Agents' Errors & Omissions Review is excerpted from The Professional Edge newsletter which is published by SAFECO Insurance Companies in conjunction with the marketing administrators for SAFECO's agents E&O program.
Document, document, document
At issue: The client was a commercial trucking firm with 32 scheduled vehicles. A few days prior to the policy expiration date a new vehicle was purchased. The carrier said that adding it so close to the renewal date "was not worth the paperwork" and did not issue an endorsement.
The agent decided to place the client with a different carrier. The agent used the previous policy as a reference in completing the application for the new carrier. Since the new vehicle was not endorsed to the previous policy, it was not included in the schedule of vehicles to be insured on the new policy. Six months later this truck was involved in an accident. The carrier denied coverage because the vehicle was not scheduled.
Safeco's commentary: The agent found it difficult to defend his position since he did not document his conversation with the first carrier when the vehicle was first purchased, and he did not confirm in writing his attempt to add the vehicle. From an agent's E&O standpoint, it's always worth the paperwork.
Tell it like it is
At issue: On the application for insurance the agent described the operation as a "boarding house." The insurance carrier understood the risk to be an "orphanage" and revised the classification and the premium. The truth came out, after a loss, that the risk was really a drug rehabilitation house, which the company said was unacceptable from an underwriting standpoint. The insurance company is looking to the agent for recovery because the risk was misrepresented on the application and the agent did not have binding authority for this type of business.
Safeco's commentary: Misrepresentation is a no-win situation. The truth eventually comes to the surface, usually after a loss, resulting in a loss of agency credibility and possibly the agency contact. The best and only policy is to describe it as it is.
The check's in the mail
At issue: The roofing contractor needed workers compensation coverage, and the agent placed the coverage through the state assigned risk pool. One week later the contractor wanted coverage for general liability and nonowned automobile coverage. The client said to issue the policies and that he would pay the premium "in a few days." The agent provided the contractor with a certificate of insurance that attested that three policies were in effect.
Safeco's commentary: The check was not in the mail and, in fact, was never received. Meanwhile, a property damage claim occurred. The agent told his E&O carrier that he anticipates further involvement in the matter.
Relying on carrier's
poor service
At issue: The agent sent a workers compensation application to a carrier on May 30, 1995, requesting an effective date of July 1, 1995. The carrier asked for loss runs for the previous year by July 17 if coverage was to be bound. The agent, who received the loss information from the previous carrier on July 20, sent the data the same day to the carrier with a request to issue the policy. Meanwhile, the insured made the premium payment to the agency.
The agent assumed that coverage was in effect and did not follow up on the July 20 request to bind coverage. No confirmation from the carrier was received. Since the carrier usually took three to four months to issue policies, the agent regarded this as a customary delay and deemed it not unusual or unforeseen.
One of the insured's employees was stabbed to death while at work. The claim was submitted to the carrier. Since no policy was ever issued or bound, coverage was denied. The carrier had closed the file on July 17 unbound because the loss runs were not received by that date.
Safeco's commentary: A carrier's poor service or delays should not dictate an agency's follow-up procedures. Long delays in issuing policies may indicate other problems in the carrier's office. If agents make assumptions, be aware that the carrier may fall short in other areas as well. The poorer the service...the more diligent should be the follow-up. The agent should have determined the status of coverage by July 1 and should have confirmed coverage on July 20, when the loss information was sent to the carrier. *