Frequently Asked Questions

Insurance agents are considered professionals and are thus held to a professional standard. The most common means of protecting themselves is for insurance agents to secure an Agents E&O policy, oftentimes called malpractice insurance for an insurance agent. There are tremendous differences in the policy forms offered by the various carriers, so it is advisable to request a specimen policy with your proposal.

Most E&O policies provide coverage for your role as a P&C agent/Life & Health agent/broker, consultant, notary, etc. Covered activities most often include identifying, analyzing and evaluating your clients' needs (including work for prospective clients and public service), the selling and placing of coverage, appraising real estate in connection with a policy you're writing or placing, adjusting claims on policies written or serviced by your agency, notarizing documents and more. It is recommended that an agent review the policy form when securing coverage to ensure it covers the majority of your activities.

There can be significant differences in the exclusions among the various carriers and is recommended that an agent review this section carefully. Be sure to review any added endorsements to the basic policy form. Typically, acts deemed to be deliberate, dishonest, criminal, fraudulent or malicious are not covered. Many carriers exclude the insolvency of an insurance carrier/trust, etc., while others may provide coverage for carriers with a minimum A.M. Best rating.

Most (but not all) of the carriers writing Agents E&O coverage include coverage for the selling and servicing of Life, Accident & Health products. Securing a specimen policy is highly recommended to determine the coverage provided for this activity.

Among the more common differences is the "trigger" of coverage. Oftentimes, this is determined by whether the policy is a "claims made form" or on a "claims made and reported form." A "claims made form" is generally considered more favorable.

Other differences include the definition of "who is an insured," the offering of "full prior acts" as compared to a form with a "retro date," the applicability of the consent to settle provision should your agency be faced with a claim and found liable, and the various Extended Reporting Period options should you decide to retire from the business or sell your agency.

Since it is not possible to identify all the differences, discuss with the underwriter the benefits of their company's policy as compared to the competition.

The Utica policy is written on a claims made basis; the trigger of coverage is when your agency is aware a claim is being made against it. The trigger of some carriers is when the claim is received by the carrier.

There are a number of carriers that write this class of business. When considering a carrier, review their history/commitment of providing this coverage and the level of expertise of their Underwriting and Claims staff. Be aware of the caliber of the legal counsel they would assign should a claim be made against your agency.

Another common area of difference involves premium payment options as some carriers have attractive payment options allowing an agency to spread out the premium over the year.

A "claims made" policy essentially is defined as a policy that provides coverage for claims made during the policy period, regardless of when the error occurred. For example, the agency has a policy that goes from 1/1 – 1/1. If the agency made an error on 7/1 when they did not place a coverage requested by the client and the client suffers an uninsured loss the following year, the policy in effect when the claim is made against the agency will determine the protection, not the policy in effect when the error occurred

The main difference is that with a "claims made and reported" form, the claim is not officially considered a claim until it has been reported to the company.

A policy containing a "retroactive date" means that errors committed prior to the retro date are not covered. Since certain aspects of this coverage are somewhat limited, a premium credit is typically provided. If a policy does not contain a "retroactive date," it would be considered as providing "full prior acts" coverage.

In the event of a suit against your agency, with a "Loss and Litigation" deductible you are responsible for the defense costs/judgment up to the amount of the deductible. Contrasting this is a "Loss Only" deductible, where your agency would only pay the deductible if a claim settles or a judgment was reached against you. (Utica would pay full defense costs.)

For the E&O carrier to pay an amount on your behalf, the allegations against your agency must be covered and your agency needs to be found legally liable. These standards are determined by legal precedent and prior court decisions. In most (but not all) states, an insurance agent is not required to:

• provide an insurance policy that would cover all possible contingencies.
• advise an insured with respect to coverage options.
• advise the insured as to every exclusion contained in the policy.
• continue to advise, guide or direct a client to obtain additional coverage.

Absent an agreement to the contrary, an agent has no duty beyond what they have specifically undertaken to perform on behalf of the client. They have a duty to:

• obtain the requested coverage for their clients within a reasonable time; or
• inform their client of their inability to do so.

