Savvy business owners are always on the lookout for new businessopportunities. As client service professionals runninginsurance agencies or law firms, we are nodifferent. Discovering ways to generate additional revenue,through new or existing clients, is an important part of what wedo. Nobody likes to turn away business. We have to be profitable tosurvive, and reducing costs can only increase profits to a certainextent. But when it comes to avoiding E&O claims, the mosteffective strategy is to avoid certain clientsaltogether.

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

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

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

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

Just as we all have great clients, we all probably have at leasta couple of dangerous clients. The cost-benefit analysis isgoing to vary from business to business. However, if you canreduce your dangerous clients either by avoiding them at the outsetor by parting ways with them once they become difficult, you willcertainly reduce your exposure to E&O claims. As a trustedadvisor once told me, sometimes the best client is the one youdon't have.

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

When meeting with a prospective client for the first time, youmay learn the client has already been using a different broker toservice her insurance needs.Pay particular attention to why shewants to move her insurance. If the client has extensive complaintsabout her current insurance agent, that should be your first redflag she may be a problem client.

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

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

Of course, you can't turn away all prospective clients whocomplain about their existing brokers or want to feel important forgiving you business. You will need to use your intuition andexperience to evaluate just how dangerous someone is, and whetherit is worth your while to accept the new business. Often, however,the danger is not so obvious in the early stages of a newrelationship. In the beginning, everything may seem perfectlynormal, and it won't be until later that you realize the problemclient has infiltrated your agency.

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

I have defended insurance brokers under these circumstances inmany E&O cases. Even though the insured allowed the policyto cancel due to non-payment, once an employee is injured and ithas no coverage, you can expect a claim that you should have donesomething to prevent the cancellation. Although it may be adefensible claim, it is an E&O claim from a problem clientnonetheless. This is often the same client who rarely responds toyour inquiries and reminders, but demands an immediate responsefrom you.

These are the most obvious kinds of problems that may notsurface until several years into the relationship, even thoughthere may have been warning signs at the outset. From a riskmanagement standpoint, you should seriously consider whether it isadvisable to keep such clients. Once these particular problemsarise -– late payment or non-payment of premium, and failure totimely communicate with the broker –- they are not likely tocorrect themselves, and will often lead to E&O claims.

Finally, there are some red flags that may arise either at thebeginning of the client relationship, or years down the road. Bewary of the client who asks you for favors, especially when theyinvolve stepping outside of your core areas of expertise, as wellas the client who is in a rush to quickly place coverage. Whileaccommodating a client under these circumstances can distinguishyou from a service standpoint, these scenarios also present fertilebreeding ground for E&O claims, and you should avoid them asmuch as possible.