Agents E&O Loss Prevention
Trucking losses are usually big, as are related E&O claims
If your agency insures truckers, how well do you know each risk?
By Curtis M. Pearsall, CPCU, AIAF, ARM, CPIA
From indications in insurance trade publications, on insurance-related Web sites and in talking with colleagues, it appears to me that insurance professionals knowledgeable in the trucking industry are optimistic about the future of the trucking market. While the soft market took its toll on the trucking industry, remaining markets are healthy and poised for good results moving forward. This potentially provides some great opportunities for growth for insurance agencies. Yet before running out and knocking on doors, more than just a little bit of preparation and homework is required to effectively write this class of business.
It seems that when a trucker has a loss, the loss is big. If a trucker suffers a big loss not covered by its insurance program, a resulting errors & omissions claim—for which your agency could be responsible—might occur. Ask any E&O carrier for a list of its 10 largest E&O claims and I would be surprised if a trucking risk is not among them.
Use an exposure analysis checklist
Auto exposure definitely comes to mind when thinking of trucking risks. As you learn more about this class of business and your specific risk, you will realize there is the possibility of a significant exposure for property—both real and personal—as well as liability, inland marine, crime, workers compensation, etc.
A great starting point to understand this class and your specific risk is by using an exposure analysis checklist, such as Producer Online through the Rough Notes Company. Not only do these checklists provide a tremendous amount of information on the overall profile of the class of business, they provide a thorough review of the exposures by line of business. In addition, they supply a host of specific questions you must ask to enable your agency and the carrier(s) to which you will be marketing the account to truly understand the risk and any uniqueness it presents.
For example, most trucking risks will have some type of a real property exposure, whether owned or leased. Does the account do repair work, welding, spray painting, etc.? If so, how are the various combustibles stored? Do they have fuel pumps on location? Because truckers obviously depend heavily on fuel, do they have a contingent exposure if one of their suppliers suffers a loss?
Moreover, many trucking risks have become extremely advanced in their use of technology to manage their fleets. It is extremely important to identify this exposure and ensure that it is properly insured.
Understand the exposure
Theft is a major issue when it comes to the inland marine exposure, so it is important to truly and totally understand the exposure. Look for a carrier that will work with your account to provide solid loss prevention to minimize the exposure and the potential for loss.
There will probably be a need for some type of business income coverage, depending on the risk. For smaller trucking risks, the issue may actually involve extra expense to help pay the necessary additional expenses required to do business when a covered loss damages or destroys insured property.
It is highly recommended that you work with a carrier specializing in this class. This will provide your agency and prospect/customer with the needed expertise, plus these carriers have likely developed policy forms specifically designed for the exposures present.
There is no doubt that trucking risks present significant severity potential. While a limit of $1 million might sound like a lot, claims involving bodily injuries can be more than that amount. Thus, offering an umbrella policy is strongly suggested. If the insured wants lower limits, obtain a sign-off. This sign-off will be a solid defense should a major claim occur and the insured alleges you had not provided the proper coverage. When providing an umbrella, be sure to satisfy the underlying limit requirements.
The proper job
It is important to offer the business owners—where the business is the named insured—additional "Named Insured" status or "Drive Other Car" coverage. If a business owner is injured as a pedestrian or as a passenger in another vehicle, this coverage would be needed to collect uninsured motorist (UM) or underinsured motorist (UIM) coverage from the commercial auto policy.
One E&O claim example illustrates the need for this protection. The agency's client was a new customer for commercial auto coverage. The policy had $1 million limits for bodily injury (BI) and UIM. The client's company was owned by two partners. When the policy was written, neither owner was listed as an additional insured on the policy. Following the policy inception, one of the partners was killed while jogging. His estate made a claim against the UIM portion of the commercial auto policy. The carrier sought dismissal of the case, based on the fact that he did not qualify as an insured, as he was not in the course of his employment and he was not operating, nor was he in, a covered auto. Suit was filed against both the carrier and the agent. The estate produced a witness, the deceased's daughter, who said she overheard her father discuss the need to be added to the policy. This was denied by the agent. Counsel filed for a dismissal, noting that the agent owed no duty to advise the partners of the need to be added as additional insureds. The court denied the motion, stating there was a question of fact as to the duty owed. The case ultimately was settled for $150,000.
This fact pattern occurs with some frequency for this class of business. What is the lesson to be learned? When offering commercial auto coverage to an entity owned by one or more individuals, offer the option to have those individuals listed as additional insureds on the policy.
Bottom line, not all trucking risks are the same, so it is vital to understand the class of business and the specific exposures of your account. Using the available tools will go a long way toward ensuring you do the proper job every time.