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Failure to Notify an Insured of a Cancellation
Lesson: When offering Commercial Auto coverage to an entity that is owned by one or more individuals, offer the option to have those individuals listed as additional insureds on the policy.When a customer has a policy cancelled, keep the matter on a very short diary until replacement coverage is offered to the client. Never issue a certificate of insurance when there is no coverage in force. [Read Claim]
Commercial General Liability: The details on this E&O claim involved the agency procuring a CGL policy for a client that owned a motel through an MGA. Six months after policy inception, the policy was cancelled for non-payment of premium with the notice of cancellation being sent by the MGA to the agency. The agency intended to find another policy for the risk, but failed to either notify the client of the cancellation or replace the policy. In fact, months after the cancellation date, the agency produced certificates of insurance for the client indicating coverage was in force. A person fell at the motel, and the client expended $25,000 defending itself. Suit was filed against the agency and since the agent had no excuse for failing to notify its client of the cancellation, and had no excuse as to why he issued a certificate of insurance well after the policy had been cancelled, the loss was settled for $20,000.
Lesson: When a difficult client has a history of late premium payments, check with the carrier before any certificates of insurance are issued. [Read Claim]
Commercial Property: In this E&O claim, the loss occurred as a result of the insured sending a certificate of insurance to a bank for a policy that had been cancelled for non-payment of premium prior to the insured sending the certificate. The client owed some premium, and there was some confusion as to whether the amount already paid would keep the policy in force. A fire ensued, and a total of $3,000,000 -$4,000,000 in damages had been claimed. Both the client and the bank made claims. The bank claimed it would not have loaned money for a mortgage ($400,000) but for their reliance on the certificate. The client claimed that they thought the premium was paid, and relied on the certificate as evidence they had a policy in force. Utica felt that the bank's claim was owed, but not the total amount of the client's claim, as they had not paid the full premium. The claim was settled for $1,000,000.
Lesson: Copies of all correspondence sent to a client should be kept in the agency's file. [Read Claim]
Homeowners: This E&O claim involves a client's seasonal home on the Ocean that was insured by a surplus lines carrier, which did not automatically renew coverage from year to year. Near the end of each policy term, the carrier would send an “offer to renew” with a premium quote to the agent, who in turn would contact the client. As the second term expiring date approached, the carrier sent its offer to renew and a premium quote to the agent. The agent alleges a CSR forwarded the premium quote on to the client, who was a long time customer of the agency. The client denies receiving any correspondence. Sometime after the cancellation date, pipes froze and burst causing extensive water damage to the house. The CSR who allegedly sent the premium notice to the client had been fired and since there was no documentation in the agency's file to indicate the premium notice was sent to the client, the case was settled for $52,500.
Lesson: Keep an accurate accounting of all premiums deposited and withdrawn to ensure premiums are properly credited by a carrier. [Read Claim]
Homeowners: In this E&O claim, a client had paid his renewal premium in full to the agent. The agent placed the money in the agency's account and was waiting for an accounting notice from the carrier. The carrier had recently changed its billing procedure, and the agent assumed the carrier would take the money out of the account. The money was never taken and the policy was cancelled. Shortly thereafter, a fire ensued and damaged the client's home. A request was made for the carrier to provide coverage, and the carrier refused. The loss for additional living expense, contents and repairs totaling approximately $117,000 was paid and suit was filed by the agency against the carrier for recovery. The carrier eventually paid 50% of the claim.
Lesson: When switching policyholders from one carrier to another, be sure to check the list of clients that need to have policies replaced, and let no client slip through the cracks. [Read Claim]
Homeowners: In this E&O claim, the agency's contract with a carrier was terminated by the carrier with the two parties agreeing upon a mutual date that all renewals with the carrier would cease, and policies beyond that date would expire. A client's policy with a renewal date after the agreed upon date expired, and the agency failed to find a replacement carrier. This was discovered by the agent after a frozen pipes/water loss claim was reported to the agency. The client's claim was settled for $14,000.
Lesson: Be extremely careful when listing addresses on an application. [Read Claim]
Life Insurance: In this E&O claim, the agency had insured this client for many years for all of their insurance needs. The client requested the insured place "Key-Man" life policies for the benefit of the client for several key employees. The policy would pay the company if one of the client's key people died. The insured secured the coverage through a carrier and gave the carrier an initial premium payment. The address given to the carrier by the agent was the street address for the client company. All previous policies and dealings with this client listed the P.O. Box address of the client, and all correspondence in the past had gone to the P.O. Box. The premium check forwarded to the carrier had the P.O. Box listed as the address. In addition, the application listed the phone # for the client. The carrier started sending bills to the street address, and they were sent back as undeliverable. The life policy was cancelled without the agent or the client knowing - the cancellation was sent to the street address. A key employee died after the cancellation, and the policy would have paid $2,000,0000. Suit was filed against the agent and the carrier. Counsel, following discovery, opined the settlement value as to the agency was $250,000. While there were some arguments in favor of the agency, the main problem was the incorrect address given to the carrier by the agent. The carrier settled for $750,000 and the agency settled for $150,000.
Lesson: Never issue a certificate of insurance unless there is an in force policy in effect. [Read Claim]
Personal Auto: In this E&O claim, the personal lines carrier for the agency's client found out the client's car was being used for commercial purposes and decided to non-renew the policy and thus non-renewal notices were sent, including a copy to the agency. The client later claimed he never received the notice. Sometime after the notice was sent, the agent sent certificates of insurance to the client indicating coverage was in force. The client stated that he felt he had coverage because the certificates indicated he did. The client had an accident, and damaged another car. The carrier disclaimed, and the client sued the agency. The case settled for $3,500.
Lesson: React to all communication from the carrier relating to the status of coverage for a client.[Read Claim]
Workers Compensation: In this claim, the agency procured worker's compensation for a small contractor. After the policy had been in force for a month, the carrier decided to cancel the policy for underwriting reasons. Both the client and the agent denied seeing a cancellation notice and thus no replacement policy was procured. It was not until a worker was injured several months after the cancellation that it was discovered the WC policy had been cancelled. The client was forced to pay the benefits and sued the agent. A review of the agency's records revealed a fax the agent had received one month prior to the cancellation date from the carrier clearly indicating the policy was to be cancelled. Because the agency failed to act on the fax, the case was settled for $11,000.
