ACSR 4 - Servicing Business to Avoid Agency E&O Losses

"Unfair claims practices"

"____" refers to any acts by an insurer that negatively affect the claim settlement process.

True

(T/F) In most states, surplus lines brokers must be licensed to transact business with nonadmitted carriers.

CSR

A ____ owes a duty to use reasonable diligence in forwarding information that the insurer has requested or that is material to the insurance.

Guaranty Fund

A ____ provides the client with financial protection for losses should the insurer become insolvent and be unable to pay its claims.

A. The renter has an interest in the facilities insurance.

A client built a building to rent space to the public for storing antique automobiles. A customer service representative (CSR) received a request to provide insurance coverage for the new building and for customers' automobiles. However, the CSR did not bind the policies due to losing information about the liability limits. Consequently a fire destroyed a renter's automobile and the claim was denied because the policies were not bound. The CSR owes a duty to the renter of the space in the building because A. The renter has an interest in the facilities insurance. B. The client made the coverage request. C. The CSR knew there was a third party. D. The client provided the information.

A. Broken windshield

A customer service representative would most likely report which one of the following first-party claims to a designated third-party administrator for settlement? Choose one answer. A. Broken windshield B. Flood C. Business income D. Fire

Agency

Agency relationships and the duties owed are defined by commercial law in an area called ____ law.

A. When each piece of information is received.

An insurer's claim representative asked an agency customer service representative for assistance in obtaining several pieces of information related to a client's claim. The information should be submitted to the claim department A. When each piece of information is received. B. Within fifteen days of the request. C. Within thirty days of the request. D. When all the information has been received.

A. The duty to disclose any material information

Carla is a customer service representative at an insurance agency. Recently she completed a client's application for workers compensation coverage and misclassified the business to receive a lower rate. Which one of the following duties owed to an insurer did Carla most likely violate by misclassifying the business? A. The duty to disclose any material information B. The duty to comply with the agency agreement C. The duty to fully obey the insurer's instructions D. The duty to remit the correct policy premium

A. Small theft losses.

Certain claims can be handled through an agency claim authority program. An example of the types of losses that would be handled within this program is A. Small theft losses. B. Agency personnel losses. C. Third-party losses. D. Business income losses.

A. That the account has been declined by standard insurers.

For some states certain types of insurance written with a surplus lines insurer require an affidavit to be filed with the state insurance department to declare A. That the account has been declined by standard insurers. B. The type of account the surplus lines insurer is writing. C. The name of the licensed broker who has placed coverage. D. That the reinsurance limit is adequate to support the account.

Agent

In an agency relationship, the ____'s fundamental responsibility is to act for the benefit of the principal.

A. Limited driving experience

Lindsay is a new driver who bought a used sedan for use as transportation to go to college in a large metropolitan area. She did not want a high premium and wanted only the mandatory minimum liability limits. Lindsay called her local insurance agent, who recommended a policy with a nonstandard auto insurer. Which one of the following circumstances is most likely the reason the agent recommended a nonstandard insurance policy? A. Limited driving experience B. Type of automobile C. Expected driving territory D. Low limits of liability

C. Who had a lapse in prior coverage.

Nonstandard auto insurance is normally written for drivers A. Who are underage. B. Who are insuring an older-model vehicle. C. Who had a lapse in prior coverage. D. Who need lower limits of liability.

Nonstandard

Since surplus lines insurers are typically free from insurance policy form regulation, the policy form is often ____. This means that the insuring agreement, terms, conditions, definitions, and exclusions may be different from standard insurance policies.

Agent

The ____ may adjust some small first-party claims as part of the draft authority given to the agent by the insurer; however, the company adjusts most claims.

Surplus Lines

The ____ or "nonstandard" market is a specialized segment of the insurance business. It plays an important role in providing insurance coverage to clients when standard insurers cannot or will not provide it.

Surplus Lines

The ____ or nonstandard insurance market is a specialized segment of the insurance business. It provides insurance coverage for unique exposures, insureds with poor loss experience, or risks that pose a much greater chance of losses occurring.

