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Errors & Omissions - P&C
“What are some of the additional problems raised however by following the concept of being only an order taker? You have a customer that comes in your office who says I have a business and I need insurance. What do you recommend? How does in the insurance agent or broker therein not give advice by answering the question. Are they supposed to say
“what is it you’re worried about? We have numerous commercial policies we could provide , then we could confirm we will provide it depending on what your needs are and as you know, you must have Worker’s Comp. Perhaps you might consider should insuring your property, or consider insuring your business for liability. What are your concerns and what are your needs? “
I can’t imagine any consumer of any kind would want to do business with a broker that would fail to advise them as to what might be needed. But let’s take it a step further. I don’t know any Insurance Broker that would advertise that they have no duty to advise, guide or direct clients as to the appropriate types of insurance coverages for its business operations. But there is another reality that is ignored. That is, your average insurance agent or broker with five years experience in any line, whether it be Personal Lines, like homeowners and auto, or Commercial lines knows more about the ins and outs and extensions to coverage of the insurance policy and what may be needed by an Insured than any Insured regardless of sophistication.”
During this unprecedented time of state-mandated business shutdowns and stay-at-home orders, you cannot afford to risk errors and omissions claims against your agency. An ounce of prevention now could be worth a pound of E&O cure in the future.
6. The insurance application process now requires more attention.
There was a time, in the not too distant past, when most applications for property and casualty insurance did not require the signature of the insurance buyer. Agents routinely completed applications and underwriters readily accepted them without anyone’s signature on the application. This custom and practice is no more. Insurance applications have become more than just tools to gather underwriting information to determine the eligibility of the applicant for coverage and for premium determination purposes. The necessity for thoroughness and precision has greatly increased. It is more than appropriate and appreciated by the underwriter for the applicant to provide supplemental answers and explanations along with the standardized application. These relatively recent changes in the usual and customary practices of making an application for insurance can make the difference between having a claim covered and not having it covered. An ambiguity or misunderstanding can become an allegation of misrepresentation, which can lead to no coverage at all, rather than just a possible increase in premiums. Policy rescission and voiding policies ab initio are on the rise, along with underwriters using application information as “Warrants” thereby making the application a part of the policy (which has always been the case with life insurance policy applications).
These developments make providing accurate information to underwriters more than just important. Accurate information becomes the basis for the existence of the contract itself and adds an increased threshold to the concept of “utmost good-¬‐faith” which is the traditional basis of all insurance relationships. However, “utmost good-¬‐faith” is a two-¬‐way street. Insurance companies sometimes attempt to deny coverage based on conditions and exclusions that are not, and never were intended, appropriate to the situation or the claim at hand. Some prohibitions were intended to exclude coverage because the hazard is better transferred by another type of policy, not to be used to exclude an otherwise covered claim. This type of unfair claims settlement practice is rare and usually caused by poor attention to detail in the filing of a claim and/or inexperienced claims adjusters. The insurance buyer needs to be equally diligent and vigilant as to the accuracy of applications of insurance and in the filing of a claim under an insurance policy.
Lesson: Insurance applications are more important than they once were. Plan and prepare in a careful, thorough manner before submitting an application for insurance or filing a claim.
MANDY CONNELL: We are dealing with significant brush fires, we’re going to have a really bad fire season, we have that here in Colorado and I thought it would be timely to bring someone on to talk about what a homeowner should do before the possibility of disaster strikes because we’re in a situation if a brush fire pops up near your home when you are at work you may not be able to go home again depending on the severity of the fire and its movements and things of that nature, so what kind of guidance can you give us in terms of preparing for a natural disaster before it happens?
DAVID STEGALL: The best thing to do is it go through your mind and imagine that it’s already happening. You want to have a plan before you have to deal with it, and the Colorado authorities, the national forest service and there is a number of things, has all sorts of things on their websites as to the best way to protect your property from a physical standpoint, but the best thing to do from an insurance standpoint is to make sure you’re “insured to value” which means that you have enough insurance on your house to pay for it when it burns down and this is a serious problem, this is where more of acrimony between policyholders and insurance companies happen on any other issue, it’s the value of the dwelling and a lot of people are confused on this issue. They think “oh well the mortgage company told me I have a mortgage of a $180,000 and so that’s what I want the insurance for.
“Diminishing limits policies create a host of potential problems for insurance company claim departments. As is well known the insurance industry has long been plagued with “nuisance” claims. While in some instances insurance companies make quick settlements of nuisance claims to avoid defense cost expenditures, in others, insurers will attempt to resist such claims to avoid setting a precedent, thereby sending a message to the plaintiff’s bar that nuisance claims will not be honored. Considering that defense costs are deducted from the policy’s aggregate limits, either course of action places an insurance company in a difficult position. … “
“Directors and officers liability policies have long been issued on a “pure claims-made” basis (a
phrase this writer first coined in 1990). That is, they were written with no prior act date (also
known as a retroactive date). As a result, wrongful acts of the directors and officers dating
back to corporate formation were covered as long as the claim was first made against the insured
during the policy term. To minimize the singular risk D&O insurers were taking (i.e.,
“what probability exists that a claim will be first made against the insured during the policy
term?”), they began using a “continuity date” and/or a “prior/pending litigation exclusionary”
date that was the same as the inception date of the first policy issued. The date the insured
first obtained coverage thus became known as the “first coverage date” so the “continuity
date” could be honored at renewal. This was reinforced by a warranty within the application
for coverage stating that the insured was or was not aware of facts, incidents, or circumstances
that could give rise to a claim in the future.”