Insurance Community University Insight on Errors & Omissions: A Lesson Waiting to Be Learned 1  The webinar will begin shortly.  There is no audio at this time.  This presentation is being recorded for your viewing pleasure at a future date.  The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right.  The PowerPoint presentation is also available under ‘Materials’.  You will receive the course number for your state near the end of class.  Use the ‘chat’ window for questions on the content.  100% Participation in Polling Questions is required to receive credit for this class. Even if you do not intend to receive credit, please participate in the polls.

Insurance Community University Welcome to your Insurance Community University All of you are currently on mute – Un-mute your own system – Telephone Option Select Telephone on your screen Dial in the PIN number so that your number becomes active – Microphone and/or Speaker Option You can use this option if you have a headset that you use with your computer 2 Audio

Insurance Community University Participation & Chat Window You will receive information from the monitor via the ‘Chat’ window. – Please locate window in the control panel Q & A is welcomed during the presentation and at the end of the presentation You will find the question box on your control panel – Write your question in that box and send it to the presenter/organizer The presenter will take those questions in the order submitted 3

Insurance Community University DOI Requirements When you see a slide with the hand up symbol, touch the “hand” icon on your control panel – Click ONCE only If you do not raise your hand, the monitor will be in contact with you in the chat box If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times 4 = Hand is down

Insurance Community University Polling Throughout the class we will be conducting periodic polls We need 100% participation on the polls The polls are intended to check participation but also to create discussion topics throughout the presentation 5

Insurance Community University Forms To Complete for CE After class ends – Return attendance form – Proctors – return your form to address address is in chat window or in sent to you today 6

Insurance Community University DOI Requirements We will file your hours with the DOI after the completion of this webinar and we have received the attendance form. You have 48 hours to return the form You will be sent a Certificate of Attendance/Completion by . Please retain this for your records for five years. 7

Insurance Community University Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc. In providing these materials, Insight assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2012 All Rights Reserved Laurie: Marjorie:

Insurance Community University Your Instructor Today Al Parizo AFIS ACSR 9

Insurance Community University Objectives Minimize E & O exposures – Procedures – Responsibility to the client, insurance carrier and compliance with regulations – Implementation of procedures and overseeing their effectiveness – Documentation – Education 10

Insurance Community University Tips on How To Avoid Errors and Omissions Don’t make mistakesDon’t forget anythingDon’t have uncovered claimsDon’t get sued Only write for clients that remember and follow what you say Write everything downKeep everything 11

Insurance Community University What Constitutes an Error or Omission An error = mistake – Incorrectly performing a task An omission = failure to perform – Omit a coverage – Fail to identify a risk – Fail to offer coverage – Fail to renew Error = 90% of E & O claims

Insurance Community University Avoiding Errors & Omissions Procedures P Responsibility R Implementation I Documentation D Education E

Insurance Community University Procedures 14

Insurance Community University Polling Ahead 15

Insurance Community University Procedure Manual Well written Says enough to provide guidance to staff Does not put in writing rules that are not or cannot be followed Must provide ….. coverage Up to date Laws and regulations change Procedure manual must change 16

Insurance Community University Procedures (Exception = E & O) Must be written Must be communicated to ALL staff Must be followed by ALL staff members Must be monitored for compliance Must be updated 17

Insurance Community University The Process & Procedures Qualify Risk Assessment Company Guidelines Sell Promises, Promises 38.58% Frequency = Producers Proposal Match Coverage Request Extra Contractual 18

Insurance Community University The Process & Procedures Application CompleteAccurate Binders Certificates Authority COI = 25% of claims Policy Match With App / Proposal Check the policy 19

Insurance Community University The Process & Procedures Endorse Change Per Request Timely Renew Within Guidelines Update and Review Cancel Proper Notice Notify “all” required 20

Insurance Community University Proposals Any difference between what’s told and what’s sold? 21

Insurance Community University Polling Ahead 22

Insurance Community University Proposals Update master proposals with specific account and policy information Include disclaimer language on any proposals Include an expiration date or time limit on all quotes and proposals 23

Insurance Community University Proposals Include coverage options – Not just a laundry list – Match with exposures – Include : “other coverages are available upon request” Prospect / insured initial accept or reject Insured MUST sign proposal – If unwilling – have insured send “authorization to bind letter 24

Insurance Community University Al’s Rule Signed or initialed and dated acceptances of proposed coverage avoids my rule of inverse ratio. The greater the financial harm, the lesser the memory any client has of discussion of the coverage. 25

Insurance Community University Proposals If not accepted, notify in writing no coverage has been placed Do NOT overstate information in the proposal When delivering the policy, include a cover letter that the policy supersedes the proposal

