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The Rough Notes Company Inc.



January 27
10:21 2021


It is critically important to identify and avoid heightened agent and broker operational risks during the pandemic

By Peter Biging

As COVID-19 vaccine distribution grows, so does hope that life may actually begin to return to normal—or something closely approximating normal—by summer. Once the dust has settled, we will have lived through more than a year of life impacted by the pandemic. What does this mean for insurance agents and brokers? The issue of E&O claims being asserted against them by policyholders facing coverage gaps, coverage shortfalls, or absence of coverage altogether arising from COVID-based losses has been widely addressed.

For a profession that is in the business of protecting people against risk, it is crucial that agents and brokers look in the mirror and evaluate their own.

However, little discussion has occurred surrounding increased E&O exposures for agents and brokers, large and small, arising from the pandemic’s impact on their business operations. This article identifies some of these risks and suggests ways to avoid them.

Operational concerns

Insurance agency management is inherently data and labor intensive. Information is gathered in order to apply for and issue policies; monies are received and must go to carriers; claims are tendered and also need to get to the right hands. Claims arising out of errors made during these operational processes have always existed. But the pandemic has created heightened E&O concerns.

COVID safety regulations, including lockdowns and social distancing, have dramatically increased the potential for E&O exposure to insurance agents and brokers. Issues involve everything from marketing efforts to account servicing to claims handling. The pandemic has led to a host of operational challenges:

  • Revenue declines, driving reductions in workforce and/or technology investments needed to operate remotely with the same efficiency and effectiveness as demonstrated before
  • Workers functioning remotely who lack supervision to ensure accuracy and uniformity in data entry and other workflows
  • Business locations being shut down, potentially causing mail delivery or system access issues, and delays in receiving and forwarding policyholder premium payments and claim notifications
  • Failure to visit insured properties and view additional structures, improvements, and/or changed business operations
  • Inadvertent creation of special relationships linked to electronic marketing efforts and responses to client inquiries
  • Failure to obtain necessary signatures or confirmation of review/approval of information included in applications due to lack of ability to have customers make in-person visits
  • Increased ability for customers to engage in fraud that would other-wise have been caught by the agent
  • Increased cyberthreat with staff working remotely potentially on personal computers and through personal email, which may lack cybersecurity protections in effect at the office

In the best of times, agencies must be adequately staffed and have the necessary technology to ensure smooth operations. The pandemic has had a significant financial impact on insurance agencies nationwide, causing major dips in revenue, particularly in areas like auto insurance and workers compensation, with fewer people driving and increased unemployment. These revenue drops may have forced (or will in the future force) agencies to reduce workforce and/or limit investment in technology needed to operate in this new environment. While cost-cutting measures are certainly appropriate, it is no longer business as usual; now is not the time to take shortcuts that create additional exposure.

A comprehensive analysis of agency operations should be performed to identify increased exposures from operational process changes resulting from the pandemic. As important, appropriate controls must remain in place to ensure accuracy and timeliness. Standard agency management systems provide tools to monitor upcoming renewals, to ensure specific notations appear as bubble notes when account information is accessed, and to make and store notes of interactions with policyholders. Vigilance must be applied to ensure these features are systematically accessed and utilized.

Supervision of a remote workforce also presents concerns. For example, an account executive or customer service representative who is likely to pop their head into a producer’s office to ask a question may be less inclined to pick up the phone and call the producer. From the producer’s perspective, it is easy to forget things like reminding the account executive or CSR to send the customer an email documenting the customer’s rejection of a proposed optional coverage or proposed increase in coverage limits when you are not walking by that employee’s desk numerous times throughout the day. Here again, technology provides a solution. While it requires effort to schedule interactions and time spent planning account review agendas, even in a remote environment, everyone on an account team is literally just a phone call or Zoom or Teams meeting away.

Issues giving rise to potential E&O claims against insurance agents and brokers arising out of their operations during a pandemic are neither brand new nor previously unseen. All are issues that can crop up regardless of what is going on in society.

Forced lockdowns that impede office access also can increase E&O exposures. For mom-and-pop shops, where premium payments are made in person, limited office access increases the chance of premium payments getting lost or delayed. This can also be true for the larger brokers, with reconfigured mailroom operations. At the start of the pandemic, a number of states instituted rules prohibiting insurers from canceling coverage based on failure to timely pay premiums. In a number of instances, insurers also voluntarily suspended deadlines for premium payment. Over time, these protections dissipated, while the problems of trying to run a business with people packed inside have not—and are expected to continue presenting challenges for some time. This is perhaps a trickier issue to address than others, but there is no reason care and vigilance cannot also be applied here.

Concerns also exist around delays or obstacles to agents receiving and providing notice of claims. Failure to provide timely notice is largely an issue only to the extent an insurer can prove that the delay caused it prejudice in terms of investigating, adjusting and/or defending claims; it is not the issue it was back when a significant number of states had “no prejudice” rules. But it can still pose a risk, particularly in the context of claims made and reported types of coverages like employment practices liability insurance. As we continue dealing with the pandemic, this has to be a point of emphasis.

Not visiting insured properties and viewing changed business operations is another concern—actually, a huge one. During the spring of 2020, when the rate of infections was skyrocketing, and again in the winter and going forward, until the pandemic has officially been placed in our rearview mirror, the impulse was, is, and will be to try and make initial submissions and renewal applications with all agent/broker work being done remotely.

