When evaluating the cause of agents E&O claims, one of thecurrent hotspots deals with the manner in which claims are handledat the agency level. While many agencies have a staff dedicatedsolely to this function, in other agencies this function is handledby an account exec/CSR as part of their duties. Bottom line, thisclaims handling task is resulting in a number of E&O claims. From my experience, at least 40 percent of agency E&Oclaims are caused by this level within the agency.

One common scenario, which probably occurs frequently withinvirtually every agency, involves a customer calling to advise youragency of a claim but then after discussing it with you, decidingthat they do not want to file the claim. This could be because theclaim is not much more than the amount of the deductible, or thatthe customer will lose his loss-free discount, or because of theadditional premiums she will have to pay due to a claimssurcharge.

Agencies should handle this type of dialogue very carefully. Youwant to ensure that the conversation is well documented, not onlyin your agency file but also with some type of writtencommunication back to the customer. The goal or benefit of thisadditional documentation is to identify any potentialmisunderstandings between what you said and what they heard or viceversa.

Does it make a difference whether it's a first or third-partyclaim? Before answering this question, it is important to realizethat if a loss occurred and the carrier was not aware of the loss,depending on the state, they may look to claim prejudice in thesettlement of the matter. In other words, the carrier's rights wereprejudiced by your agency or your customer not putting the carrieron notice. If it's a first-party claim, there is probably lesslikelihood that the claim will develop adversely. For example, yourcustomer hits a parked car in the mall parking lot. No one was inthe car, so no one got hurt. The loss essentially involves the costto repair the other vehicle. After discussing the matter with youragency, the customer decides she does not want to file the claimand will pay for it out of her own pocket.

Conversely, claims involving a third party where bodily injuriesare caused should definitely be reported to the carrier. Theinjuries could be worse than initially thought and if there is adelay in advising the carrier of the claim, they may take a tougherposition. Certainly advising them of the claim will allow them timeto do their review of the matter.

Thus if the matter is a first party, there is probably less of adownside if the customer ultimately chooses not to report theclaim.

If the customer leaves the decision to you, I strongly contendthat you have an obligation to notify the carrier and that failureto do so runs the risk of negligence against your agency.

Another “claims” issue involves other policies that the customerhas that might provide some coverage for the specific loss. Acommon issue deals with a bodily injury claim when the customer hasan umbrella. You reported the claim to the GL or auto carrier. Didyou put the umbrella carrier on notice? While you may not believethe claim has the potential to penetrate the underlying coverageand go into the umbrella layer, these types of scenarios occur. Theconcern would be that if the claim adversely develops andpenetrates the umbrella layer, the umbrella carrier may take atough position if they were not advised of the claim early on. Inother words, they will contend that they did not have theopportunity to conduct due diligence and investigate thematter.

So when a claim occurs, be sure to review the entire file todetermine any additional policies where coverage may apply; thenput those carriers on notice.

Surprisingly, there have been a number of E&O claims as aresult of an agency employee denying a customer claim withoutsending it to the carrier because the agency employee was convincedthat the claim was not covered. Unfortunately, they were wrong andif the claim would have been submitted, coverage would haveresponded. Rule of thumb: Even if the agency person is positivethat the claim is not covered, he should still send it to thecarrier for them to make this important decision. Agents should notbe denying claims.

Last is the issue of improper or incorrect coverageinterpretations. One recent E&O claim involved the customercontacting the agency to notify them of a potential claim under aprofessional liability policy. The agency advised them that theirissue did not meet the definition of a claim and thus there was noneed to report the matter. The matter definitely should have beenreported and because of the nature of the claims made policy (itwas a claims made and reported policy), when the claim wasreported, the carrier denied it because it was reported after thecoverage had expired.

Claims handling is obviously an extremely important part of theinsurance industry. Handling this function with focus, precisionand professionalism should keep this from causing a legal headachefor your agency.