Author: VU Faculty

As an agent, you have knowledge of other agents telling their clients not to list youthful drivers. After all, the ISO PAP covers resident family members automatically whether listed or not. Is this fraud? Is it unethical? What will you do, what will you do?

 

"Lately we have been getting a lot of questions regarding whether a new youthful driver must be added to a personal auto policy. I know that companies expect them to report this and we always do. However we have learned, on a first hand basis, that another local agency is advising it's clients NOT to report youthful operators because a claim will be covered anyway. I now have names of people they have given this advice to. My question is: What should I do about this? I am considering calling the department of insurance and/or the companies involved. What do you advise?"

That an agency would do this is very disturbing. We ran this by the VU faculty and got the responses below. In addition, we'd like to poll our readers. If you have an opinion, please email Bill.Wilson@iiaba.net and we'll post your anonymous response below. Be sure to tell us if you've encountered this and your course of action.

Best to say nothing unless the advice the other broker is giving is illegal. If his advice differs with yours, you will have a competitive edge by remaining silent when his markets learn what he has done and drop him.

The agent’s conduct is unethical and unprofessional, though it may not violate statute or regulation. If the agent’s company was aware that this was a standard practice, it’s likely that the agent’s contract would be terminated.

There is LITTLE doubt in my mind that these agents are most likely violating their agency/company contracts. And, while there may be no specific statute or regulation that governs this, fraudulent conduct with regard to an insurer -- either by the agent or insured -- most likely is illegal, perhaps as an unfair trade practice at the least.
 
There is NO doubt in my mind that this is grossly unethical. You should do what your conscience dictates. As for me, if I had absolute proof of this conduct, I'd take out the garbage. There's no place in an industry based on good faith and trust for this type of behavior. It's people like this that give the entire industry a bad name.

We had a similar question not long ago:
 
Question
Due to increased automobile premiums and discussions with "neighbors," many of our insureds say they do not need to add their licensed children to the auto policy since any operator given permission to operate the vehicle is covered under the PAP by definition. As an agent, what can I say to convince these insureds that their children need to be added to the policy despite what other agents have told them?

First of all, it's the right thing to do morally. Failing to add a child as a driver to avoid a premium increase is just like shoplifting or sneaking into a movie. 

Next there is the "concealment, misrepresentation, and fraud" condition most likely in the policy. If a company wants to, they can deny a claim based on that. Sure, they have to prove it, but is it worth the risk?

Finally, while the ISO policy doesn't, I have hard copies of policies in my office that plainly say (in my words), "If there is a non-disclosed operator in the house and he/she has a claim, don't bother calling us." (paraphrased, of course)

As an agent, if you know of these operators in the house, then you have an obligation to tell the company about them. In my agency days I simply didn't give my clients the choice. I told them, "Your child has a license and I am reporting them to the company." I lost clients over it but I didn't care. I didn't need that type of customer.

Misrepresentation and dishonesty, among others. Also, what about the kid using other vehicles? Are the parents willing to lose everything they own because their kid drives his friend's car and there is no insurance or minimum limits?

My reply would be that the agent is an "agent" of the company and, as such, if they know it, the company knows it. To not report known drivers could be judged to be a misrepresentation by the agent to the company which of course could be an E&O claim and likely an insurance regulation or statutory violation. The customer refusing to disclose when asked could also be interpreted as misrepresentation under the policy and could, I guess, be grounds for the carrier to void or deny coverage, based on the legal principal that a valid contract did not exist.

But as it pertains to policy language, you've got it for undisclosed drivers, unless there is an exclusionary endorsement or demonstrable fraud, misrepresentation or concealment.

If the parent fails to disclose information about drivers on an application or renewal questionnaire, the insurer can void the policy because of concealment or misrepresentation. However, if the question is never asked, the children would be "insureds" because "family members" are covered for the ownership, maintenance or use of any vehicle.

Of course, if the insurer becomes aware of a change of exposure, they can revise the premium. If you, the agent, are aware of drivers in the household, you have an obligation to the insurer to disclose the information. Failure to do this might void your agency contract and create an E&O exposure.

As an aside, I have seen policies that exclude coverage for undisclosed drivers in the household. I would think you should just tell the parents the insurer has a right to the increased premium due to the increased exposure and you have an obligation to report it. Otherwise, honest insureds would be subsidizing their losses. I'm sure they could find an agent who would be willing to agree with them—let that agent have the business. These parents are B.O.W. clients - better off without.

To convince your clients, you can start by using the word "fraud." Other than that, you report the drivers and the insurer bills for them. If the insured refuses to pay, the insurer cancels for nonpayment. Otherwise, if it were me, I'd drop these insureds like hot potatoes and the first available opportunity.

 

What do you think? Have you ever encountered this? If so, what did you do?
If you'd like to submit your opinion or war story, email it to Bill.Wilson@iiaba.net and we'll post it anonymously here.

Had this happen in our area with 3 direct writers for the same company. What I did was send them all letters, anonymously. Informed them that as an agent for another company, if I ever saw or heard of this practice again from a potential insured and the insured told me who told them not to add the youthful, I would report the agent to their company. I also had a list of several people that had been told not to add the kids, so I did have proof. As of this time the practice has pretty well stopped from these three agents. Not only would we be better off without B.O.W. clients that do not report children, we would B.O.W. agents that go along with the practice.