CSR

The ____ processes the claim by gathering loss information from the client and submitting it to the insurer in a timely manner.

CSR

The duties of a(n) ____ require that he or she use a reasonable degree of care and skill in the performance of his or her duties. These specific duties owed to the principal are outlined in the agency/insurer agreement.

Relaying Information

The duty of ____ requires the agent to keep the principal informed of all facts relating to the agency relationship.

C. Obedience

The laws of agency impose five duties on all agents. The statement that "A CSR owes a duty to fully comply with the insurer's instructions" is an example of which one of the following duties? A. Loyalty B. Accounting C. Obedience D. Relaying information

B. Includes adjusting the coverage provided to meet the changing needs of the client.

The service provided by an insurance agency to a client A. Is limited to writing the account as new business. B. Includes adjusting the coverage provided to meet the changing needs of the client. C. Includes acting only in the best interests of the principal. D. Is limited to the authorized agency claim in authority.

Agency

Under ____ law, an insurance agency and its staff, including producers and CSRs, have a duty to use the standard of care that is necessary to protect the client's interests. A failure to use this standard of care that results in damages to the client exposes the agency to E&O losses.

A. Protect the client's interest.

Under agency law a customer service representative owes a client the standard of care that is necessary to A. Protect the client's interest. B. Protect the agency's interest. C. Meet a prudent person's expectations. D. Meet an average person's expectations.

Accounting

Under the duty of ____, the agent is responsible to the principal for all of the principal's money and property that comes into the agent's possession; the agent must account promptly for any of the principal's money that the agent holds.

Surplus Lines

Unlike standard lines of insurance, most ____ policies require a premium tax to be collected and paid to the department of insurance.

A. Monitoring claim progress on a regular basis

Which one of the following activities is the responsibility of an agency customer service representative when handling a loss? A. Monitoring claim progress on a regular basis B. Recommending restoration firms to the client C. Detecting instances of fraud in the loss report D. Advising the client when to select an attorney

A. To know the limits of binding authority

Which one of the following duties do customer service representatives owe to the insurers that they represent? A. To know the limits of binding authority B. To ensure a profitable book of business C. To verify the clients' information is true D. To understand the commission schedule

Nonstandard

____ auto insurance is a term used to describe insurance sold to drivers whose prior experience may make it difficult to write with a standard line insurer.

Nonstandard

____ auto insurance is normally written for drivers who are unable to purchase standard coverage for a number of reasons: - A poor driving record - Poor loss experience - Limited driving experience - A lapse in prior coverage - The type of vehicle being driven, such as a high-performance or sports car

Agency Claim Authority Programs

____ do not typically include any agency authority for the settlement of claims involving third-party losses, bodily injuries, total vehicle losses, business interruption losses, or more complex claims. Claims of this nature are adjusted by the insurer or its assigned representative.

Nonstandard

____ lines of insurance are for accounts that pose a higher chance of loss, higher levels of loss, unique coverage aspects, and require more specialized underwriting.

A. The financial health of the insurer is questionable.

A customer service representative named Stan agreed to provide insurance to a client who had several large losses. After receiving several declinations Stan found coverage with an insurer that has been trying to write new business due to severe financial distress. Stan was relieved to have found coverage although the premium was higher than the insured requested. Which one of the following pieces of information does Stan have a duty to tell the client under agency law? A. The financial health of the insurer is questionable. B. Premiums are higher than the client anticipated. C. Other insurers declined to quote the insurance. D. The coverage the client requested has been provided.

Surplus Lines

Agents writing ____ business are required to have a special license. Since most agents do not have the license required, they use the services of a surplus lines broker who is licensed to transact surplus lines business.

