Insurance Professionals In Focus
Fiduciary Duty
An obligation to act in another party's best interests that requires the highest standards of care, good faith, loyalty, and trust
What do statistics show about E&O policyholders reporting potential incidents to their carriers?
Annually about one in seven agency E&O policyholders will report a potential incident to their carriers. Fortunately, about half of those reported incidents are closed with no defense or indemnity costs incurred
Independent Agents
Are licensed agents who have contractual arrangements with more than one insurance company Own their customer relationships Are responsible for the majority of the commercial insurance policies sold in the US and a sizeable percentage of the personal insurance segment
Managing General Agents (MGAs)
Are provided authority to write specialty coverages and operate directly on the insurer's behalf May underwrite, issue policies, collect premiums, market, appoint other agents and pay claims on the insurer's behalf
Tort Liability
Arises from the negligent or intentional infliction of damage on a person or property
_________________ is another type of risk control measure
Avoidance
Wholesale Agents
Do not have a direct relationship with customers work with a Retailer to obtain quotes from the surplus lines insurer Serve as aggregators for some insurance companies
In recent years, courts are increasingly viewing agents/brokers as
Experts who can be found liable if available coverage is insufficient for losses sustained or if a policy fails to respond to all of the losses incurred
Examples of negligence are:
Failure to procure adequate coverage Delay in forwarding an application Failure to recommend additional coverage Failure to conform to underwriting requirements Failure to promptly cancel a policy as instructed Failure to communicate a change in the terms of coverage Failure to timely transmit claim information
In the past, insureds were responsible for
Reading and understanding their insurance policies
What is the effect of the McCarran-Ferguson Act on the regulation of the insurance industry?
The McCarran-Ferguson Act allowed states to continue regulating insurance after the Supreme Court, in the SEUA case, declared insurance to be interstate commerce. Under the MFA, the state-regulated property and casualty insurance industry is exempt from principal sections of the federal antitrust laws
Insuring agreements section is the basic promise of coverage by the insurer. This section answers the following questions:
What liability does the policy cover? When will coverage respond under this policy?
In the past, agents/brokers were viewed primarily as
Order Takers
McCarran-Ferguson Act (MFA)
Permits states to continue regulating insurance, in effect overruling the Supreme Court. It also makes the insurance industry exempt from principal sections of the antitrust laws as long as these sections are covered by state regulation.
Surplus Lines Agents
Place policies with P&C insurers that write coverage on a non-admitted basis in a particular state Must collect the tax and remit it to the state Have a greater E&O exposure than independent or exclusive insurance agents
Most states require completion of ___________ and passing of state exam prior to issuing a license
Pre-licensing courses
Underwriting Rating Factors
Premium Volume Number of Agency Staff Revenue and Commissions Type of Agency Services Provided Book of Business Location Clams Experience Direct Appointments Vs Amount of Brokered Business Limit of Liability and Deductibles Retroactive Coverage
What problems can arise when an agent is asked to modify the form that provides a certificate of insurance in order to accommodate various requirements of a certificate holder?
Problems arise when a requested modification to a certificate of insurance differs from the policy's coverage, limits, terms, and/or cancellation provisions. Potential E&O issues can arise if the agent complies with a modification and that results in an inconsistency or ambiguity. If a loss later occurs and the insurer does not agree with the representations or modifications reflected on the certificate, then the insured and the insurer could sue the agent.
What are the major drivers of claims and claims incidents against insurance agencies?
Product Changes Changing Carrier Relationships Changing Legal Duties Strength of the Plaintiff's Bar
Most traditional E&O plans place coverage for agencies that sell primarily ___________
Property & Casualty
E&O coverage for insurance professionals provides
Protection from the financial consequences of negligent acts, errors, or omissions committed in the course of rendering their professional services
Multiple Service Agents
Provide multiple types of insurance agency services
Most breach of agent-carrier contracts involve either a
Breach of binding authority or mishandling of funds
National Insurance Producer Registry (NIPR)
A database of licensed insurance agents/brokers and is maintained by the NAIC
Summary Judgment
A decision made based solely on statements and evidence presented for the record without a trial
What is a summary judgment?