This is an additional period of time provided after the expiration of a claims made policy, during which valid claims will continue to be accepted by insurers. When an agency is sold or decides to retire from the business, the agency would purchase an Extended Reporting Period (commonly referred to as "tail") for a period ranging from 1-10 years. Once the "tail" is purchased, it cannot be cancelled.

Typically, an agency has a finite time period after the agency has been sold or the policy has expired to purchase the Extended Reporting Period (commonly referred to as "tail"). In many policies, 60 days is the most common. It is important that the agency consider all of the options as they are only allowed one time to make this buying decision. .

Most E&O policies contain two sets of limits. In the example of $1,000,000/$3,000,000, the $1 million limit is the amount available for any one claim against the agency. The $3 million limit is called the aggregate and is the limit available to pay for all claims against the agency in the policy year. The limits start fresh each year. Agencies must realize that they typically have one time of the year to make the decision on what limit to buy – this is either at the onset of the coverage or at the annual anniversary. Most carriers will not allow mid-term increases of policy limits.

This is an important decision you need to make at the anniversary of your policy. There is no specific formula to follow, but there are areas to consider. When evaluating your potential for a big claim, look at the type of accounts you write and your mix of business. While heavy Personal Lines typically have smaller claims, there is certainly the possibility of a big claim in this area. Commercial Lines present a wide variety of exposures and large E&O claims can result. Since E&O claims typically result from an uninsured exposure, reviewing the limits that you provide for your clients is not an approach to take. Most agencies are increasing their limits in light of some significant awards. Don't hesitate to ask your underwriter for pricing at various limit options.

In most (but not all) E&O policies, the defense costs are unlimited and are in addition to the limit of liability. As a result, the limit available for any judgment against the agency is not impaired by the defense costs.

For the last 40 years, the #1 cause of claims has been "Failure to Obtain the Proper Coverage." An example would be a client that had a loss that was not covered and brings an action against the agency alleging that they should have the proper protection to cover the claim. In 2009, the #2 cause of claims was "Failure to give proper advice," followed by "Failure to Place coverage after agreeing to do so."

Virtually any person in the agency has the potential to cause an E&O claim. Currently, approximately 50% of the claims are made by producers, with the remaining 50% made by the remaining agency staff (including CSRs, receptionists, claims staff, etc.).

There are a number of areas where a claims staff member could commit an error or omission. There are a number of E&O claims where the agency claims staff exercised judgment on whether the underlying claim was covered and, in some cases, they made the decision not to send the claim into the carrier. If it was later determined that there might be coverage, there is the strong possibility that the underlying carrier could deny the claim due to the late reporting. Another potential scenario that could result in an E&O claim is poor handling of that claim and a delay in securing the necessary documentation.

Based on the responsibilities of the receptionist in various agencies, there is definite potential for an E&O claim to result. The agency should have a procedure that does not allow the receptionist to accept funds without getting the CSR/Account Executive involved. If the receptionist were to accept funds on a policy that was previously cancelled, the client could be led to believe that they have coverage. In addition, the detail and timeliness of providing solid telephone messages is important. If the receptionist handles certificates of insurance, it is important that they follow the necessary procedures, including ensuring that the proper party executes the certificate.

If a "special circumstance" is present in the agency relationship, the insurance agent may possibly be under a heightened duty to take some sort of affirmative action, rather than just follow the instructions of the client. Although there is not a significant degree of court precedent in this area, it is generally acknowledged that a Special Relationship could be created:

• via intimate knowledge of a client's personal and business endeavors.
• where a client has multiple businesses and the agency writes all of the exposures.
• where a social relationship exists – frequent interaction.
• where the agent receives compensation for consultation beyond the premium payments.
• if the insured relies on the expertise of the agent regarding a raised question of coverage, or there is an extended course of dealing sufficient to put objectively reasonable agents on notice that their advice was being specially relied upon.

