Author: VU Faculty

An agent asks, "From an E&O standpoint, is documentation of a reduction in coverage, removal of drivers, etc. in our agency management system enough, or do we need to have signatures on file for every little change we make to a policy? These are other than the normal waivers/signatures required by each carrier."

"From an E&O standpoint, is documentation of a reduction in coverage, removal of drivers, etc. in our agency management system enough, or do we need to have signatures on file for every little change we make to a policy? These are other than the normal waivers/signatures required by each carrier."

This is a common question. Just how far do you need to go from the standpoint of E&O loss control until you meet the point of diminishing returns? At what point must you make a business decision about the costs of loss control vs. business expenses? Below are some thoughts from the VU faculty, along with a related Q&A session.

In E&O loss control, there is usually a good/better/best answer to these types of questions. Documenting in AMS is good. Sending a written document (email, fax, letter) to the customer confirming the exact change and saving that in AMS is better. Requiring a document signed by the insured confirming the change is best. Each agency has to decide whether the effort is worth the expense and the degree of relative risk in doing good vs. better vs. best.

When I provide expert testimony in defense of agents, the biggest issue is consistency. When an agent documents something (makes a note to file concerning a decrease in coverage, for instance), she can expect to be asked, "Do you do that consistently?" In my experience as both a defendant and witness, it's more important to have a consistent pattern of detailed notes than to have signed statements. You need to be able to show, with reference to ALL of your files that it's your firm practice and procedure to document significant customer contacts.

What's "significant"? Great question. Clearly you don't have to document wishing a client a good morning if you see him on the street. Just as clearly, you'll want to document a coverage recommendation, whether accepted or rejected. Stuff that falls in between? That's a judgment call. More documentation is better, but it has to be a consistent procedure that's followed by everyone in your office. Make it as detailed as you can, consistent with your willingness and ability to be consistent.

For a reduction in coverage it is always best to get something signed by the insured stating that they understand the reduction in coverage. If the insured wants to reduce coverage, it is always best to have them send you a letter requesting the reduction. You have a business decision to make…how far can you go in requiring documentation until you have diminishing returns in the form of expenses.

There are no “little changes” when it comes to E&O. What if you get a call from an insured wanting to remove a car from an auto policy then, after deleting the vehicle, it’s driven at 70 mph into a mini-van full of Cub Scouts? I can guarantee a lawsuit against the agency. The insured can deny ever requesting the deletion or, if phone records proved a call was made, the insured could claim that’s not what he asked and someone got their inquiry confused with such a request. Or they can claim they told the CSR that the removal of the vehicle was to be effective on the first of the following month, not immediately.

If you only have a notation in the system, what evidence is that that the notation is accurate? Now you have a he said/she said situation and with a mini-van full of maimed Cub Scouts, would you like to place a bet on who the jury is going to believe or side with? If you have a letter documenting the transaction, signed by the insured confirming the details and timing, that’s the best thing to have. Whether you do that or not is a matter of weighing the risks against the costs.

There is a continuum of best practices for E&O. Ideally, the agency should hire a professional movie director and film a person-to-person conversation between an agency staffer and the insured, along with the signing of the coverage reduction acknowledgement, witnessed by a notary public. At the other end of the spectrum is making the change with no documentation. The correct business decision lies somewhere along that continuum for your agency.

The most critical thing is having however you decide to handle this as a written procedure in your agency procedures manual. Documenting the file as to the date and time of the insured’s request, the nature of the request, and the effective date and time of the request are critical, though even that is not foolproof…if you accept coverage reductions by phone, if something bad happens, all the insured has to do is deny why you’ve documented. But at least you’ve documented it and if you can show that as an “invariable practice” (one way, all the time, by everyone), your position is much stronger.

I would not accept a request to eliminate coverage over the phone. I’d prefer it in writing, at least via email. You should spell out in detail how your agency handles these things in your written procedures manual. You should at least use a uniform method that ensures that everyone in the agency is capturing the same information…who contacted the agency, when, how, what was the nature of the coverage elimination/reduction, when is the change to be effective, etc.?

It’s a good idea to follow up with a summary of this from the agency in writing by mail or email. If you have a written procedure and can prove that your agency follows the invariable practice rule via periodic file audits, then your passive documentation is going to provide a more effective defense than doing nothing.

"I wanted to get your opinion on the use of a confirmation form letter sent to all insureds as a change request is being made. We do this for E&O protection and customer service, but wonder if it is standard industry practice with the speed and efficiency now in personal lines and some commercial companies. Often by the time our letter is received by the insured, so is the endorsement."

As indicated by this and the question above, confirmation of a change request, particularly one for a coverage or limits reduction, is critical with regard to documentation. How you document and to what extent is the issue. Below is some additional commentary from the VU faculty.

Send the confirmation letters. They are invaluable.

I think that a letter arriving before, synchronized with, or even after an endorsement is an excellent thing: many insureds will not know what an endorsement is or does. The only way a letter would be detrimental is if it included something erroneous!

Some kind of confirmation should be sent...just because the insured has received the endorsement does not mean it is correct.

I think its a fine idea. While many companies are communicating more efficiently, not all of your customers get quick responses. I'd keep it up, if for anything, to keep that bond with the customer.

I'm not sure there is any standard industry practice. The issue is that you want to confirm the change with the insured to make sure it is being ordered as requested. It's not a bad idea to have the named insured(s) sign the change form also, especially if coverage is being removed. Some agents just send a copy of the change form. Some send letters. The idea is to protect your agency from E&O claims asserting that you didn't process the change as requested. Approximately 10% of E&O claims come from policy change errors.

This is a great idea and service. I asked my agent to confirm a recent change. It wasn't done. When I called, my agent did not even know me as a policyholder. When the endorsement was issued, it was wrong. The point is that suppose the agent never received my request and something had happened? It is rare to see an endorsement issued that fast. I like your idea.

Good for you. A confirmation of any change requested to an insured's policy should be sent out. It may seem redundant, however, if you are making the change(s) based on information you received. The confirmation (I suggest using a copy of the actual change request to send to the client) provides you the opportunity to say here is what we heard and here is what was requested. While it does not happen often, endorsements could come out with errors.

If your request was correct and the carrier made an error, this provides a simple check and balance process. After all, I am sure that the agency prides itself on providing excellent customer service. Customer service is often times mistaken for getting out a correct invoice instead of letting the customer know that you have a practice of making sure that you have their best interest in mind. Bottom line, keep sending the confirmation letters...it is a customer service practice that should not be overlooked.

I don't know if it's a standard practice, but it is a good one. The key to any insurance organization is constant communication with the customer.