A request by an attorney asking the judge to determine as a matter of law, that the claimant's case should be dismissed. A summary judgment can only be made if the material facts are not in dispute
Reinsurance Intermediary
A specialized insurance agent or broker who places reinsurance for clients who are insurance companies
ACORD Form
A standardized insurance form commonly used and accepted agents and insurers for common activities, such as certificates of insurance and binders
What is the purpose of providing a certificate of insurance?
A certificate of insurance provides a courtesy synopsis of policy coverages and policy limits to a third party
What happens when the Claims Department receives notice of a professional liability claim?
A claims specialist contacts the agency to notify it that a claim has been received A file is opened and the claims specialist reviews the applicable deductible, policy limits, retro date and confirms that the policy is in force A determination is made about whether the policy covers the claim's alleged error or omission
Contributory Negligence
A defense used in a lawsuit when the plaintiff is alleged to have been negligent and thus caused or contributed to the plaintiff's own injury or damages. Generally, plaintiffs in this situation are barred from recovering from the named defendants
Consolidated Omnibus Budget Reconciliation Act (COBRA)
A federal law that guarantees former employees the option to buy health insurance coverage under the former employer's health plan for a certain period and under specified conditions
What kinds of things should play a central role in achieving the desired technical knowledge in an insurance agency?
A focus on On-the-job training and coursework A budget set aside strictly for education Add to the employees annual goals an objective focused on enhancing the technical competence Determine the appropriate coursework for each employee so that staff has skin in the game
Premium Volume
A key factor in rating E&O for insurance professionals. Mid-sized premium volume is preferred over a small firm with a low premium volume (less than $2M) or a large firm whose customers have complex and sophisticated insurance needs
Agency
A legal relationship between two parties in which one party, called the principal, engages another party, called the agent, to act for and on the principal's behalf
What is mediation?
A non-binding process involving an independent third party whereby an attempt is made to negotiate a settlement. The process is non-binding because it is voluntary and the parties are not required to reach a settlement
Consent to Settle Clause
A policy provision that requires the insurer to obtain the insured's consent before offering to settle claims made under a duty to defend policy
Hammer Clause
A policy provision that requires the insurer to obtain the insured's consent before offering to settle claims made under a duty to defend policy and that limits the amount the insurer will pay in the event an insured does not consent to a settlement offer the insurer recommends
First Dollar Defense
A policy provision under which the insurer provides a defense for a claim against the insured without the insured first meeting a deductible
Deductible
A portion of the loss that the insured is required to bear and that may apply to either indemnity payments, defense costs, or both. The insurer typically pays the loss and then collects the deductible from the insured
Actuaries
A professional statistician who has specialized academic training and who calculates the risks and probabilities of future events, estimates claim costs based on past experience and uses projections to establish insurance rates
Agency Agreement
A written contract of representation between an insurer, as the principal, and an insurance agent, as the agent
An agency relationship exists when
A written contract specifies the terms of the legal relationship between the parties
Libel
A written form of defamation that causes injury to another party
Many in the insurance industry believe that, at a minimum, all licensed insurance agents should complete the __________ professional designation program
Accredited Adviser in Insurance (AAI)
Third Party Administrators (TPAs)
Administer claims services such as claims investigation, processing and deductible collection for insurance companies or self-insured account Are business entities with the expertise and capability to administer all or a portion of the claims process Some states require a separate TPA license Are not insurance agents
When placing a value on a property for insurance purposes, the agent/broker should
Advise the insured clearly, in writing, that it is the insured's responsibility to value the property or other asset being insured Recommend that the insured obtain an independent appraisal to confirm the valuation Recognize that any valuation assistance that the agent/broker provides should be given without any representation or assurance that the valuation should be relied on to assure that the coverage limits will fully insure the property (or other asset) against loss
How can agencies control online activities and content?
Agencies can control online activities and content by establishing a clear, written Social Media Policy. Agencies should also establish a separate account for employees in the agency's name. Employees can then use this sanctioned feed to post on the agency's behalf. However, the agency should still control the account, the password, and all the content. If the employee leaves the agency, the the account remains behind. The agency owns the content posted on that account. In addition, agencies should develop parameters and processes for social media activities. This could mean designating one person to handle postings or a team of employees to tackle communications together. However, careful content management should continue to be a primary concern. Agencies must make sure that their content is kept current and must carefully examine all third-party posts
Other Underwriting Factors considered when rating for E&O insurance
Agency History Qualifications and Experience of Agency Staff Administrative Procedures and Internal Controls Risk Control Carrier Representation Scope of Related Services Provided
Agent Fred agrees to procure homeowners' insurance coverage for Anna's home. The Insurer declined the homeowners' policy due to the age of the house. Agent Fred failed to follow up and procure coverage with another insurance company and failed to notify Anna. When Anna's home was destroyed by a windstorm, she discovered there was no insurance on the home.
