Do your clients read their insurance policy? Many agents saythat while some may, most do not. This is somewhat baffling sincetechnically, an insurance policy is a contract; would someone agreeto a contract without reviewing it?

This is an extremely important point in the world of agents'E&O. Most states require clients to read and understand thepolicy content, provisions, duties and exclusions—and furtherrequire clients to contact the agency directly to make anyadditions, alterations and modifications if the coverage is notwhat they thought they requested. Some states actually state thatthe client has a duty to reject the policy if the terms areunacceptable

If a customer takes action against his or her agent, asignificant part of the agent's defense could involve whether theclient performed this duty to read his policy.

So what should an agent do to ensure that customers read theirpolicies? Start by creating a cover letter urging the insured tofully review the policy for accuracy, including the declarationsand endorsements, and to contact the producer immediately with anyquestions about policy content. Include this letter when deliveringthe complete policy to the insured.

Keep the letter straightforward and general, such as:

Enclosed please find therenewal of your homeowners policy written with ABC Insurance Co.You will be receiving your premium invoice shortly.

It is important that you takethe time to read this policy to ensure your understanding of thelimits and the coverages. If you have any questions or wish to makeany changes to this policy, please contact the agency promptly. Youhave selected the limits of insurance and we can't guarantee thatthe limit will be sufficient in the event of a major loss. We canadd or increase coverage at any time.

Thank you for the confidencein our agency; we appreciate your business.

What if the insured's still doesn't read the policy? Actually,client ignorance or a statement such as they didn't have the timeis not a valid defense for the client.

Some agencies go a step further and recap the coverages in thecover letter. While this may appear to be “customer friendly” or“good customer service,” this degree of detail could actually posea problem. The theory behind this is that if you recap the limitsand coverages in the cover letter, you are essentially telling yourclient that they do not need to read the policy since you aretelling them what's in it. Bottom line: It is best to keep thecover letter very general and not restate the limits andcoverages.

If your agency plans to personally deliver the policies, youshould still include this cover letter with the policies. Make it apractice to bring this letter to the attention of the party thatyou are delivering the policies to.

If your customer will be receiving the policy directly from thecarrier, it's still a good idea to use the above letter with aslight modification. Instead of stating “Enclosed please find yourrenewal,” use a phrase such as:

You will be receiving therenewal of your homeowners policy directly from the carrier, ABCInsurance Co. When you receive it, it is important…..

There are tremendous benefits to this approach. Hopefully thecoverage provided is what the client requested. If not, the clientshould discover upon her review those areas of concern. Forexample, if he asked for full coverage or “protect me from whatevercan happen,” he will now find that every policy has exclusions andlimitations. Or she may discover that the artwork she asked to havescheduled in her HO policy is missing. Trust that all would agreethat catching this “error” before the loss is better than catchingit after.

The benefits to your agency are also tremendous. It shows thatyou want your customers to understand their coverage and there maybe situations where the customer asks for coverage modificationsthat resulted in a program that better suits their needs. Inaddition, there is no doubt that this letter has dramaticallydetermined the direction of a number of E&O claims.