Fire The Client? Sometimes It's Worth It

“Breaking Up Is Hard to Do,” Neil Sedaka observed. It's difficult for an insurance professional to fire a client, just as it is for any other businessperson, especially in an economic downturn, when new clients may be scarce. Is it worth it sometimes to sever the relationship? Consider the title of a lesser-known country love ballad, “I'm So Miserable Without You, It's Almost Like Having You Here,” which expresses that bittersweet feeling of being rid of someone who causes more grief than gladness, more pain than profit

Why do we stay in dysfunctional business relationships? l suspect that one reason why professionals–and not just insurance agents and brokers, I might add–find it hard to say farewell to truly difficult clients is that we see ourselves as problem solvers, so telling them to look elsewhere for solutions feels like admitting a failure on our part. But that's not always so.

The reasons to say “sayonara” range from very serious situations to mere annoyance. Here are some real-life examples:

1. Committing outright insurance fraud might be an obvious example. Stan, an existing client, comes to you and insists you do something that is clearly illegal or violates your state insurance department's ethics rules. You try to dissuade Stan, but without success.

2. Fred, a client of yours for a few years, has started sexually harassing an employee in your office. He shows up without appointments, hangs around her desk and makes lewd comments about her, implying that if she doesn't play along he'll move his account elsewhere.

3. Tara repeatedly refuses to follow your advice. You've done a good job of documenting your recommendations to her about her business' insurance program, but she routinely ignores your prodding to put loss control measures in place and broaden her liability coverage. After an incident occurs that could have been prevented, and would have been covered by insurance if she had followed your advice, she calls you and explodes in anger over the phone because you “failed to protect” her.

Is it worth it to keep these clients? Stan is asking you to risk your license. Fred is potentially subjecting you to a sexual harassment lawsuit if you're aware of his unwelcome advances to your employee and you fail to act to bring a stop to his behavior (this also illustrates the importance of encouraging your office staff to report to you any misconduct by clients, vendors or other office visitors so you can protect your co-workers). Tara isn't doing anything illegal, but she clearly does not take responsibility for her own decisions.

Sad but true.

One of my least favorite memories from practicing law for 30 years was a case that I'll call Fraudmeister Construction v. Brokerama. Mr. Fraudmeister was a bully, and a cheap one at that. As a subcontractor, he needed to provide certificates of insurance to his general contractors, supposedly naming them on his liability insurance policies. The problem: his business was in what we'll call “decline,” and he could barely pay his workforce, let alone his exorbitant liability insurance premiums, which were probably less than his monthly payment on his Acura. His insurance broker, a basically good fellow who had delegated the maintenance of Fraudmeister's account to a customer service representative, a kind-hearted grandmother who was dying of emphysema (I'm not making this up), was a step or two removed from the renewal communications.

When gruff Fraudmeister called Grandma and told her in a shouting, abusive voice that he couldn't pay his insurance premiums, but would sue her and Brokerama unless she falsified some insurance certificates for him, she reluctantly agreed. Without any premium payment changing hands, she sent him annual certificates of insurance showing his liability coverage being placed with various made-up insurers. Everyone was happy: Fraudmeister got to continue in business, providing falsified certificates to his general contractors without paying any premiums; Grandma got to avoid the client's abusive phone calls, and the carriers, who didn't exist anyway, incurred no losses.

No losses, that is, until Policy Year 3, when Grandma happened to choose the name of an actual liability carrier that she had never heard of, and put it on the certificate. That was, naturally, the year of the really big claim, of which the general contractor duly gave notice to the “fictitious” comp insurer, using the phony policy number on the falsified certificate. Then the compost hit the aerator.

Brokerama realized that Grandma was near death, and compromised Fraudmeister's claim so as to avoid making Grandma sit in front of a jury and admit what she had done. It wasn't the most ethically gratifying case I've ever had, but I thought that Brokerama did the right thing by protecting Grandma, even though she had broken faith with her employer to avoid an abusive bully.

If only Grandma had been in good bodily and mental health. It would have been satisfying to put Mr. Fraudmeister on the witness stand and make him explain how he bought insurance for 3 years without paying any premiums. Or what if Brokerama's agent had reviewed the files under his supervision, caught the problem in Year 1, and fired the client? A lot of unnecessary agita and transfer of funds could have been avoided. Still, we lawyers don't make the facts, we just do the right thing with the facts that we are given.