B. Adequately documenting all conversations regarding a claim

All of the following are provisions addressed in unfair acts by insurers, EXCEPT: A. Failing to act in a prompt manner in claim communications and investigations B. Adequately documenting all conversations regarding a claim C. Knowingly misrepresenting relevant facts or policy provisions D. Failing to act in good faith in the claim settlement process

Agency & CSR

An ____ and the ____ may be held liable for E&O losses that cause harm to persons with whom the producer has no customer relationship, such as lienholders and additional insureds.

Insurance Policy

An ____ is a promise to pay for the loss a client suffers based on the coverage provided. The performance of that promise begins when a loss occurs and the client reports that loss either directly to the insurer or to the agency.

Agent

An ____ must exercise a reasonable degree of care in his or her actions on behalf of the principal; in other words, they must act as a reasonably prudent person would under the same or similar circumstances.

A. Report the loss to the insurer in a timely manner.

Cindy is an agency customer service representative and is assisting a client with a loss. While preparing and submitting the loss notice to the insurer Cindy is expected to A. Report the loss to the insurer in a timely manner. B. Instruct the client to read the entire loss notice. C. Advise the client that coverage is not guaranteed. D. Perform a physical investigation to verify the loss.

NAIC (National Association of Insurance Commissioners)

The ____ reviews insurers for financial solvency.

A. The CSR has breached the duty to exercise a reasonable degree of care in his actions on the principal's behalf.

Which one of these statements best describes the breach of duties that occurs when a licensed CSR binds coverage for a client that exceeds his binding authority? A. The CSR has breached the duty to exercise a reasonable degree of care in his actions on the principal's behalf. B. The insurer has breached a fiduciary duty to disclose any material information about the policy the insurer writes for the agency. C. The client has breached the duty to use reasonable diligence in attempting to place the insurance requested. D. The client has breached the standard of care duty to others who are not parties to the agency agreement.

A. There are time constraints to respond to the lawsuit.

If an agency receives a loss notice that contains a lawsuit the loss notice must be sent to the insurer immediately because A. There are time constraints to respond to the lawsuit. B. The insurer needs ample time to assemble its defense. C. There are unique reinsurer obligations for litigated losses. D. The agency is responsible for all regulatory penalties.

CSR

If the claim is submitted directly to the insurer, the ____'s role is to monitor the process to be sure that the claim is settled in a timely manner.

Agency Contract

In insurance, an ____ specifically addresses certain rights and duties of the agent. For example, this describes the insurance agent's right to make insurance coverage effective and any limitations on that right. This also specifies how the agent is to handle funds such as remitting premiums to the insurer and handling claims.

A. A special license.

In order to write an account with a surplus lines insurer an agent must first have A. A special license. B. Sufficient collateral. C. A reinsurance policy. D. Adequate experience.

B. Collecting and holding any bills submitted to the CSR by the client and not sending them to the claim department until that phase of the restoration and/or rebuild process has been completed

It may take an insurer time to complete the loss investigation and settlement process and make an accurate determination of coverage. The CSR can assist the client in understanding the process and provide assurance that the process is proceeding in a normal manner. The CSR should follow all of these steps when monitoring the loss settlement process, EXCEPT: A. Maintaining regular contact with the claim department to monitor progress of the claim settlement B. Collecting and holding any bills submitted to the CSR by the client and not sending them to the claim department until that phase of the restoration and/or rebuild process has been completed C. Assisting the insurer in obtaining additional information as requested D. Providing regular updates to the client, informing him of the status of the claim settlement

A. Obtain written authorization to not submit the claim.

Maria is a customer service representative at a local insurance agency. Eric is a long-time insured who inquired about his third property loss in a year. After some discussion Eric insisted on not reporting the claim. Upon his decision the best course of action for Maria to take is to A. Obtain written authorization to not submit the claim. B. Put the insurer on notice that there is a potential claim. C. Report the loss to the state insurance fraud division. D. Inform the agency owner about withholding the loss.

CSR

Once the loss is reported, the ____ focuses on monitoring the claim process. Available technology can assist in this monitoring and can include automatic notification of the appraisal process status and the posting of any reserves or payments made. This allows the ____ to stay current on the claim process developments and to respond to any questions the client may have regarding the claim. This also allows the ____ to stay alert for possible policy changes, such as a vehicle being declared a total loss and needing to be deleted from the policy.