Agent breached his fiduciary duty to Insured Anna to provide coverage. Remember that Insurance Agents ordinarily do not have fiduciary duties to Clients, unless they voluntarily assume special duties. In this case, Agent Fred assumed the duty to provide coverage.
Agent Mark issued an auto insurance policy to Insured Alice. Agent Mark failed to obtain a copy of Alice's driver's license. When a claim was made against the Insured, the Insurer learned that Alice's driver's license had been suspended before the policy was issued.
Agent breached the Agent-Carrier contract when he failed to strictly follow the Carrier's underwriting guidelines. Agent Mark may be liable to reimburse the Insurer after the claim is paid.
Agent Bob assured Insured Greg, a bar owner, that the bar was fully covered for alcohol-related lawsuits. When Greg filed a claim with the Insurer, the Insurer denied the claim because no liquor liability coverage had been purchased.
Agent may be held liable for misrepresentation because he assured the Insured that alcohol-related lawsuits were fully covered, when this was not the case.
Agent Cathy received an incident report from an Insured Physician. Agent Cathy failed to forward the incident report to the Insurer, resulting in a denial of coverage when a claim was filed two years later.
Agent may be held liable for negligence because she failed to promptly forward an incident report by the Insured to the Insurer. This negligence resulted in a loss to the Insured, and the Insurance Agent may be held liable for that loss.
Insured Eddie asked Agent Jared to increase his policy limit to $1M upon renewal. Agent Jared failed to signify this change when the policy was renewed. Six months after the renewal, Insured Eddie filed a claim amounting to $800,000. The Insurer paid only $500,000, the policy's limit.
Agent may be held liable for negligence due to his failure to inform the Insurer of the Insured's instructions to increase the policy's limit. As a result, the Insured was not able to obtain coverage for $300,000 of his claim. Agent Jared may be liable for this amount.
The agency agreement specifies the
Agent's scope of duties, degree of authority given, commissions and applicable termination procedures
Loss Prevention
Aims to reduce the frequency of adverse incidents; decreases the likelihood of incidents happening by preventing or improving activities that may generate certain types of losses
Independent Insurance Agents & Brokers of America (IIABA)
Also called the Big I National alliance of business owners and their employees who offer all types of insurance and financial services products Founded in 1896 as the National Local Association of Fire Insurance Agents and later became the Independent Insurance Agents of America Name was changed in 2002 to IIABA to reflect the diversity of its membership which includes both independent insurance agents and brokers Industry leader in representing Insurance Agents and Brokers in government affairs, with representation on Capitol Hill since 1934 Offers designation programs that aim to increase the sales skills, technical knowledge and customer service efforts of insurance agents/brokers Was key in creating the first ACORD forms
Agencies might collect PII on their websites. What E&O exposure does collection of PII create for an insurance agency?
An agency has a duty to protect PII and both state and federal laws may apply if an agency does not adequately protect PII. Violations can carry significant financial penalties and failure to protect PII can seriously damage an agency's reputation
What E&O exposure could an agency face by allowing its website visitors to contact the agency through e-mail? What can the agency do to address this exposure?
An agency has no way to control what a visitor might choose to include in an e-mail. The visitor might decide to include confidential personal information (such as a name coupled with a social security, driver's license, or credit card number) in the unprotected e-mail, creating an E&O exposure to breach of data privacy. The agency can post a disclaimer on its website to address this exposure
Posting content on websites can be informative to visitors and customers. What are some E&O tips for agencies posting original material and content from outside sources?