Insurance Community University Polling Ahead 27

Insurance Community University The Proposal Said TOO Much 28

Insurance Community University Example: The Proposal Looked Great Large account – lots of competition – All coverages listed – Definitions included The proposal defines “blanket” on the property coverage – Policy does not include definition Problem? 29

Insurance Community University Example: The Proposal Looked Great The insured suffered a loss and was able to prove that they needed more limit for the building, business personal property and business income at the loss location You had only blanketed the buildings although your proposal showed “blanket property insurance” 30

Insurance Community University Example: The Proposal Looked Great The insured understood that everything in the property section was combined Underinsured by $4,000,000 Outcome: – E & O claim – Trial – Jury found agent responsible for misrepresentation 31

Insurance Community University Applications Need to be reviewed with the client Need to be complete Need to be signed by the insured Professional liability and other “Warranty "applications must be entirely completed and signed by the insured 32

Insurance Community University Who filled it in? Broker partially completed EPLI app. Sent to insured for review and signature. Block checked “no” for knowledge of incidents that could give rise to claim. Proved not true when claim submitted. Since application is warranty, coverage denied. 33

Insurance Community University The Argument is Expensive. Insured maintained Broker prepared application and they merely followed instructions to sign where indicated. The broker countered that they asked them to review it before signing. How could the argument be avoided? Remember, defense for our E&O is subject to deductible and policy limit. 34

Insurance Community University Binders Do NOT issue binders without authority – Agency authority – Broker must receive written consent from the insurer Issue only for allowable time under law If policy number assigned, use Evidence and COI, not binder Cancellation: use same method as for issued policy

Insurance Community University Example: Binding Authority Agency Agreement authorizes binding up to $500,000 for Property in protection classes 1-5. Agent binds newly acquired location for $1,000,000 on Fri. PM with intent to call in on following Monday. 36

Insurance Community University Murphy’s Law Property burns to total loss on Sunday. Binder $1,000,000. Authority $500,000. What do you think the Insurance Company owes? What are complications for the agent and E&O policy? 37

Insurance Community University Changes Obtain authorized persons Confirm with main contact in writing If adding or deleting coverage – Confirm in writing – Notify authorized party of consequences

Insurance Community University Polling Ahead 39

Insurance Community University What’s In A Name? Married couples and their insurance policies 40

Insurance Community University What’s In A Name? Mr. Anderson calls to tell you that he and Mrs. Anderson are getting a divorce. Mr. Anderson wants you to remove her vehicle from the Personal Auto Policy and take her name off of their Homeowner’s policy as she has been out of the home now for almost a year 41

Insurance Community University What’s In A Name? You inform Mr. Anderson that you will send a Lost Policy Release for signature In the meantime, you send a request to your underwriter to obtain the changes requested and suspense the request for 30 days to follow up 42

Insurance Community University What’s In A Name? The change is received in a few days and sent to the home address Two weeks later, you get a call from Mrs. Anderson who is reporting a serious auto accident The LPR was never received 43

Insurance Community University Coverage Facts The Auto, Homeowner’s and Umbrella policies were originally written in both names The vehicle involved in the auto accident is in Mrs. Anderson’s name only Claim was denied – Vehicle no longer insured – Mrs. Anderson is no longer an insured 44

Insurance Community University Result Mrs. Anderson hired a lawyer – Suit filed against insurer for bad faith, breach of contract and violation of covenant of good faith and fair dealing The insurer responds to the suit and files a cross-complaint against the agency 45

Insurance Community University Outcome The insurance company paid, due to law of agency, full policy limits – $500,000 under the auto policy – $1,000,000 under the umbrella policy – Repair of the vehicle and rental reimbursement Two years of legal wrangling, agent’s E & O carrier settled for $1,200,000 46

Insurance Community University Renewals Typically, standard market insurers required to renew unless proper notice is sent Non-standard, non-admitted markets may require broker to order renewal All renewals should have coverage recommendations reviewed and repeated as necessary

Insurance Community University That’s It For Today Come Back Tomorrow – Same start time / Same log in MUST attend both sessions for credit! 48

Insurance Community University Welcome Back to the Errors & Omissions Class We will be starting in a few minutes 49

Insurance Community University Recap Agency procedures – Contain and control E & O risk – Read your proposals, coverage summaries, procedure manual What would a lawyer do with them? 50

Insurance Community University Polling Ahead 51

Insurance Community University You Did EVERYTHING Right! It was a BIG account 52

Insurance Community University Not Enough Coverage Old, frame, non-sprinklered, no upgrades, bad part of town – but, hey, it’s a big account! – You have spreadsheets of the property account, signed SOVs, several years of s, phone calls, proposals, coverage rejections in the file You manage to get it placed – then the insurance company bails 53