Agent

One of the ___'s most important duties is to be loyal to the principal; another duty is to obey the principal's lawful instructions.

Insurer

Since the agent represents the insurer, a loss reported to the CSR by the client is a claim reported to the ____. Therefore, state statutory regulations concerning claims handling also apply to the CSR. Any time-sensitive reporting requirements involving the acknowledgment of the loss begin when the agency receives the notice of loss.

Agency Claim Authority Programs

Some insurers give their agents claim handling authority for first-party claims. These are generally known as ____.

White List

Some states limit surplus lines brokers to using only insurers who are on the "____," which is the list of eligible surplus lines insurers.

A. Maintaining contact with the claim department.

Teresa is an agency customer service representative who is working with a client that recently suffered a residential fire loss. The client is concerned about the claim process and believes the insurer is slow to settle the loss. Teresa can assist the client in monitoring the loss settlement process by A. Maintaining contact with the claim department. B. Giving an estimate of the loss settlement amount. C. Recommending a public adjuster for assistance. D. Asking an underwriter if the client has coverage.

CSR

The ____ plays an important role in this process by providing the client with an understanding of the claim investigation and settlement process, the time frame involved, and the role the client, agent, and CSR play in the process.

Agency

The ____ should be using surplus lines brokers that are properly licensed and that have E&O insurance coverage.

CSR

The ____ should disclose to the client that the insurance is being provided by a surplus lines or nonstandard insurer.

CSR

The ____ who undertakes procuring insurance coverage owes a duty to use reasonable diligence in attempting to place the insurance requested by the client.

Insurance Policy

The ____, whether it is a personal lines or commercial lines policy, is a contract between a policyholder and an insurer.

Traditional

The client has a number of available channels with which to report a claim. The ____ method is to contact the agent by telephone, mail, or email to report the loss. The CSR then contacts the insurer's claim department either by telephone or email or by directly entering the claim information into the insurer's claim system.

A. A licensed broker or agent.

The only way a nonadmitted insurer that is not licensed to write insurance in a state is able to provide direct primary coverage is through A. A licensed broker or agent. B. A fronting company. C. A domestic reinsurer. D. A voluntary insurer.

Agency Claim Authority Programs

To avoid any potential conflict of interest, it is generally recommended that the CSR not use the ____ in handling any claims involving agency personnel and/or family members.

A. Premiums

Unlike most standard lines of insurance most surplus lines policies require the agent to collect a tax on which one of the following payments? A. Premiums B. Losses C. Commissions D. Dividends

D. Advising the client to dispose of the debris and clear the site as soon as possible

When a client suffers a loss, the CSR plays an important role in assisting the client with submitting the loss notice to the insurer. All of these steps should be followed to assist the client with reporting the loss, EXCEPT: A. Informing the client that the claim process includes a thorough investigation of the facts surrounding the loss and that the insurer makes the determination of coverage B. Advising the client what to expect during the claim adjustment process C. Reporting the loss to the insurer in a timely manner D. Advising the client to dispose of the debris and clear the site as soon as possible

A. Insureds' customers

When performing their duties, customer service representatives owe a standard of care to persons with whom there is no customer or principal relationship. Which one of the following third parties is most likely owed a standard of care under agency law? A. Insureds' customers B. Insurers' stockholders C. Reinsurers D. Regulators

D. Place the client's auto business through a reputable broker who stays current with the surplus lines insurers and knows which ones have become insolvent.

When servicing an account for a client whose auto insurance coverage has lapsed, a CSR may have to A. Withhold information about previous policy experience to place the client's auto insurance in the standard market. B. Request an extension of the lapsed policy until a nonstandard insurer can be found that is willing to write the business. C. Determine the amount of premium taxes that must be collected, collect the taxes, and then submit them to the federal government. D. Place the client's auto business through a reputable broker who stays current with the surplus lines insurers and knows which ones have become insolvent.

