Author: VU Faculty

From time to time, agents may be asked to make policy changes at the request of someone other than a named insured. Most often this involves calls from auto dealerships trying to make it easy on a customer. If you get such a call, what should you do?

"My question deals with the practice of auto dealerships that call to add/change coverage to a customer's personal auto policy. I personally do not like the idea of taking a phone call from a dealership salesperson wishing, or should I say, 'demanding' to make a change to a customer's policy. We never seem to get ALL of the needed underwriting information (lienholder name and address, correct VIN, etc., etc.) and this in turn results in duplicate work for my employees when corrections need to be made to the policy.
 
"I have since instructed my employees to request a faxed copy of the 'purchase agreement' from the dealership when the dealership calls to make a change for a customer. The reason for this is because the purchase agreement is usually typed neatly and also has the correct information needed to process the change. The faxed request also gives our agency a 'written request' from the dealership to amend coverage to our customer's policy.
 
"The problem we are experiencing is that the dealership sales people are becoming rude and advising that they 'will not fax a copy of the purchase agreement' and that 'we will take the information over the phone' or they will proceed to tell our customer that we are unwilling to help them with their (customer's) change. We have tried to talk directly to our customer whenever possible, but the customer never seems to be at the dealership when they call our agency.
 
"I apologize for going on and on, but I guess my question is this: What is the proper proceedure in handling change requests made over the phone by these dealerships in order to take care of our customers and to avoid the obvious E&O exposure for doing so? Any guidance or suggestions would be appreciated. Thank you for your assistance."

First and foremost, advise any third party that the insurance policy is a valid, binding legal contract between the insurance company you represent and the named insured. Legally, that contract can be amended ONLY by the insurance company (or you as their agent) and/or the insured. The dealership nor any other third party has no legal standing to request that a contract be revised. In addition, we all know that from an E&O perspective, such revisions MUST be in writing. How do you know that the person requesting the change is who they claim to be and that the change is precisely what the insured wants or is in their best interest? This is not only a bad idea, you cannot legally comply with this request. Perhaps they'll understand that.

We ran this by our faculty and below are their comments. In addition, following those comments is an article on this subject.


The automobile dealership is not a party to the contract. They have no authority to make any change to the insured's account. But they are often a party in the transaction. Develop your own protocol for dealer calls. Be specific about information needed in order to effect any change. And institute a procedure to confirm any change with the insured within a stated period of time.


Get all the information from the dealer...year, make, model, VIN. I'd even add the new car and provide evidence of insurance. Never, never delete a car until the insured tells you to do it, then confirm it in writing.
 
Remember, the customer IS your current customer; they MAY be the future customer of a dealer. If the dealer is mad about this, "let them scratch their mad spot" as my grandmother used to say. Don't let the dealer tell you how to run your agency and how to treat your customer.


First, if you take information from the dealer you have possibly created a huge E&O exposure for the agency. I won't go into all the situations, I'm sure you know what they are. If whomever you are talking to is rude or will not allow you to get the needed information, I'd go and speak to the dealership owner and explain the situation. If there is a local association of dealers, ask to speak at one of their meetings and explain why you are unable to fully comply with their requests.

Agencies often get more accurate information from the car dealer than they get from their customers. Clients rarely seem to know who exactly they’re vehicle is financed with and never know the insurance address. Better dealers will communicate this clearly. Customers appreciate the convenience of having the dealer communicate the information for them.
 
But, whenever changes are made based on information supplied by the dealer, a confirming note should be sent to the policyholder. The note can explain the changes that have been made, insuring that the policyholder has the coverage they want so there are no misunderstandings later.

The Dangers of Making Policy Changes Based On Information From Third Parties

Making mid-term policy changes is a normal part of the insurance agency business. In fact, it is so routine that there is a danger of making ordinary, perfunctory policy changes without considering the potential E&O exposure. In particular, there is a big E&O risk when making policy changes based on information or instructions (or lack of information or instructions) from third parties.

The two E&O cases below illustrate the hazards of not verifying with insureds information or instructions which are received from third parties.

Actual case #1.  A car dealer calls the agency to report that an insured of the agency is in his office, and in the process of trading cars. The car dealer has the insured's auto ID card, with the correct policy number. In addition, the agency person can hear the insured talking in the background, so there is no reason to doubt the legitimacy of the call. The agency takes the necessary information on the new car. 

The car dealer also informs the agency that the insured is trading in his older car. Based on that, the agency also deletes the older car from the insured's auto policy.

Several days later, the insured calls the agency to report a serious accident involving the older car. It seems that during last minute negotiations with the car dealer, the insured decided against trading the older car, opting instead to sell it himself.

The agency had not yet sent the insured a copy of the Change Endorsement, and the insured denies instructing the agency to delete the older car.

Recommendation:  In this particular situation, the simplest approach would probably have been to ask to speak directly to the insured. That way, the agency would have been acting on direct instructions from the insured. The burden would then fall on the insured to countermand the original instructions to delete the older car.

Actual case #2.  An insured calls the agency to report receiving a very expensive diamond bracelet for her anniversary.  The agency informs the insured that the insurer requires an appraisal in order to schedule the jewelry.

The insured states that she will call the jeweler and have them contact the agency.

Three months later, the insured calls to report that the bracelet was stolen in a burglary. As it turns out, the jeweler never contacted the agency. Also, the agency did not suspense the item, nor do any follow up, and the CSR that originally handled the call has since left the agency. The agency manager did, however, find an entry in the insured's data base logging in the original call, so there is no doubt that the insured called the agency.

Recommendation:  In any situation in which coverage cannot go into effect until additional information is received by the agency, it is critical to inform the insured of that fact, with documented written follow up as necessary. 

Next, any pending transactions such as this must be entered into suspense, and followed up on in a timely manner. 

Lastly, it might have been wise to advise the insured to have the jeweler send the appraisal directly to her, and she could then forward it to the agency. One advantage of this approach is that the insured would certainly know whether or not the appraisal had been done by the jeweler.

Mike Edwards, CPCU, AAI
Edwards & Associates
Atlanta, GA
May 2003