Insurance agents today must understand the reality of beingsued. In the past, it was unusual that an agent was subjectedto an E&O claim. We are in a new era in which an agent whohas not been sued is the exception. It's liketermites in Arizona: If you haven't had them, youwill. Commercial insurance agents are becoming moresusceptible to this disturbing trend.

Which of the following are real cases brought against acommercial insurance agent?

• An insured suffers an uncovered loss and later sues theagent, stating he had wanted a certain coverage he did nothave, claiming he told the agent he wanted that coverageduring a meeting that never occurred.
• The employee of a client business is severely injured on thejob. The insurance carrier sues the agent, claiming there wasinsufficient information on the application, causing thecarrier to pay a large claim due to an unexpected exposure,even though the carrier was in the second year ofcoverage.
• A contractor who was not a client, but his client's client,sues an agent for an inappropriate additional insuredendorsement, even though the agent had sent his client a copyof the endorsement.
• A client sustains a loss which could have been covered byeither the CGL or auto policy, but each had exclusionary wordingsuch that the main exposure of the insured was notcovered.
• An agent sold a policy with inadequate limits to cover aloss; another agent who had sold other lines of coverage wassued for not recommending higher limits on that policy, eventhough he was unaware it existed.

Although one or two situations may appear to be obvious failureson the part of the agent, sadly these are all real. And thesecases don't just apply to young, inexperienced agents. Mostagents had a decade or more in insurance and many had aprofessional designation. Small firms are sued as often aslarge ones.

Courts across the country are interpreting the concepts of“duty,” “standard of care” and “fiduciary” in more and more cases,such that the responsibility on the agent is truly onerous.

Unfortunately, this is just a small sampling. Whether or not theagent was found to have upheld the “standard of care” required ofhim, each case cost thousands of dollars to defend—not just by theE&O carrier, but by the agency. Hours spent searching forand producing required documents, legal conferences and sessionswith attorneys, and in depositions and testifying can be verycostly, not to mention the disruption to the agent and hisbusiness. These cases also take a toll on the agent'semotional well being, whose reputation is potentially at stake.

The agent's E&O is the new “deep pocket” for losses. Thelatest trend is that of third parties pursuing claims against theagent's E&O. Courts are finding that agents have dutiesnot just to their direct insureds, but to third parties aswell. Even those with claims that may be covered by someother form of insurance are now seeking reimbursement or additionallimits from the agent's E&O.

So is the point of all this meant to scare insuranceagents? Indeed it is! With the advent of advancedtechnology, the mechanical processes of writing insurance policiesmay have become more streamlined, but the duties andresponsibilities owed to a client are no less. Following aretop ten suggested “musts” for commercial insurance agents:

1. Understand your clients' business and their potentialexposures to loss.
2. Understand the coverages needed to best protect theclient.
3. Obtain all pertinent information and forwardto the underwriter.
4. Search for insurance policies that will provide the bestprotection.
5. Present to the client in a format that isunderstandable.
6. Present various options and different levels oflimits.
7. Make recommendations whenever feasible.
8. Have the client review and sign all applications.
9. Make sure the client signs off on recommendations nottaken.
10. Retain hard or electronic copies for 10 years.

Document, document, document! It cannot be saidenough. Does 10 years seem like too long to retaindocuments? Many states have requirements of 3, 5, even 7years. Ten is suggested as complex cases in litigation oftenextend into the 7- to 10-year time frame. If gooddocumentation can help exonerate an agent, having discarded itbecause the regulatory requirements did not require it is of nobenefit.

There is no solution to keeping an agent from gettingsued. But the more difficult the agents can make it for thosethat sue to be successful, the less perhaps we will see of thesesuits.