An agency needs to do its due diligence by ensuring that the content provides accurate advice. Jurisdictional risks may arise because the information is available worldwide. Content should contain an adequate disclaimer. If the information is from an outside source, then verification of the source's expertise and written permission to use the information should be obtained to avoid copyright infringement
Clayton Act
An antitrust law, passed in 1916, that prohibits mergers and acquisitions that reduce competition in a certain industry and imposes civil penalties for violations
The agency relationship arises from
An expressed or implied agreement between parties
Retailer
An insurance agent who represents the customer and who presents applications for specialty and hard-to-place business to the wholesaler or surplus lines agent
Admitted Carrier
An insurance company registered with and licensed by the Insurance Department of each state where it operates
Risk Retention Group (RRG)
An insurance company that is owned and controlled by a group engaged in similar or related businesses for the purpose of insuring the liability exposures of its members
Risk Management Professional
An insurance professional who identifies and analyzes risks and recommends appropriate techniques to prevent, reduce, or transfer the financial consequences of the these risks
Program Administrator
An insurance professional who is experienced in specialty lines insurance and who has underwriting and binding authority
Common exclusions in Insurance Professionals E&O policies include:
BI/PD Management of Funds Intentional Acts Prior Claims TPA Viaticals ERISA and COBRA Insured vs. Insured Personal Profit
What are 3 tips for agencies to avoid problems when posting on social media?
Be cautious about posting information about insurance products and the type of coverage a product provides Avoid posting sensitive information or personal information, whether posted by a client or the agency. Privacy laws apply on paper and on social media Check third-party content for accuracy, and obtain consent to use it from the original source
What other solutions are being considered, in addition to using a new ACORD form as proof of insurance?
Broadening education and awareness efforts Providing electronic access to policy information in real time Continuing to use existing standardized and manuscript forms
Definitions can assist the parties to the contract by:
Clarifying otherwise uncertain terms Assuring that a word or phrase is uniformly interpreted throughout the contract Keeping the policy language concise by avoiding the repetition of the same concept in multiple places Explaining a term that includes technical or legal language
Insurance brokers represent their
Clients or potential insureds
Common steps in the claims management process are:
Claim is made Investigation Evaluation Litigation Settlement
Implement quality control systems
Conduct internal and/or external audits Perform risk surveys using qualitative survey material Set a standard for insurers' financial strength. Larger agencies may have separate committees or departments that determine the companies with which their agents may place coverage Ensure staff compliance to quality control procedures
Most state licensing authorities also have mandatory ________________ requirements focusing on insurance laws, consumer protection, ethics, and specific topics that are pertinent to the various insurance lines of business
Continuing education
The agency agreement is a
Contract that establishes the legal relationship between the insurance agent/broker and the insurer or insured
The regulation of insurance contracts and rates is
Controlled by the state in which the policyholder resides
Certified Risk Manager (CRM)
Covers risk management consisting of the following: Principles of Risk Management Analysis of Risk Control of Risk Financing of Risk Practice of Risk Management Each course involves 2.5 days of classroom instruction, followed by an examination which must be passed.
The two major categories of law are:
Criminal Law and Civil Law
What are some of the emerging exposures regarding E&P claims for insurance professionals?
Cyber liability, environmental impairment and identity theft
National Association of Insurance Commissioners (NAIC)
Is involved in the formation of policy and the development of regulations for the insurance industry and has been since its inception in 1871
Slander
Defamation by meaning of oral communication
E&O coverage for insurance professionals is
Designed to protect the responsible parties in the event that they make mistakes when performing their duties as agents/brokers
Documentation and File Management
Document all communication with clients and insurers Document policy changes in writing to the client and the insurer Evaluate the timeliness and documentation of policy delivery Act on all client or insurer requests and instructions promptly Protect the privacy of confidential communications Ensure that records are unalterable and that back-ups are available and accurate, if using an automated system
Critical communication problems between clients and their insurance agents involve the insurance agent's failure to ______________
Document the client's instructions in writing, to return phone calls, and to keep clients up to date on their requests
Why is training on agency software systems often overlooked yet extremely important?
Documentation, or lack thereof, is an important factor in determining the outcome of an E&O claim. Agency management should be clear in expressing and documenting not only the expected use of the software system but also the timelines for when tasks are to be performed. Issues such as the frequency of reviewing e-mails and accepted abbreviations should be included
Legal Duties to Insureds include:
Duty to Obtain Coverage Duty to Place Coverage with Solvent Insurer Duty to Follow Insured's Instructions Duty to Assess Risk Duty to Provide Customer Service
Agents and brokers have the
Duty to analyze their clients' businesses and secure appropriate coverage for these businesses
Every insurance agent and broker involved in the solicitation, selling or negotiation of insurance must obtain a license from _________________
Each state (or states) in which the agent/broker plans to do business
Certified Insurance Service Representative (CISR)
Earned by attending and passing exams for the following: Insuring Commercial Casualty Exposures Insuring Commercial Property Insuring Personal Residential Property Insuring Personal Auto Exposures Agency Operations
Chartered Property Casualty Underwriter (CPCU)
Eleven upper division undergraduate and graduate level courses are available in two tracts (personal or commercial). This program, which has an eight-course completion requirement, is recognized for thirty-five hours undergraduate credit and/or sixteen hours graduate credit.