Each claim is very fact sensitive. Some of the areas that Utica might use are:

• Plaintiff failed to read their policy.
• Plaintiff failed to give accurate information to the agent.
• Plaintiff misrepresented certain facts.
• Plaintiff signed policy application containing incorrect information

Your E&O carrier will provide advice and guidance on what to do with the file. Typically, it is acceptable for an agency to organize the file, but be certain not to add, delete or alter any items in it.

When there is a possibility a problem could develop into an E&O claim, your agency should contact the E&O carrier. Most E&O policies have a provision allowing coverage to apply if the reported "incident" turns into a claim. To be safe in protecting your agency, contact the carrier. A good E&O carrier will guide you further.

Within a short time period (typically the same day), a Utica claims professional – or possibly legal counsel they have retained – will contact you to advise you further and let you know what happens next.

In the vast majority of the claims, the carrier will provide you with legal counsel to act on your behalf. This counsel will primarily be the entity the agency interacts with on the claim. If the demand from the plaintiff is more than the E&O policy limits, the carrier may advise the agency to get its own legal counsel to represent them in this area.

The 3 best suggestions are Document, Document and Document. In virtually every E&O claim, the issue of the quality of the documentation heavily determines the direction in which the claim file goes. Other areas to strongly consider are the extensive use of an Exposure Analysis Checklist (to help educate your staff as well as provide a systematic approach to identifying the exposures of your clients), hiring quality staff and being certain they receive the necessary education and training, and knowing your business partners (your carriers and your E&S wholesalers). Know the rules and expectations.

Your clients must know they cannot simply leave a message and expect that the matter is taken care of. There are numerous situations where it will be necessary for them to speak with an agency representative. So, your voicemail should guide them accordingly with a message that includes, "Please be advised that to add, delete or modify coverage, it is necessary that you speak with a licensed agency representative."

It is definitely recommended that when an agency sends out the policy to the client that it is sent with a cover letter that includes a strong request on the part of the client to read their policy. The letter should not restate the coverages.

It is important to get the actual policies to the client promptly as this will enable the client to read the coverage and determine if everything is in order. When the agency receives the policy from the carrier, be sure to review it to ensure that the coverage matches what was requested. It is then advisable to promptly send out the policy to the client. If there are multiple policies, they should be sent as they are received and reviewed – unless the policies will all be received within a matter of days.

Yes. A client, upon receipt of the insurance policy, has a duty to read and understand the policy, content, provisions, duties and exclusions. A client should contact the agent to make any additions, alterations and modifications to the policy. A client's ignorance cannot be used as an excuse for the client's failure to read/understand the policy. This may not apply in all states.

An Exposure Analysis Checklist is a tool that provides many benefits. First, it is a great resource to agency staff to assist them in better understanding the exposures of various classes of business. Most Exposure Analysis Checklists also contain a glossary of important definitions to assist in better understanding specific coverages and endorsements. They also provide correct GL and WC codes to use when completing applications.

When used properly, these checklists are a systematic approach to ensure that the necessary questions are asked of the client and all exposures are identified. They serve as a concise standard record of offering options of coverage to the customer, including the date of the offer and what the decision was. If the client refuses to purchase a specific coverage, their signature indicating this is solid documentation.

For information on how to secure these checklists, contact your Utica E&O Underwriter or visit the Utica Agents E&O Web site.

An Agency Internal Procedures Manual can be a solid document for the agency and of tremendous value. The key is that this manual must be current and must be adhered to by all members of the agency. This manual is "discoverable" by the plaintiff's attorney and if it is not being followed by some agency staff could affect the direction in which the claim develops.

This is definitely an area in which the agency should exercise caution. Unless your agency has a licensed appraiser on staff, it is recommended that the client secure the services of an appraiser to determine the proper values. Many of the carrier "approximators" greatly assist in determining a value, but they are not exact and, unless completed properly, can result in a value insufficient at the time of a claim.

Asking the client what limit they desire is strongly suggested. Explain the various unique terms (ACV, RC, co-insurance, blanket, etc.) to the client as these may be key to the selection of the proper limit.

