

“What is your duty when someone walks into your office?” asked Mr. Paige.

“The courts believe you only sell a product. You do more and the jury expects more.”

Under this specter of responsibility, the agent must build a defensive mentality when it comes to doing businesses, said Frank Christiano, president of Christiano Insurance in Saddle Brook, N.J., and director of PIANJ.

Keeping good records and asking questions at the time of writing the policy or renewal are some of the first steps the agent needs to take in order to protect himself, he said.

One defense that agents need to pursue is to make customers sign off when they decide to reduce their coverage, said N. Stephen Ruchman, PIANY vice president and principal of Ruchman Associates Inc. of Rockville Centre, N.Y.

In spite of the existence of statutes of limitations, whose terms vary from state to state, Mr. Paige advised that a good attorney can find a legal loophole that will allow for a suit to be filed. He advised that when it comes to holding onto records, there is no good time to throw them away.

He noted an incident where an individual was able to file a lawsuit 25 years after a policy was purchased, because the incident occurred when the claimant was a child. The reason the suit could be filed was that the individual had six years from the date of discovery of the health problem caused from ingesting paint chips as a child.

“When it comes to liability you have to hold your files forever,” Mr. Ruchman said.

If you become part of an E&O suit, admit nothing, Mr. Stewart advised the agents show attended the conference.

If there was a mistake, it may not mean the agent is liable. Allow the E&O representative to deal with the case, he said.

Mr. Paige added that when there is an E&O claim filed against the agent, he or she should call the underwriter and talk to representatives as early as possible.

Concerning the issue of data, especially in todays high-tech world, if records are on old computer disks or tapes, can they be transferred to current software language? Mr. Paige asked.

They may not be, he answered. Agents should keep one old machine available in case that data needs to be accessed, he said.

Certificates of insurance should always be sent to companies, even if the company says it does not want them, Mr. Paige advised. This protects the agent from a company saying it was not aware of changes by showing that the effort was made to keep the company informed, but that the company remained ignorant.

Another defense against E&O claims is for agents to be consistent in their operations, members of the panel advised the agents.

“Whatever you decide to do, be consistent in it,” Mr. Christiano said. “That is going to be your defense.”

One way agents can avoid E&O headaches is to avoid doing business with companies that are known to avoid paying claims, Mr. Paige said. Dont do business with them, he advised.

“The thing we dont want you to do is nothing,” Mr. Paige said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 3, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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