Surplus lines statutes typically place the sole responsibility on insurance producers to determine the _________ of the surplus lines insurer and the time placement is made
Eligibility
The first insurance company that offered E&O coverage for insurance professionals was
Employers Reinsurance Company (ERC) in 1961
Insurance has been written, interpreted, studied and argued as contractual guarantees. If provided coverage is not included in the basic coverage form an _______ is necessary to amend the policy
Endorsement
E&O for insurance professionals is a specific form of PLI that covers:
Errors, Omissions, and Negligent Acts while acting in their professional capacity
Insurance Agents E&O policies do not provide __________ for losses that the insurance professional incurs
First party coverage
National Association of Professional Insurance Agents (PIA)
Founded in 1931 Voluntary professional association representing independent property/casualty insurance agents Insurance industry's leader in providing education courses to help professionals maintain their competitive edge and licenses Offer free agency agreement review services to both the insurer and agent/broker Members have access to exclusive information and resources to help them maintain compliance with laws and regulations and improve the operation of their businesses Information provided helps members stay up-to-date with the latest industry developments
Program Administrators
Function as the underwriting department for a specific type of specialty insurance on an insurer's behalf (E&O) Do not have claims authority
Duties of insurance agents/brokers to insurers include
General and Fiduciary Duties Duty to Communicate Information to the Insurer Duty as Underwriter Based on Agent/Carrier Contract Statutory Duties
Insurance Codes specify the
General powers and duties of agents/brokers, including each state's licensing requirements
To help insureds reduce their liability exposures, insurers provide various programs, including risk management:
Guidelines and articles Hotlines Lectures and seminars Audits, reviews and consulting
The agency also provides claims management services. Does the information present a high or low risk for the applicant?
HIgh
The insurance agency is a Managing General Agent (MGA). Does the information present a high or low risk for the applicant?
HIgh
Establish written procedures for different functions, such as:
Handling premiums Managing Claims Managing renewals/non-renewals Managing terminations
Property & Casualty policies generally offer __________ limits of liability than life and health policies
Higher
Property & Casualty commercial lines are generally considered to have the ____________ severity exposures
Highest
Duty to communicate information to insurer include:
Honest, accurate, thorough and complete applications Risks not eligible for placement with a certain insurer should not be placed under binder The agent/broker must inform the insurer of any known material change in the risk
General duties the agent/broker owes to the principal include:
Honesty and Fairness Reasonable Skill and Care Disclosure Accounting
General and Fiduciary Duties of an agent/broker to the insurer include:
Honesty and fairness Reasonable skill and care, Disclosure Accounting Loyalty Obedience Confidentiality
The risk management process typically involves the following steps:
Identify and analyze potential risks Select appropriate risk control techniques, including avoidance, loss prevention and loss reduction Select appropriate risk financing techniques, including risk retention and risk transfer (through insurance or other contracts) Implement risk control and risk financing techniques Monitor risk management efforts
What are some recommendations to help establish effective administrative systems and procedures?
Identify and use a qualitative coverage checklist to ensure that all coverage concerns are addressed and resolved Establish standard procedures for handling certificates of insurance Establish standard procedures for contract and proposal reviews Implement quality control systems Establish an Agency Disaster Recovery Plan to prepare for contingent events, such as natural catastrophes and terrorist attacks Establish written procedures for different functions such as Handling premiums, Managing Claims, Managing renewals and non-renewals and Managing Terminations Maintain an ongoing program of unannounced internal audits and file reviews
By implementing risk management policies and procedures, insurance agents are able to _____________
Improve the level of service they provide to clients and potentially enhance the agents' competencies and credibility
What legal doctrine did the court establish in the 1961 Hardt v Brink case?