The jury is still out on this issue. Certainly one could contend that it decreases the exposure as the communication is between the client and the service center and, if there is a problem, the carrier has assumed some responsibility. The downside is that your agency, since it is out of the communication loop, may not be aware of this discussion and thus when you receive the policies, you will be in a more difficult position to determine whether the policies/coverages are what was requested. There is also a concern about the quality of the records you will receive from the carrier if the service center contract is terminated.

There is tremendous uniqueness to business placed in the E&S marketplace. Among the differences:

• The agent has no binding authority.
• The policy forms are unique and change often. (Companies are not required to send conditional renewal notices as a means of advising their agents/customers of changes.)
• Payment terms could be different.

Many policies contain a Classification Limitation Endorsement which limits the coverage significantly. Agents need to properly explain this.

This is not as easy question to answer and may depend upon the carrier you are with and the form they have provided. Read the policy carefully. If you have any questions, contact your underwriter.

Some carriers provide insolvency coverage for carriers with a minimum A.M. Best rating of "B" or higher; some go with "B+" or higher. Also, insolvency for RRGs, RPGs, HMOs, PPOs and trusts are typically not covered. If you are placing business with any of these insurance entities, contact the underwriter to see if the exclusion can be bought back.

There is the possibility that you could be held responsible for placing your client with a company that is not able to fully handle its obligations. Best practices state that an agent should periodically monitor the financial condition of the carriers with which they place business.

This is not an easy question to answer, but it is generally recommended that agencies retain their files for at least 7 years. This should be sufficient to comply with the Statute of Limitations.

Agencies need to understand the issuance of Certificates of Insurance needs to be handled based on specific procedures. Agencies must realize that:

• A certificate of insurance is not a policy of insurance.
• A certificate does not modify or alter a policy. (Do not add an additional insured on a certificate if the policy does not reflect this coverage.)
• If issuing a certificate, coverage must be checked first.
• Do not use a certificate as an endorsement request.
• Make sure that the person signing the certificate is licensed in the state where the client is doing business.
• Use extra caution when you do not have binding authority (E&S). You should first call your E&S carrier for their advice.

Certificates of Insurance should be prepared by effective use of your agency management system.

If the request to your agency does not stipulate the limit requirement, it is advisable to show all policies / limits that would be applicable to the job in question.

To avoid confusion, it is advisable to only show those policies that would respond to a loss. If the primary policy provides pollution coverage, but the excess policy does not, the excess policy should not be noted. If the excess policy provides some coverage, but not as broad as the primary, the excess policy should be shown with notations on the limitations/exclusions.

Yes, it is critical that the person signing the certificate is licensed in the state where the client is doing business.

The main issue involves consistency of the procedure for all customers. By following up with clients on pending Notices of Cancellation, you are creating a standard the client will continue to expect from you. While it is generally recommended that an agent not follow up, if they decide to implement this procedure, it is critical to follow that procedure without exception for all customers.

The first thing to do is to contact your E&O carrier to be certain how they handle this issue. As the buyer (of the assets, not the liabilities), look to endorse your policy effective on the date of the sale for any errors committed from that date forward. There may be an additional premium for the exposure – Utica (which rates based on staff) does not charge any additional premium until the account renews. While some carriers offer some automatic short-term coverage, make sure your E&O reflects this new exposure.

Contact your E&O carrier to better understand the best way to handle this. When you sell your agency, you will probably still be responsible for liabilities moving forward. In addition, since there is the possibility of claims being made against your agency for errors committed prior to the sale, protect your agency through the purchase of an Extended Reporting Period (also called a "tail"). This "tail" (with options ranging from 1-10 years) extends the time you have protection for claims made against the agency. Act promptly as there is a limited time frame to purchase this coverage. There is a premium associated with this (see your policy for more details), so be sure to budget for this premium.

With few exceptions, the E&O policy is not assignable and thus cannot be transferred to the buyer. If the owner of the agency is selling to a long-time employee or to a sibling, the carrier may agree to the assignment, but this assignment is not official unless it is approved by the carrier.