Report: Agents Can Be Liable For Carrier Failures

NU Online News Service, Oct. 7, 10:19 a.m. EDT?Despite court decisions that offer agents and brokers some protection from liability in the case of insurer insolvency, there are monitoring tools they should use to check the financial health of the carriers they do business with.

That is the gist of a recent report issued by the Independent Insurance Agents & Brokers of America's Virtual University (VU) that offers ways for agents and brokers to check carriers for financial distress on an ongoing basis. The VU is an online educational and information resource center offered by the "Big I."

In the report, author Bill Wilson, director of the VU, contends that independent agents and brokers have an obligation to their clients to advise them as to their knowledge of financial indicators that may point to potential problems with a carrier.

Mr. Wilson says that insurance providers often think they are protected from insurer insolvency because they have errors and omissions insurance, their state has a guaranty fund, or they rely on the Texas Higginbotham court case [Higginbotham & Associates, Inc. v. Greer, 738 S.W.2d 45 Tex. App. 1987], which implies that agents aren't liable when an insurer becomes insolvent.

Mr. Wilson argues, however, that the Higginbotham case didn't necessarily absolve agents and brokers of all responsibilities and that they owe it to their clients to reasonably monitor the financial status of their carriers.

"Some agents and brokers may ask, ?Why should I bother?'" says Wilson. "To answer a question with a question, agents should ask themselves if they would suggest to their insureds that they rely on only one limited-risk management technique to address their exposures to loss."

To monitor a carrier's financial indicators, Mr. Wilson recommends that agents invest in fee services such as A.M. Best, Standard & Poor's, Moody's Investors Services, Duff & Phelps, Weiss Research and others.

Additionally, he said, financial information can be obtained from other sources such as annual statements and stockholder reports, insurance departments, trade periodicals, and other agents and brokers.

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Report: Agents Can Be Liable For Carrier Failures

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