A. Financial solvency

Which one of the following categories of data from the National Association of Insurance Commissioners (NAIC) is the type of information that state insurance regulators review to determine if a surplus lines insurer is eligible to write business in the regulators' state? A. Financial solvency B. Time in business C. Coverage offering D. Country of domicile

A. Advising an insured about hiring a restoration firm

Which one of the following creates an errors and omissions exposure when a customer service representative provides an insured guidance before consulting an insurer while assisting in a claim? A. Advising an insured about hiring a restoration firm B. Directing an insured to report all claims C. Communicating vital information to an insured D. Telling potential reasons for claim denial to an insured

D. Advise the client on what to expect in the claims adjustment process

Which one of the following is a step the CSR may take during the claims handling process? A. Tell the client whether the loss is covered or not B. Advise the client not to report the claim because it may increase his or her premium C. Tell the client the amount that may be paid for a loss D. Advise the client on what to expect in the claims adjustment process

A. Surplus lines insurers are typically free from insurance policy form regulation so the policy form they use is often nonstandard.

Which one of the following statement regarding placing business in standard versus nonstandard markets is true? A. Surplus lines insurers are typically free from insurance policy form regulation so the policy form they use is often nonstandard. B. Agents writing surplus lines business are not required to have a special license. C. Surplus lines or nonstandard policies require less attention on the part of the CSR because the policies can be tailored to the needs of the client. D. The CSR is not required to tell the client that the insurance is being provided by a surplus lines or nonstandard insurer.

D. The duties that the agent owes to clients may be extended to other parties meant to benefit from the insurance policy.

Which one of the following statements regarding agency relationships is true? A. The legal relationship known as agency is limited to insurance. B. The insurer, not the agent, may be held responsible if an agent acts outside the scope of authority of the agency/principal relationship. C. An agent's duty is limited to the insurer and not to the client. D. The duties that the agent owes to clients may be extended to other parties meant to benefit from the insurance policy.

Surplus Lines

____ or nonstandard insurers typically enjoy freedom from rate and insurance policy form regulation from the state departments of insurance. This allows the insurers to tailor a policy to the needs of the client, recognizing the unique aspects and higher loss potential of the account.

CSR

A ____ has a fiduciary duty to the insurer to disclose any material information about the policies the insurer writes for the agency. Material information is any information that, if known by the insurer, would affect the insurer's decision to insure and/or issue coverages.

CSR

A ____ may make changes to policy, renew a policy, and provide assistance in the event of a loss.

CSR

A ____ owes a duty to understand and comply with binding authorities granted by the insurer and comply with all other terms of the agency/insurer agreement.

Lawsuit

A ____ requires the defendant, or person being charged, to file an answer within a given amount of time. The failure of the defendant to provide an answer to the court within the allowed time frame can result in a default judgment. This means that the plaintiff, or the person who has filed the lawsuit, is awarded judgment or wins the case.

A. When the agency received the notice of loss.

A customer service representative received notice of a loss from an insured and the following day reported it to the insurer. The insurer then entered the claim into its diary system that day and started to monitor the claim. If the state insurance regulators audited the claim the reporting requirements of the claim would begin A. When the agency received the notice of loss. B. When the insured experienced the loss. C. When the insurer received the notice of loss. D. When the insurer began to diary the loss.

A. Monitor the loss settlement process

A homeowner is insured with ABC Insurance Company which he purchased through XYZ Agency. He suffers a fire loss to his home and contacts ABC Insurance Company to report the loss. Which one of the following is a step the XYZ Agency CSR would take to handle the loss? A. Monitor the loss settlement process B. Advise the homeowner to dispose of the debris and clear the site C. Collect and retain bills until the claim department requests them D. Tell the homeowner to contact the insurer directly

D. Telling the client that the renewal homeowners policy has been written with another insurer, that there is nothing to worry about, and then advising the client to call with any questions about the policy.