Alternatives to “You're fired”

Separating from a difficult client tests a professional's mettle. Fortunately, unless the situation requires a quick severance of ties, the immediate solution need not always be the ultimate sanction, a curt, Trump-esque, “You're fired!” (Though that might provide you some gratifying, albeit brief, emotional relief.) As when dealing with employee disciplinary or compliance issues, an escalating series of communications is usually advisable.

Typically, a private, spoken warning is the best way to start. “Tara, there's something that we need to recognize. All I can do is make recommendations about managing your risks. I can't make decisions for your business. When you make a decision I have to respect it, and if it doesn't work out the way you'd like, we need to move on to the next recommendation and decision. If that's not how you see it, we'll need to redefine how we work together.”

This subtle approach expresses a desire to continue to work together, but also lays out the essential ground rules of the professional adviser/businessperson relationship. Of course, some people don't take subtle hints, and the next discussion may need to be more direct. The idea is not to unnecessarily poison the well by making the discussion personal. The approach above is worded on a heads-held-high basis, without any invective. With a little coaching about how adviser/client relationships work best, Tara may turn out to be an ideal client.

These types of discussions don't occur in a vacuum; they're often triggered by a claim or loss, or by the coverage renewal process. It's particularly important–and not only from a legal standpoint–to confirm in writing the decisions or commitments that are made, without creating a paper trail that will make it nearly impossible for the client to find a new broker if you later have to fire the client. You don't want to be accused of “abandoning” the client, with insufficient time left to find a new broker and effect a renewal. The writings should be calm, short, and about recommendations/decisions, not about hurt feelings or personalities. Some examples:

o Businesslike: “Tara, I'm writing to confirm our discussion yesterday for your records. We examined the pros and cons of your company, Tara.com, purchasing trustee and fiduciary liability insurance, and we looked at a few available markets and their likely premium rates. I recommended you select one of those options, and you decided that this isn't the year for Tara.com to be taking on new insurance premiums. I understand, and will not be sending you any application forms for that kind of coverage this year.”

o Personal: “Tara, it's very frustrating to me, as an insurance professional, to continually be told that you're not willing to protect your business with appropriate insurance. This isn't like buying shoes. You've leaving Tara.com exposed to risks that, if they come to pass, will send you flying off the handle again. If that's how you treat people who are trying to help you, you should consider therapy, then come back and talk about insurance when you're rational.”

That may be a bit over the top, but let's hope it proves the point: Which of these letters or e-mails would you prefer to have blown up to the size of Missouri and shown to a jury at your E&O trial? That's the question you need to ask yourself before clicking “Send” in Outlook or putting the stamp on the envelope. Walk twice around the block, take some deep breaths, then send the first e-mail, not the second one.

Please Release Me, Let Me Go

Escalation has not worked. Your client is not getting your subtle message and persists in self-destructive behavior. There is one thing left to do: disengage, orally and in writing, from your client. It's a simple process. Start with a meeting or phone call, attended by you, the client, and a disclosed witness from your office. You explain, calmly and professionally, that your office can no longer do business with the client, without further detail, and that you will be sending a confirming letter by certified mail. No recriminations, no vengeance, just, to quote Edward R. Murrow, “Goodbye and good luck.”

The certified letter should likewise be devoid of venom: “Further to our telephone discussion of [date], which [witness' name] also attended, I regret to inform you that our office will no longer be acting as your insurance broker. I strongly urge you to discuss with a new brokerage firm the renewal of your existing policies, listed below with their policy numbers, types of coverage, issuing carriers, and renewal dates. Contact your new broker at least X months before your earliest next renewal date.” You don't need to use this verbatim. This column doesn't offer legal advice for a given situation. This is just common sense.

Although it's not required by law, it also makes common sense to send a follow-up letter to the former client, X months before the earliest renewal, reminding him/her that it's time to discuss renewal with a new broker, and if the client responds, “Oh, all is forgiven, please help me with the renewal,” you must make another tough business decision: send another “sayonara” letter or bite the bullet and accept the client back for another year.

As a wise man said, it's your decision, but if I were you I wouldn't count on the leopard changing its spots, capisce?