In this landmark case, the court established a legal doctrine that an insurance agent can be held liable for failing to recommend appropriate insurance coverage. The court also indicated that the insurance agent represented himself as a highly-skilled insurance adviser. Therefore, the insured's reliance on the agent's expertise was justified
Establish standard procedures for contract and proposal reviews:
Include harmless/indemnification provisions in agency agreements Keep employees well informed about the authority extended in the various agency agreements with insurance companies represented by their firm Review proposals for insurance coverage thoroughly Proofread policies and endorsements carefully before they are delivered to clients
Each state's __________ provides the rules and regulations governing the insurance industry
Insurance Code
Agents and brokers hold contract with a number of
Insurance companies and place policies directly with the companies that can best serve their clients' needs
Insurance agents can represent
Insurance companies as either company employees or independent representatives
Insurance regulations ensure that:
Insurers fulfill their duties Insurance policy provisions and coverage rates are reasonable and fair Insurance professionals accurately represent the policies that they sell
Insurance agents serve as
Intermediaries between insurers and insureds
Examples of binding coverage in excess of authority:
Issuing an auto insurance policy to an 18 year old when the carrier's underwriting guidelines have an age requirement of 21 Binding coverage on home outside the certain age and value restrictions Failure to notify the insurer of the material change in space previously occupied as an office but is now occupied as a strip club and restaurant
Misleading clients and failing to provide adequate advice and coverage are both _________
Leading causes of errors and omissions claims
The Insurance Commissioner's regulatory authority involves the following:
Licensing insurers and agents/brokers Detecting potential insurer insolvencies Supervising insolvency funds Approving policy forms Investigating complaints of policyholders Determining the competency of insurance professionals
__________ agencies typically have separate E&O plans
Life and Health
Insurance agents my sell various types of policies that generally fall into these two broad categories
Life insurance, which includes accident and health (LA&H) Property and casualty insurance (P&C)
Risk control measures typically include both _____
Loss prevention and loss reduction techniques
The applicant's annual premium volume is $1M. Does the information present a high or low risk for the applicant?
Low
Agencies that are working directly with both the insurer and the client are considered to be ______________ risk than organizations that use an intermediary as part of the policy sale
Lower
Insurance agents/brokers owe the following duties to their clients under a fiduciary relationship:
Loyalty Obedience Confidentiality
When the agent's/broker's _______ is the proximate cause of a loss suffered, a valid tort claim may ensue
Misrepresentation
What website E&O exposures does an agency face that are the same as the exposures found when using print media? What can the agency do to address these exposures?
One E&O exposure relates to advertising liability that can arise out of the use or misuse of a trademark or the copyrighted material of others Another exposure relates to statements about the services available through the agency that may be subject to regulatory requirements
Endorsements to Insurance Professionals E&O policies include:
Mutual Funds Investment and Securities Products Loss Control, Risk Management and Anti-Fraud Services TPA Safety Consultants Loss and Claim Expenses Deductible
PIAPRO offers E&O coverage for the members of
National Association of Professional Insurance Agents (PIA)
Under tort law, insurance agents/brokers may be liable for:
Negligence Misrepresentation Breach of fiduciary duty
Tort Law imposes an ________ on insurance agent's brokers to render professional services in accordance with the applicable standard of care
Obligation
Professional Liability Underwriting Society (PLUS)
Offers a certificate program (Certificate in PLI) and two designation programs (RPLU & RPLU+) specifically designed for insurance agents/brokers and insurance company personnel working with the various disciplines of professional liability
National Alliance for Insurance Education and Research
Offers a variety of continuing education courses leading to professional designations in health, life and property & casualty insurance for agents
Certified Insurance Counselor (CIC)
Offers professional designation focusing on the following insurance aspects: Personal Lines Commercial Casualty Commercial Property Life & Health Agency Management Each course involves 2.5 days of classroom instruction, followed by an examination which must be passed. CE requirements are required to maintain the designation
Surplus lines agents pays a higher rate than an independent agent because of the additional __________ that surplus lines agents must meet, the lack of state regulation on the policies issued to clients and the more difficult nature of the risks that surplus lines insureds face.
Regulatory requirements
Exclusive Agents
Represent a single insurance company and its affiliates Sometimes called Captive Agents Work as independent contractors Most often involved with personal insurance and life insurance
With the duty of insureds to read their policies significantly reduced, how can insurance agents protect themselves from liability?
