In recent years, the blame game has become very popular. The object of the game is to find somebody to blame; it does not really make any difference who this is, as long as it is not the person looking for a victim to blame. Insurance professionals are guaranteed losers and at all costs should avoid involvement in the game. Your position in any given insurance transaction makes you the perfect target.

Most folks involved in any given transaction feel completely justified taking their shots at the middleman when something does not go exactly as planned. This is especially true for the insurance person because even if you win, you lose. Considering lost clients, time wasted, and the emotional distress of being involved in litigation, it is a zero-sum game.

Serving as an insurance agent/producer/broker has become a “hard hat” job. There are at least three different approaches to successfully blame the insurance representative. On one hand, we have the client whose position is, “He should have known what I needed.” On another hand, we have the insurance company, whose position is that its agent did not follow instructions or exceeded his authority. Finally, we have the legal community, which cannot proceed without finding fault. If all else fails and you cannot avoid litigation, I suggest following the often-recommended advice, “The best defense is a good offense.”

Constructing the agency defense is like building a bomb shelter–which is not something you can do when the planes are overhead. Likewise, building a proactive defense is not something that is done once you know a problem exists. Rather, your strategy must be well planned in advance and heeded when needed. The key word is “heeded,” because most insurance pros have created great mission statements and customer service protocols only to find that the best-laid plans have been ignored.

A proactive defense

Probably the single most important factor in creating your bomb shelter is to understand your relationship with your clients. Surprisingly, the most trouble comes not from your most valued and long-standing clients, but rather from new clients or clients with whom you do not have a trusting relationship. This issue is becoming more critical as the sale of insurance products become commoditized: Price often is the only factor except when the uncovered claim occurs.

The standards of care relating to your long-standing clients are clear: the agent or agency has an enhanced duty to advise and counsel these clients. Your responsibility to newer and price-conscious clients is definitely murky. Theoretically, in most states you have no clear duty to advise and counsel these clients. My advice is to ignore the theory and operate on the premise that you have unlimited responsibility toward all of your clients.

Keeping in mind that your duty is unclear, it is crucial that you inquire and investigate the needs and requirements of your prospective clients, gain access to the current insurance program and analyze the program in relation to your understanding of the clients' needs and requirements. It is essential that you provide your prospect information about available coverage. Remember, it is not your duty to provide coverage for every contingency; it is your duty to advise what it is that you can provide.

The final piece of your defense is documentation. Even the single producer has access to computer programs to keep track of its clients and the interaction with them. You would be amazed how many cases that have turned on the fact that although the agency had an information management system, somehow in this particular situation a crucial piece of information had been omitted.

The flip side of agency documentation is client documentation, especially with newer clients. This information should contain the initial request for coverage by the client, the coverage you sought to obtain, and of course, an explanation of the final product. Everything that you did or tried to do should be put in writing, not only on your information management system, but in correspondence with the new insured.

How you and the agency holds itself to the public is a factor that is overlooked by many insurance producers. If you hold yourself to be an expert in some particular field, provide consulting services for a fee or hold professional designations, it is probable that the standard of care required will be higher than usual. Recently I was involved in a case in which the insurance agency advertised itself as “insurance experts” and supported this claim with the fact that everybody in the agency had been awarded the CIC professional designation. The judge decided the case in favor of the client at a settlement conference because the agency had advertised itself as an insurance expert–and so they were held to a higher standard to advise and counsel their clients. Therefore, the next step in the construction of your bomb shelter is to make sure that you really are what you think you are. Remember, nobody can be all things to all people.

The final piece in the construction of your protective structure is to recognize that the two most important duties of any insurance producer are to follow the instructions of their clients and the instructions of their principals. Secondly, is the duty to provide the insurance you have agreed to procure. In both instances, there is no room for interpretation; therefore, it is critical that you fully understand what you are being asked to do and what you have agreed to do. These two concepts very often are quite different.

I am involved in litigation where the producing agent stands accused both of failing to follow the instructions of his client and failing to follow the instructions of his principal. If the allegations are accurate, he also is guilty of failing to procure the medical insurance that he has agreed to acquire on behalf of his client.

The litigation arose from the suggestion by the agent to replace an existing small group major medical contract. The basis for suggesting the replacement was better coverage at less cost. Incidentally, both were true; however, there were significant differences between the two contracts. The producer's instructions from the client were to make sure that the client did not have less coverage. The instructions from the insurance company to its agents were to make sure that when selling replacement insurance contracts, all differences are carefully explained. At this point in the proceeding, it appears that the producer failed at both. He is now in the insurance version of “no-man's land.” He has lost a valuable client because of the dispute, and the insurance company has walked away from him because he did not follow instructions. In case you are wondering, the agent has very low limits of E&O insurance and it is quite possible that the agent who set out to do the right thing for his client could be in a world of trouble.

Now that we have completed our bomb shelter, it would be nice if we could crawl in and be protected from all the contingencies that insurance people face on an almost daily basis. Sorry, but this will not work. The following admonition appeared recently in the Defense Research Bulletin:

All licensed insurance agents have a responsibility to their clients, that expands as the agent or agency presents itself as an insurance professional with special expertise in a specific area of insurance protection. The greater the expertise, the greater the right of the insurance client to rely on the chosen insurance professional. Courts have made clear that an agent holding himself or herself out as a professional will be charged with greater responsibility than simply filling out application forms. Therefore it is imperative to realize that in reality the insurance salesman no longer exists.

Boiling this legalese into a single sentence, it simply means the more professional and expert we become, the more responsibility we undertake. The best offense is to approach each transaction with a sense of service and self-preservation. The best way to accomplish this goal is to treat each client individually by selling the right product at the right price.

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Avoiding E&O- Learn strategies for avoiding the blame game

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