E&O Basics for Personal Lines Patrick Deem, CIC Risk Management & Consulting Services

I Don’t Care What You Buy As Long As You Make Different Approach Checklists Survey Forms Manage Customer Expectations I Don’t Care What You Buy As Long As You Make An Informed Decision

Common Law duties of agents

history Agents Sought to be Considered Professionals like Accountants and Attorneys Specialization Requires Higher Standard of Care Insurance Agents Often Stand in a Fiduciary Capacity & Should be Required to Use Their Expertise with Every Client Agent Should Be Held Liable for Negligence Just as an Attorney, Architect or Any Other Professional

Degree of care - Customers Follow Instructions Act in Good Faith ...Unless Special Circumstances Create Additional Obligations Calling to Remind Them to Make a Payment Suggesting Coverage The More You Do for a Customer, The Higher the Degree of Care We All Try to Create Special Circumstances – It is What makes Us Different

Customer Expectations Customers Don’t Read Their Policies Rely on Us for Advice Agent is Blamed When Things Go Wrong Standards Help Manage Customer Expectations

Obligations to Insurance Companies Law of Agency Protect Their Interests Notify of All Material Facts Do Not Exceed Authority

Company Expectations Relationship is Different Today More Likely To Sue Agent If They Are Forced to Pay a Claim It’s Only Business

Responsibilities to other parties Negligence An Implied Contract to Procure Insurance That Benefits That Person Adding a Loss Payee, or a Mortgagee Third Party Claimant Release Signed by Customer Allowing Third Party to Sue Agent

Texas court case "An agent owes his clients the greatest possible duty. He is the one the insured looks to and relies upon. The insured looks to the agent he deals with to get the coverage he seeks, with a sound company who can and will promptly pay claims when they are due. It is his duty to keep his clients fully informed so that they can remain safely insured at all times." 

Common E&O Mistakes

Types of mistakes – Westport E&O Claims Data Procuring Coverage – 12.88% Negligent Misrepresentation – 10.54% Failure to Pay Claim – 9.0% Adequately Explain Policy – 8.48% Recommend Coverage Type – 7.71%

Line of business - Texas Homeowners - 16.4% Nationally – 11% Auto – 10.5% Nationally – 12% Why?

Texas Catastrophe Exposure Natural Disasters Uncover Errors that May Have Gone Unnoticed Desperate People Do Desperate Things Increased Litigation in Property Claims May Spread to Agents Massive numbers of Claims

Legal Authority

Types of Authority Express – Outlined in the Company Contract Implied – Necessary to Carry Out Express Authority Apparent – The Consumer Assumes You Have the Authority Based on Your Ads or Actions Issuing Binders – Implied Advertising You Represent an Insurer or a Coverage When You Don’t Saying Coverage is Bound When You don’t have the Authority to Bind it

Client Life Cycle

Westport Statistics Almost one in Five Claims Are Related to New Clients Number of Personal Lines E&O Claims in Texas is Higher than the National Average

New clients - homeowners Don’t Imply Your Quote Has the Same Coverages as the Expiring Policy Do Try to Determine The Insured’s Exposures Establish Agency Standards – Is Everyone Asking the Same Questions? Don’t Quote “Apples to Apples”

General Questions If You Lost Everything, What Would Do Want to Be Certain Your Policy Covers? Or, What Do You Want This Policy To Do?

Agency Standards – Insurance to Value Always Recommend the Dwelling be Insured 100% to Value Remind Customers that the 100% Amount is Actually Insuring Their Equity Consider Restating the Premium in Cost Per Thousand Consider a Higher Deductible $100,000 - $1,000 = $10/1000 $20,000 more insurance, plus more ALE plus more contents plus more coverage for other structures for $200

Business in the home More People are Working Remotely They May Have Employer’s Property Along With Their Own Five Different ISO Endorsements Best Option May Be a Business Policy E&O Exposure is NOT asking the question

Limitations for certain property Endorsements Available Scheduling Property is Also an Option HO 23 03 – Texas Not the Best Option Use HO 04 60 – Agreed Value Loss Settlement

Water Damage One of the Most Confusing Coverages in the HO Policy Customers Do Not Understand Why a Claim is Denied for a Slow Leak When They First Noticed it Today

Not Covered by HO Policy Constant Seepage or Leakage Water Backup Through Drains Underground Water Pressure Flood Mold Damage/Clean-up for Property Not Damaged by Water

Personal injury Should Offered to Every Customer Essential for Those Who Have Children Or Post On-Line Comments Growing Number of Lawsuits Cyberbullying

Personal auto standards

limits The Higher the Better A Ford Dealer in Austin has 100 vehicles with an MSRP in excess of $50,000 Medical Costs are Continuing to Rise Discuss a Personal Umbrella

Use of vehicles Company Cars Use in Employer’s Business “Available” Autos Uber/Lyft Delivery

Physical damage Establish Recommended Deductible Level for Most Savings Ask About Custom Equipment, Particularly for Pickup Owners Ask About Auto Rental PP 13 06 - $1,500 coverage PP 03 18 – Additional Amount

Renewal and Mid Term Servicing

Renewal Develop Schedule to Regularly Review Customers Update Information Repeat Recommendations if Necessary Discuss New Exposures (If Any)

Other Items

Avoid Jargon PIP Comprehensive Replacement Cost – Rebuilding Costs Scheduled Items Percentage Deductible

Key to effective E&O Document

Emerging Challenges The 80-20 Dilemma Failure to Cooperate Public Adjusters & Hail Litigation Lifestyle Profiling Specialized Forms

Questions?