Require written confirmation from the insured that the insured has read the policy and that it includes all the coverages they requested. Send a copy of the application to the insured indicating what coverages have been requested, and as the applicant to initial or sign the application and return it Train the insurance agency staff on how to obtain client understanding of the coverages provided and the policy's terms, conditions and exclusions Ensure that the agency's file is thoroughly documented, which is always the best defense
MGAs typically pay higher rates than an independent agent because an MGA provides a broader scope of services and owes more ___________ to the insurer than an independent agent does
Responsibility
What are the key activities for an agency to mitigate E&O exposures emanating from its web presence?
Review website advertising carefully for copyright and trademark issues Post a Privacy Statement on the website Review original content for accuracy and post disclaimers Obtain written permission to use content created by other parties and be sure the source is knowledgeable Credit the author with appropriate attribution language, obtain indemnification form the author if possible, and post appropriate disclaimers Comply with state and federal data breach laws if the website collects PII, and create an SSL connection before visitors are asked to enter an ID, password, or personal information. Secure Sockets Layer which is the protocol that provides secure communications on the internet
The best defense for any type of professional liability claim, including E&O for insurance professionals, is an effective
Risk Management Program
Reinsurance Intermediaries
Seek appropriate reinsurance coverage for insurance companies Act as specialized insurance brokers for the placement of reinsurance coverage Analyze risks Design reinsurance programs Seek appropriate reinsurers
Fiduciary
Someone that has control over the assets of another
Gramm-Leach-Bliley Act of 1999 requires:
State insurance authorities to adopt requirement regarding the privacy and disclosure of personal financial information applicable to the insurance industry
What are some defense issues that must be considered?
Statute of Limitations No Damages Contributory Negligence Agency Contract Availability of Coverage at the Time of Error/Omission
Insurance agents/brokers are bound by _________ to fulfill certain duties to insurers
Statutory Law
Because MGAs have underwriting authority from insurers they are required to fulfill certain duties such as:
Strictly following the carrier's underwriting guidelines and providing an accurate account of all premiums received through this program
Some key policy Conditions include;
Subrogation Other Insurance Territory
Acquisition
The act of one corporation purchasing all or substantially all of the assets or shares of another corporation
What are the possible E&O exposures for an agency that provides website referrals to other service vendors? How can these exposures be addressed?
The agency may be exposed to negligent referral claims. In addition, if the agency's website links directly to a vendor, then the agency may be exposed to allegations of trademark infringement or unfair use of cyber marks from the vendor. The agency can address these exposures by: Obtaining written permission from the vendor or website to which the link leads Providing more than one referral for each type of service Including appropriate disclaimers about the services being provided by these vendors
Binding authority is:
The authority given to an MGA to write coverage on the insurer's behalf and to issue binders and/or policies
What happens if the allegations give rise to a valid claim, but a lawsuit has not yet been filed?
The claims specialist asks for documentation that supports the claimant's allegations. If the claimant has retained an attorney then the claims specialist works directly with the attorney. The claims specialist reviews the information provided and determines what further action to take to resolve the claim
What happens if a lawsuit results from the allegations of a claim?
The claims specialist chooses appropriate defense counsel (DC). The DC meets with the insured and begins the discovery process. The claims specialist analyzes, with the DC's help, how a judge or jury will view the agency's liability and establishes the expense, defense, and loss reserves
The key lessons to be learned from the current trend in insurance agent/broker E&O cases are:
The courts appear to be increasingly open to arguments about why special circumstances or special relationships exist that are sufficient to give rise to a duty to advise While the duty to read is no longer an impenetrable defense to failure to procure claims, it does remain a critical issue The economic loss rule appears to be in substantial retreat as a defense to negligence based E&O claims You generally cannot avoid potential personal liability for negligent conduct you participated in as an agent/broker on the grounds that you were merely working as an employee of a corporation or as an agent for a disclosed principal The courts continue to apply a claim accrual rule, for statute of limitations purposes, that protects insureds from having negligence or breach of fiduciary duty claims against agents/brokers time-barred before the insureds even know they have sustained an injury and have an opportunity to seek redress
Loss Adjustment Expense (LAE)
The funds set aside to pay the expenses the insurer incurs arising from the adjustment of the claim Includes two types of expenses: allocated, which are defense costs that are attributable to a specific claim, and unallocated adjustment expenses or overhead
Principal
The party in an agency relationship who engages an agent and grants the agent the legal authority to represent the principal in certain transactions
Subrogation
The policy provision providing that in the event of any payment under the policy the insurer will be allowed to assume the insured's rights of recovery against any other person or organization that is responsible for the loss
Viatical Settlement
The purchase of an insurance policy owned by a terminally ill person for a certain percentage of the policy's actual value
The duty of insureds to read their policies dates back at least 100 years. How did the American Building Supply v. the Petrocelli Group case address the duty of insureds to ready their policies?
