When evaluating the cause of agents' E&O claims, one of the current hot spots deals with the manner in which claims are handled at the agency level.

While many agencies have a staff dedicated solely to this function, in other agencies this function is handled by an account exec/customer-service representative as part of their duties. But either way, the bottom line is: This claims-handling task is resulting in a number of E&O claims. From my experience, at least 40 percent of agency E&O claims are caused by claims-handling within the agency.

One common scenario, which probably occurs frequently within virtually every agency, involves a customer calling to advise your agency of a claim—but then after discussing it with you, deciding not to file the claim. This could be because the claim is not much more than the amount of the deductible, or that the customer will lose his loss-free discount, or because of the additional premiums he will have to pay due to a claims surcharge.

Agencies should handle this type of dialogue very carefully. You want to ensure that the conversation is well-documented—not only in your agency file but also with some type of written communication back to the customer. The goal or benefit of this additional documentation is to identify any potential misunderstandings between what you said and what they heard or vice versa.

Does it make a difference whether it's a first- or third-party claim? Before answering this question, it is important to realize that if a loss occurred and the carrier was not aware of it, depending on the state, it may look to claim prejudice in the settlement of the matter.

In other words, the carrier's rights were prejudiced by your agency or your customer not putting the carrier on notice. If it's a first-party claim, there is probably less likelihood that the claim will develop adversely.

For example, your customer hits a parked car in the mall parking lot. No one was in the car, so no one got hurt. The loss essentially involves the cost to repair the other vehicle. After discussing the matter with your agency, the customer decides she does not want to file the claim and will pay for it out of her own pocket.

Conversely, claims involving a third party where bodily injuries are caused should definitely be reported to the carrier. The injuries could be worse than initially thought—and if there is a delay in advising the carrier of the claim, it may take a tougher position. Certainly advising the carrier of the claim will allow it time to conduct a review of the matter.

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

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

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

Surprisingly, there have been a number of E&O claims as a result of an agency employee denying a customer claim without sending it to the carrier because the agency employee was convinced that the claim was not covered.

Unfortunately, they were wrong—and if the claim would have been submitted, coverage would have responded.

Rule of thumb: Even if agency employees are positive that the claim is not covered, they should still submit it so the carrier can make this important decision. Agents should not be denying claims.

Last is the issue of improper or incorrect coverage interpretations. One recent E&O claim involved the customer contacting the agency to notify it of a potential claim under a Professional Liability policy. The agency advised the customer that the issue did not meet the definition of a claim and thus there was no need to report the matter.

The matter definitely should have been reported, and because of the nature of the claims-made policy (it was a claims-made and reported policy), when the claim was reported, the carrier denied it because it was reported after the coverage had expired.

Claims handling is obviously an extremely important part of the insurance industry. Handling this function with focus, precision and professionalism should keep it from causing legal headaches for your agency.

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How Agency Claims Staff Can Cause E&O Claims

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