In reviewing E&O claims frequency, it is probably no real surprise to see claims arising out of the writing of personal lines. This segment generates a fair amount of transaction activity and the sophistication level of customers can vary greatly. In fact, just over one-third of E&O claims received by Utica National in 2009 were generated from providing (or failing to provide) a personal lines product.

While the frequency of E&O claims among heavy personal lines agencies is somewhat high, the severity (average settlement dollars) is typically less in personal lines compared to their commercial lines counterpart. Of the two major products—personal auto and homeowners—homeowners actually generates more E&O claims than personal auto. Plus, the average personal auto claim is in the $25,000 arena, while homeowners is slightly higher, averaging around $30,000.

Starting with homeowners, let’s examine some of the more common mistakes that agents are alleged to have made involving personal lines:

• Agent doesn’t have the customer sign the application. Always have your customer review the application before signing it. This will be a solid defense should any of the information later be determined not to be accurate. With more applications now being uploaded to the carrier, it is highly suggested that after uploading the application, you print a copy from your system and have the insured sign it.

• Valuation issues. How are you determining the proper property limit? Using company estimators is certainly common, but you need to be very careful on those questions subject to judgment. For example, is the house standard or customized? The differences in the output between the two could be significant.

• Agent failed to advise the carrier of issues pertaining to the risk. These can include dogs, prior cancellations for non-pay, type of construction, wood stoves, loss history, etc.

• The timing of when to switch from a builders risk policy to a homeowners policy. Check with your carrier for its guideline.

Moving on to personal auto, here are some of the more common errors. Could they happen in your shop?

• Issuing an ID card or some type of evidence of coverage for a canceled risk. This is where some training might be in order. Whether it’s the issuance of an ID card or the taking of premium for a direct bill account, it should be mandatory that the account be checked for its current status.  

• Failing to adequately document discussions regarding limits. Be certain that any discussions regarding limits are properly documented.

• Failure to obtain proper waivers for uninsured motorist (UM)/underinsured motorist (UIM) from all named insureds.

• Adding or deleting the wrong vehicle. Do you take direction from a car dealer? Don’t. They are not a party to the contract. Speak only with the named insured.

• Failure to maintain limits that satisfy

In reviewing E&O claims frequency, it is probably no real surprise to see claims arising out of the writing of personal lines. This segment generates a fair amount of transaction activity and the sophistication level of customers can vary greatly. In fact, just over one-third of E&O claims received by Utica National in 2009 were generated from providing (or failing to provide) a personal lines product.

While the frequency of E&O claims among heavy personal lines agencies is somewhat high, the severity (average settlement dollars) is typically less in personal lines compared to their commercial lines counterpart. Of the two major products—personal auto and homeowners—homeowners actually generates more E&O claims than personal auto. Plus, the average personal auto claim is in the $25,000 arena, while homeowners is slightly higher, averaging around $30,000.

Starting with homeowners, let’s examine some of the more common mistakes that agents are alleged to have made involving personal lines:

• Agent doesn’t have the customer sign the application. Always have your customer review the application before signing it. This will be a solid defense should any of the information later be determined not to be accurate. With more applications now being uploaded to the carrier, it is highly suggested that after uploading the application, you print a copy from your system and have the insured sign it.

• Valuation issues. How are you determining the proper property limit? Using company estimators is certainly common, but you need to be very careful on those questions subject to judgment. For example, is the house standard or customized? The differences in the output between the two could be significant.

• Agent failed to advise the carrier of issues pertaining to the risk. These can include dogs, prior cancellations for non-pay, type of construction, wood stoves, loss history, etc.

• The timing of when to switch from a builders risk policy to a homeowners policy. Check with your carrier for its guideline.

Moving on to personal auto, here are some of the more common errors. Could they happen in your shop?

• Issuing an ID card or some type of evidence of coverage for a canceled risk. This is where some training might be in order. Whether it’s the issuance of an ID card or the taking of premium for a direct bill account, it should be mandatory that the account be checked for its current status.  

• Failing to adequately document discussions regarding limits. Be certain that any discussions regarding limits are properly documented.

• Failure to obtain proper waivers for uninsured motorist (UM)/underinsured motorist (UIM) from all named insureds.

• Adding or deleting the wrong vehicle. Do you take direction from a car dealer? Don’t. They are not a party to the contract. Speak only with the named insured.

• Failure to maintain limits that satisfy the minimum required by an umbrella carrier (thus causing a gap in coverage). With the current economy, if insureds are looking to drop their limits to save money, check whether there is an umbrella in effect where certain minimum limits must be maintained.

Let’s now look at inland marine. Why are fewer than 25% of women’s diamond rings in the United States insured under a floater? Do your customers know the coverage differences between insuring the ring under a homeowners policy or under a floater? In addition, with thousands of collectible clubs in this country, there is a chance your customers are collecting something. Are they properly covered? For example, don’t wait for a claim to happen for them to find out there is no breakage coverage for their porcelain figurines under a homeowners policy.

Many of your customers probably have pleasure boats. Some areas that could cause an E&O claim include:

• Hull coverage. Are you providing coverage on an Agreed Value basis? This is certainly broader than Actual Cash Value.

• Insufficient limits. Major accidents can occur. Offer high limits and schedule this policy under the umbrella.

• Failure to advise the client of the navigational limits of the policy or any policy limitations (mph, etc.). If your client incurs a loss outside the stated navigational limit, the policy may be voided. When you send out the policy, include a cover letter encouraging your customer to carefully read the policy.

Last but no means least—personal umbrellas. For how many accounts do you write the homeowners and auto, but no umbrella? Offer it and document their decision. In addition, be alert to any restrictions/limitations in the umbrella policy. Once again, encouraging your customers to read their policy is a positive, proactive loss control measure.

Some overall tips worth considering:

Completion of the application—Did you review each question with the customer? Did you have the customer review the application completely before signing?  

Education and training—Both your staff and your customers can benefit. The goal is to ensure that the staff understands all of the coverages and how they apply. If a customer asks how their personal auto policy responds when they rent a car while on vacation, are you confident that your staff will communicate the correct information? While personal auto might appear to be fairly standard, there are potential differences you want to be sure to communicate—especially if you are moving the account to a more restrictive form.

Developing a newsletter covering a multitude of topics is a great way to educate your customers. This can be sent in paper form or via e-mail blasts, or posted on your Web site. This helps your customers understand what they have, which will pay you tremendous dividends (that is, protection as well as increased sales).

Discuss E&O with your personal lines staff. Talk through the issues and measures that can be put into place to protect the agency, and then develop procedures that will be applied consistently.