The ruling in this case has reduced the duty of insureds to read their policies and subjects the producer to additional liability. If an insured requests coverage for an exposure, but the policy does not cover that exposure, even if the insured fails to read the policy and does not catch the omission, is not necessarily an absolute defense for the insurance producer. Insureds should read their policies, but they may look to the expertise of their agents regarding insurance matters
Contractual obligations are:
The terms and conditions agreed on by the parties to a contract
Interrogatories
The written questions that are served by one party to a lawsuit on another party and that must be answered under oath
What are the implications for insurance professionals of emerging exposures?
These exposures require and agent/broker to be a master of many coverages in an environment in which coverages are constantly changing and it is difficult or impossible to have extensive knowledge of all of them
For a claim to be covered under an E&O policy for insurance professionals, the claim must be brought by a ________
Third party such as a client, an insurance company, or another insurance professional
Associate in Risk Management (ARM)
Three graduate level courses in Risk Assessment, Risk Control and Risk Finance. This program is accorded nine hours graduate credit
The insurer's rights and duties in connection with the defense, investigation and settlement of claims include:
To defend any claim against the insured To conduct investigations and settlement negotiations To select the attorney to represent and defend the insured To not settle any claim without the insured's consent
What are the two primary goals of the model bill that was developed by IIABA for certificates of insurance?
To prohibit a person from issuing or requesting the issuance of an improper certificate. It gives the Dept of Insurance jurisdiction to go after third parties that make inappropriate requests to modify COIs To affirm (by statute) that certificates are not insurance policies and cannot be used to alter or modify an existing policy. The model bill requires insurers to ACORD or ISO forms, and these forms may not be modified
If an agent/broker fails to meet the applicable standard of care and if a party sustaings damages as a result then a valid claim for _________ ____________ may arise
Tort Liability
The two general types of liability under civil law are
Tort and Contract
Number of Agency Staff
Underwriters usually consider the ratio of staff to premium volume
What are some way in which agencies can meet their staffs' educational needs that arise due to the changing landscape of insurance?
Use staff meetings to provide education on technical issues Use exposure analysis checklists that provide extensive technical and underwriting information
An ordinary business relationship between agent/broker and insured can become a fiduciary relationship in the following circumstances:
When the agent/broker promises to evaluate the insured's insurance needs and provides advice or analysis in this regard When the agent/broker offers advice regarding a coverage issue When the agent/broker makes decisions about what type of coverage and how much coverage is necessary When the agent/broker guarantees the adequacy of the insurance coverage provided and the policy's limits of liability When the agent/broker fails to inform the insured of a change in the coverage provided When a long-standing professional relationship exists between the agent/broker and the client, such that the insured can reasonably rely on the agent/broker regarding coverage matters
A "special relationship" between the insurance agent/broker and the insured can be inferred in a variety of situations including:
When the insured pays the broker a consulting fee in addition to a commission When the insured relies on advice the agent/broker provided regarding a specific coverage issue When the broker represents special expertise regarding the coverage in question and the insured relies on this expertise When the insured and the agent/broker have a relationship of longstanding trust and confidence in the agent/broker regarding insurance matters (such as suggesting ideas for addressing related issues such as how to finance the insurance purchased)
When posting on social media, do agents need to be concerned about any rules and regulations that might apply?
Yes, agents must be aware of and follow their state insurance laws allow and prohibit regarding marketing and advertising. When posting online, agents need to sue the same caution they would use when doing print advertising. When online posts do not conform with insurance code, an agency can find itself in legal trouble
EPLI
covers employers from claims made by employees who have sued the company for violating their legal rights as employees
Loss reduction measures _________
involve minimizing the adverse effect or severity of a loss or incident when losses do occur
Directors & Officers Insurance
protects the directors and officers of corporations and sometimes the entity against legal judgments, settlements and related expenses resulting from allegations of wrongful acts