Failure to properly inspect insured premises and business operations has always been a significant agent/broker E&O concern, with claims ranging from failures to recommend flood coverage for a building partially cantilevered over a stream to claims arising from the sale of homeowners insurance excluding coverage for business operations, even though the home owner did not conceal that she was running a child/day care business from her home, to claims arising from failure to inspect the insured’s premises and inform the home owner that the presence of paint supplies on premises would risk voiding coverage. There is reason to believe such issues have been exacerbated by the operational impacts of the pandemic and will continue to generate E&O claims. Amid the strong impulse to avoid risk, there are ways to conduct site visits safely. Be careful, be safe, and approach all travel and client visits with the utmost precautions taken to protect the health and safety of your personnel. But make the visits.

In the context of  “special relationships,” most states say that agents and brokers have no duty to advise or guide insureds on amounts or types of insurance to purchase, in the absence of “special circumstances” or a “special relationship.” In such absence, the agent/broker duty generally is limited to purchasing coverage that has been requested or advising of the inability to do so within a reasonable period of time after the request. But a special relationship can be established in a number of situations, including where:

  • the agent/broker is receiving fees in addition to commissions for “consulting services”
  • the agent/broker and customer have had interaction regarding a question of coverage, with the customer relying on agent/broker expertise
  • the agent/broker and customer engaged in an extended course of dealings that should have put a reasonably objective agent/broker on notice that his or her advice was being sought and specially relied on
  • the customer has made an ambiguous request for coverage requiring clarification

A common factor considered by courts in assessing existence of a “special relationship” or “special circumstances” is whether there is evidence that the customer is viewing and relying on the agent/broker as an expert and the agent/broker is holding himself or herself out as such. In the COVID-19 environment, there has been and continues to be a heightened risk that, in an effort to sell insurance, create a connection with customers, and provide value-added services, agents/brokers have been more active promoting the level of service, expertise, advice and guidance customers can expect to receive.

Additionally, with the vast number of claims being generated as a result of the pandemic, there likely has been exponential growth in customers reaching out to agents/brokers with coverage questions and seeking advice. All responses present opportunity to establish a bond with an insured, but lack of care in providing a response can result in an E&O claim. Bear this in mind whenever such interactions occur.

The issue regarding signatures has existed since insureds first were confronted with policy rescissions based on material misrepresentations made on policy applications. In an environment where live, in-person application preparation and signature witnessing have been dramatically impacted, it is reasonable to anticipate a rise in claims by insureds that the agent/broker: failed to properly fill out the application, despite being provided truthful and accurate information; filled out the application without the insured’s input after having the insured sign it first; or forged an insured’s signature. This places increased importance on documenting what has been offered and what has been approved and providing customers with written reminders that a policy is a contract, and it is their responsibility to review it carefully, in particular all schedules of named insureds and covered locations or assets.

Last, but perhaps of greatest concern, is the increased cyberthreat with staff working remotely—potentially on personal computers and using personal email that may lack protections found in the office.

The FBI recently reported the number of complaints involving cyberattacks is up to as many as 4,000 a day—a 400% increase from pre-COVID. In workplace environments where employees must remotely engage company operating systems and where interactions with customers and underwriters have increasingly been conducted via email or submission of electronic applications, opportunities to hack into systems, spoof emails and engage in other forms of social engineering have expanded dramatically. This leads to concerns that agents and brokers will potentially release confidential information improperly, send premium payments or settlement payments to fraudsters, or become victims of ransomware attacks, impeding access to their own files, among other concerns.

If you have not done so recently, check to see how well your systems are protected, and implement safety protocols to protect against the easy and obvious stuff like clicking on outside links, and carefully reviewing and taking extra steps to confirm electronic instructions regarding release of funds. And make sure you have cyber coverage!


Issues giving rise to potential E&O claims against insurance agents and brokers arising out of their operations during a pandemic are neither brand new nor previously unseen. All are issues that can crop up regardless of what is going on in society. The difference now is that these operational-based exposures are being dramatically magnified as a result of the pandemic, society’s response to the health concerns presented, and steps being taken to protect against the spread of the virus.

An oft-repeated bromide for avoiding agent/broker E&O claims is to make sure agents/brokers are doing the basic things right—closely following established practices and procedures—and remembering to document, document, document what they do and the communications they engage in. While this may sound very simplistic, it is the best possible advice.

There is little doubt we will see a wave of agent/broker E&O claims arising from the coverage issues presented by the pandemic. However, these are essentially “hindsight” claims where the alleged error has already occurred and will be defended based on the agent/broker’s conduct and associated duty at the time. There is little opportunity to avoid such claims.

In contrast, the pandemic has created numerous additional exposures for insurance agents and brokers just based on how they operate their business. For a profession in the business of protecting people against risk, it is crucial that agents and brokers look in the mirror and evaluate their own.

A comprehensive analysis of an agency’s operations must be done in order to identify increased areas of potential exposure both through opera-tional processes that may be handled differently because of the pandemic and through increased susceptibility to fraud. To be forewarned is to be forearmed. There is still time to avoid these types of claims.

The author

Peter Biging ( is a partner at Goldberg Segalla, LLP, where he co-chairs the firm’s Management & Professional Liability Practice Group. He is highly experienced in handling insurance agent/broker E&O matters, and regularly writes and presents on agent/broker E&O issues.

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