Savvy business owners are always on the lookout for new business opportunities. As client service professionals running insurance agencies or law firms, we are no different. Discovering ways to generate additional revenue, through new or existing clients, is an important part of what we do. Nobody likes to turn away business. We have to be profitable to survive, and reducing costs can only increase profits to a certain extent. But when it comes to avoiding E&O claims, the most effective strategy is to avoid certain clients altogether.

Whether he is called a “problem client” or a “dangerous client,” he can take many forms and likes to invade all professional services industries. It doesn't matter to him if you are an insurance broker, lawyer, property manager, or hair stylist. If allowed, he will find a way to dominate your time, give you countless headaches, and provide relatively little income when compared to the hassle of dealing with him. He will also be the first one to sue you when – not if — something goes wrong or is not to his satisfaction.

Dangerous clients increase your risk of E&O claims in two ways:

1) they frequently get themselves involved in difficult situations more likely to result in adverse consequences; and

2) they are more willing to blame you when something goes wrong.

Just as we all have great clients, we all probably have at least a couple of dangerous clients. The cost-benefit analysis is going to vary from business to business. However, if you can reduce your dangerous clients either by avoiding them at the outset or by parting ways with them once they become difficult, you will certainly reduce your exposure to E&O claims. As a trusted advisor once told me, sometimes the best client is the one you don't have.

As an insurance agent, there are certain ways you can spot the problem client. Here are some of the most obvious red flags.

When meeting with a prospective client for the first time, you may learn the client has already been using a different broker to service her insurance needs.Pay particular attention to why she wants to move her insurance. If the client has extensive complaints about her current insurance agent, that should be your first red flag she may be a problem client.

To be fair, it is not uncommon for someone to switch insurance agents due to sub-par service by the existing agent or producer of record. You may even be able to ascertain the failings of the current agent, in which case the client's complaints would be completely justified. However, if there is no obvious reason why she wants to leave her current agent, you should ask yourself if she is a client who is never satisfied. If so, she will eventually compile a list of complaints about you, too.

Be wary if the client thinks she is doing you a favor by giving you her business. While we appreciate our clients' business, the client relationship is a two-way street; you provide a service in exchange for compensation. If it appears at the outset the client does not hold this view of the relationship, it may indicate the client has unreasonable expectations of what you should do for her.

Of course, you can't turn away all prospective clients who complain about their existing brokers or want to feel important for giving you business. You will need to use your intuition and experience to evaluate just how dangerous someone is, and whether it is worth your while to accept the new business. Often, however, the danger is not so obvious in the early stages of a new relationship. In the beginning, everything may seem perfectly normal, and it won't be until later that you realize the problem client has infiltrated your agency.

The most obvious example is the client who, over time, pays insurance premiums late, which leads to cancellation of a policy. This is quite common with Workers' Compensation insureds. You might even arrange premium financing and get the policy reinstated, but odds are that this client will continue the behavior. Ultimately, the client may experience an uncovered loss, and then seek to blame you for not “ensuring” the policy was reinstated.

I have defended insurance brokers under these circumstances in many E&O cases. Even though the insured allowed the policy to cancel due to non-payment, once an employee is injured and it has no coverage, you can expect a claim that you should have done something to prevent the cancellation. Although it may be a defensible claim, it is an E&O claim from a problem client nonetheless. This is often the same client who rarely responds to your inquiries and reminders, but demands an immediate response from you.

These are the most obvious kinds of problems that may not surface until several years into the relationship, even though there may have been warning signs at the outset. From a risk management standpoint, you should seriously consider whether it is advisable to keep such clients. Once these particular problems arise -– late payment or non-payment of premium, and failure to timely communicate with the broker –- they are not likely to correct themselves, and will often lead to E&O claims.

Finally, there are some red flags that may arise either at the beginning of the client relationship, or years down the road. Be wary of the client who asks you for favors, especially when they involve stepping outside of your core areas of expertise, as well as the client who is in a rush to quickly place coverage. While accommodating a client under these circumstances can distinguish you from a service standpoint, these scenarios also present fertile breeding ground for E&O claims, and you should avoid them as much as possible.

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