A personal lines client of the agency with a homeowners policy has a history of water damage claims caused by a unique roof design combined with poor construction. The standard lines homeowners policy has been nonrenewed. After finding no standard insurers willing to provide coverage, the CSR places coverage with a nonadmitted surplus lines insurer. The policy has exclusions and limitations for certain types of water losses. The CSR should follow all the following steps with the client, EXCEPT: A. Submitting the homeowner's application to a licensed surplus lines broker with access to eligible surplus lines insurers in the state. B. Reviewing the policy with the insured and explaining the coverage, the exclusions, the limitations, and other differences from the previous policy. C. Obtaining payment from the client including any premium tax. The premium should be submitted to the surplus lines insurer, and the premium tax should be submitted to the state department of insurance. D. Telling the client that the renewal homeowners policy has been written with another insurer, that there is nothing to worry about, and then advising the client to call with any questions about the policy.

D. Following the claim processing procedures the agency has established to monitor the claim investigation and settlement process until complete.

A personal lines client of the agency with a homeowners policy suffered a glass breakage involving a large window at his home. The client reported the loss to the insurer using its toll-free claim reporting line. The CSR provides service that avoids E&O exposures to the agency by: A. Calling the client and asking questions about the loss to determine if coverage applies. B. Informing the client that the loss is likely to be less than the policy deductible and telling the client he should not have submitted the claim. C. Wishing the client the best of luck in the claim settlement process. D. Following the claim processing procedures the agency has established to monitor the claim investigation and settlement process until complete.

Agency

An ____ relationship exists when one person (the agent) is authorized to act on behalf of another (the principal) to create a legal relationship with a third party. These relationships, based on mutual trust and confidence, impose significant responsibilities. Complying with the duties owed helps to reduce an insurance agency's potential errors and omissions (E&O) exposures.

A. Following agency procedures for monitoring the loss settlement process

An agency customer service representative (CSR) wants to provide a high level of service in assisting a client who was injured in an automobile accident. Which one of the following steps should the CSR take to provide this level of service? A. Following agency procedures for monitoring the loss settlement process B. Comforting the insured by ensuring that the injuries are fully covered C. Contacting the insured regularly to monitor the progress of the healing D. Detecting potential coverage issues to assist the claim representative

D. Following the claims processing procedures the agency has established to monitor the claim investigation and settlement process until it is complete.

An agency's client suffered a broken windshield as a result of hitting a bird. The client reported the loss to the insurer using its toll-free claim reporting line. The CSR provides service that avoids E&O exposures to the agency by A. Calling the client and asking questions about the loss to determine if coverage applies. B. Informing the client that the loss is likely less than the policy deductible so he should not have submitted the claim. C. Advising the client that because he has reported the loss to the insurer the agency can no longer assist in the claims process. D. Following the claims processing procedures the agency has established to monitor the claim investigation and settlement process until it is complete.

A. Explaining policy terms and coverage limitations

D&D Excavating has reported a large pollution claim that occurred from its disposal of objects containing lead paint. The customer service representative (CSR) has submitted a loss notice to the insurer to start the claim process. Which one of the following is a duty that the CSR owes to D&D Excavating now that the loss has been submitted? A. Explaining policy terms and coverage limitations B. Informing the client that this loss is fully excluded C. Confirming facts and reporting discrepancies D. Ensuring coverage and making an initial payment

C. Reminding the client that the CSR had recommended purchasing business income coverage earlier, and that it was the client who had made the choice not to purchase it in order to get the lowest premium possible

Denise, in her role as CSR, provided a high level of service to Ed with his insurance needs. All of these steps should be followed to provide this level of service, EXCEPT: A. Using a new-business checklist to assist and retain needed documentation for new commercial business submissions B. Offering optional coverages as part of the quote to provide coverage often needed by apartment building owners C. Reminding the client that the CSR had recommended purchasing business income coverage earlier, and that it was the client who had made the choice not to purchase it in order to get the lowest premium possible D. Following agency procedures for writing new business, loss report completion, and monitoring the loss settlement process