Problem Clients? Get Rid Of Them

In situations where the agent or broker fills out the application, he or she should get the insured to sign a form attesting to the insureds review and confirmation of the accuracy of the application, he said, adding that some ACORD forms have places on the back to sign.

When an insured chooses an insurer that has a Bests rating less than "A-minus," get the insured to sign and confirm that he or she understands that the insurer has a lower rating and that your recommendation, optimally, is to go with an "A-minus" or better.

The confirmation should set forth that the insured understands that the carrier potentially wont be able to pay out claims. "Then they cant complain," Mr. Biging said, noting that its particularly important now since many agents E&O policies exclude claims arising from coverage placed with lower-rated carriers.

He noted that there are situations where insureds are forced to use lower-rated carriers, as in the case of insurance for livery cabs in New York, because there are no carriers available. "What do you do? Either you dont write those coverages or you try to write them but protect yourself," he said.

When putting together coverage summaries, make sure theyre not misleading or confusing.

"Youll find cases where [plaintiffs] skirt the did you read the policy defense by saying the policy was huge and confusing, and that they relied on the summary instead."

After completing an annual coverage review with a client, write the insured a letter documenting recommendations.

The letter should say, "Heres what you had as of X date. Heres what weve offered. Heres what you have chosen to put in place," Mr. Biging said. The letter should also include any other recommendation–like recommendations for building or contents appraisals–that the insured may have ignored.

Mr. Biging said he often encounters situations where an insured doesnt have sufficient limits and contends the broker is at fault. When talking to the broker, the broker will say that he or she questioned the sufficiency of limits year after year.

"I had a case where the broker was procuring coverage for a historic building. He claimed he told the client every year, These are the limits youve chosen, but this building is so old that I wouldnt know what it would cost to try and replace some of these materials. Dont you think you should get an appraisal?" When the unappraised building burned down, every penny of the $24 million limit of coverage was paid, but it cost $55 million to rebuild, he said.

Eugene Mason, senior vice president for Willis Re in Farmington, Conn., offered a similar list of tips for avoiding E&O claims. Keep organized files, he said. And on renewal, confirm everything in writing with the insuredthe coverage thats offered and thats been accepted.

"What it boils down to is communication," he said. Agents and brokers, he said, need to do the basics wellto be as clerical and comprehensive as possible. "If you have formal documentation and communication, thats your first line of defense. If someone says, You didnt tell me that, its hard to argue if you have it in writing."

Mr. Biging said that while agents and brokers are interested in such recommendations, they cant always follow through. "Sometimes, brokers are in awkward positions"for example, when clients realize they need insurance on the day a development project is set to begin. "The broker is supposed to magically have coverage today. Whats the broker supposed to do? Say, no, you put me in an impossible position. Find another broker. You go ahead and you do it."

"Sometimes business practicalities make it difficult to address these things," he said, describing high-commission clients who constantly ignore the brokers advice.

He said brokers also report getting nasty calls from their clients when they follow up on his idea about sending a letter, balking at the idea of getting a memo intended to cover or protect the broker.

"But agents and brokers are listening. They want to do all this because of the simple imperative to keep claims down and avoid increases to E&O coverage."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 30, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.