Insurance Community University Not Enough Coverage You search your admitted markets – all of them You go to a large wholesaler – they put it out to market – you finally get a taker, but… No blanket coverage for buildings, personal property or business income 54

Insurance Community University Not Enough Coverage You document and retain marketing sheets, declinations and have sent results to the client You document changes in coverage, proposal is presented and signed by the client Now they have the fire loss 55

Insurance Community University Result Underinsurance on Building, BPP and Business Income Had it been blanketed the coverage the outcome could have been different Business Income paid up to the scheduled location limit (used to blanket) 56

Insurance Community University Outcome 8 years of litigation E & O claim filed against agent Agency lost Court ruled in favor of the insured 57

Insurance Community University Certificates Do not alter the wording on a Certificate of Insurance Form Document who requested the certificate and what was requested Do not indicate a party is an “additional insured” on a certificate unless you have an endorsement Do not change the cancellation provision 58

Insurance Community University Polling Ahead 59

Insurance Community University Responsibility RegulationRelationshipsRequirements 60

Insurance Community University Define The Terms Or Who Are We, Really? Agent Broker E & S Broker / Wholesaler MGA Or a combination 61

Insurance Community University Agent / Agency Requirements Comply with terms of the agency agreement Comply with the underwriting rules such as eligibility and binding authority Comply with complete and “honest” disclosure 62

Insurance Community University Broker / Brokerage Requirements Comply with any Wholesaler agreements Comply with the underwriting rules such as eligibility and binding authority Comply with complete and “honest” disclosure 63

Insurance Community University Read Your Agreements Do you protect the wholesaler? Does the wholesaler protect you? Is it mutual? 64

Insurance Community University You Didn’t Mean To Do It But you bound the account 65

Insurance Community University The Excitement of the Sale 4pm on a Friday - you bound insurance on a new western wear store chain You deliver the binder, pick up the check and their current policy for cancellation and head home to celebrate After a great evening, you watch the late news 66

Insurance Community University The Excitement of the Sale There it is, the store you had just bound is on fire and burning to the ground You had not cancelled the current policy and now had two policies in force 67

Insurance Community University The Excitement of the Sale You get to the office in the morning – Review the file, application and binder – You notice that you said the hydrant was 500 feet from the building – wrong – The lack of immediate water contributed to the total loss – Submit the claim – Notify the other agent of the claim 68

Insurance Community University Result The insurance carrier did not treat that as a material misrepresentation Both carriers paid on a “contributory” basis What if the 500 ft distance was on a “warranty” application instead of ACORD? 69

Insurance Community University Material Misrepresentation Agent submitted ACORD application for property insurance on tire sales and service. For prior loss experience, attached the hard copy loss runs from prior carrier. As is customary, Acord app had agent’s signature and no other. 70

Insurance Community University Is this “Material”? When fire claim submitted, adjuster learned there had been earthquake damage one month prior to effective date. No EQ coverage on prior or present policies so did not show on loss runs. Coverage denied due to misrepresentation. 71

Insurance Community University What do you think? Look at wording of question on Acord Applicant Info Section.(I’ll switch screens to show you) Does it meet that standard? Since agent’s signature is the only one on the application is there a problem here? 72

Insurance Community University Relationship with Customer Responsibility to our insurance customer is based on the “relationship” that the agent/broker has with their customer. There are some “basic” standards of care 73

Insurance Community University Standard of Care Basics Obtain specifically requested coverage Follow insured’s directions to add, delete or change coverage – Confirm in writing Advise coverage changes in writing Notify cancellation or non-renewal Notify insurance company downgrade (agent) 74

Insurance Community University Special Relationship A “special” relationship is one defined by common law Generally when agent/broker performs more than a simple transaction at customer’s request “Special Relationship” imposes a higher degree of accountability 75

Insurance Community University Relationship with Customer “Establishing” a relationship – Advertising – Web Site Presence – Communication – Holding yourself out to be a risk manager or other professional 76

Insurance Community University Relationship with Customer Call on your client – During the year – 90 days prior to renewal – Meet with account manager to review needs – Send to marketing as needed – document results Renew “as is” – Dangerous and gets worse over time 77

Insurance Community University Polling Ahead 78

Insurance Community University The Client Asked You For Full Coverage And It Burned 79

Insurance Community University He Remembers it Clearly The insured had a homeowners with an agency located within three blocks of his home He had been insured for 20 years with the same carrier and always paid his premium in the same week of the year, in cash He knew this because that was when his pension check came in 80

Insurance Community University He Remembers it Clearly It was after one of the fires in San Diego when he walked into the office he asked to speak to his agent An assistant offered to help and the insured explained he was concerned with the fires and all he had heard on the news He asked the assistant to make sure he had enough coverage 81

Insurance Community University He Remembers it Clearly The assistant assured him he did A week later his house burned to the ground The insured was drastically underinsured The agency claimed they had no recollection of him coming in 82

Insurance Community University Result The insured was able to demonstrate to the court he had, in fact, been there that day He was able to describe in detail the person he spoke to Because he specifically asked for “sufficient limits” and the assistant assured him he had them, they were held responsible for the damages Loss to agency $240,000 83

Insurance Community University Regulations Compliance with regulations set forth by the Department of Insurance in the state of domicile or writing. Compliance with state laws relating to mandatory coverages for a state 84

Insurance Community University Regulations Compliance with other statutes and laws such as: – Privacy and Fair Claims Reporting – Financial Services Reform Act (Gramm- Leach-Bliley 85

Insurance Community University California Rules for MVR DMV information may only be used for the purpose for which it was approved by the department. It may not be combined with any other information. DMV information must be destroyed when it is no longer needed for the reason for which it was originally requested. The method of destruction must be in a manner that it cannot be reproduced or identified in any physical or electronic form. Security measures must be in place to prevent unauthorized access to any DMV data 86

Insurance Community University Implementation of Procedures 87

Insurance Community University Polling Ahead 88

Insurance Community University Implementation So many procedures fail because they are not actually implemented, monitored, and updated Often times the technology does not support the operation 89

Insurance Community University Implementation Set up a system for implementation with target dates Set up peer reviews to assure compliance Appoint a steering committee to review reports and update procedures 90

Insurance Community University Implementation Make certain that the goals are obtainable Make certain that the implementation creates a positive working environment Listen and learn from team members to make certain the implementation and processes are appropriate for your agency 91

Insurance Community University Documentation 92 The Old WayThe New Way

Insurance Community University Documentation The “file” must speak for itself Document in the Agency Management System and anywhere else it would be required Document in writing the offer of coverage and quotation of premium Obtain signed rejections or signed confirmations of coverage from the Insured 93

Insurance Community University Documentation Establish a written policy and procedure for your office If s are being used with the agency management system then ALL s should go through the system 94

Insurance Community University Educate 95

Insurance Community University Educate Your Clients Explain and discuss – What you are going to do and NOT do – Risk, coverage solutions, coverage gaps – Customer responsibilities 96

Insurance Community University Educate Your Clients Proposal / Coverage Summary – Use standardized template - change as needed – Clearly explain coverage and options – Explain factors affecting premiums – Add place for customer rejection (or acceptance) of offered coverage – Include authorization to bind 97

Insurance Community University Educate Your Clients Communicate with customers about available coverage to manage risk – What is your agency doing? Post coverage and risk information on website and update Inform customers – New laws and regulations – New exposures – New trends 98

Insurance Community University Professional Standards Strive always to be the best Establish a monthly review of coverage / client issues Test staff to identify training needs Establish agency goals – not just for sales but for client satisfaction 99

Insurance Community University Professional Standards Courts are demanding an increasing level of knowledge Agencies must keep up and excel This is hard to accomplish – Reduced staff – Increased demands – Supply agency tools to help 100

Insurance Community University Educate Your Staff Create method to review agency personnel knowledge of coverage nuances, differences in company forms, coverage extensions – This includes proper sales management – not just sales goals – Consultative selling creates better and longer relationships 101

Insurance Community University Education Ignorance is NOT an excuse in a court of law – You cannot work in the insurance industry if you are not educated in insurance – Learn about the industry Learn about your “customers” industry Understand the coverage being offered by each carrier you represent so you can explain it to your customers.

Insurance Community University Summary Remember the Dual Meaning of E & O and try to avoid them “Errors and Omissions” – For insurance personnel “Excitement and Opportunity” – For Attorneys 103

Insurance Community University Upcoming Classes 8/24/11 Property Valuation 9/14/11 Manufacturers - Insurance Coverages That Are Unique and Essential to Consider 9/20/11 Property Valuation 10/12/11 Construction Contract - Five Key Issues You Need to Know 104

Insurance Community University 105 Upcoming CE Classes FREE Community Class 9/19Farm Liability 10/10Directors & Officers Liability 10/18Homeowners 9/18 Wage & Hour Issues 9/20 Landscapers 10/17 Moving & Storage Join the Community TODAY at: