Author: VU Faculty

An agency would like to provide additional services to valued clients. One of the suggestions was to provide a drop box for customer payments for both agency and direct bill payments assuming it would be used after hours and on weekends. From an E&O perspective, what are the risks of providing this service? Would a disclaimer on the drop box lessen the risk?

"It has been suggested that we need to consider providing additional services to our valued clients (by our valued clients). One of the suggestions was to provide a drop box for customer payments for both agency and direct bill payments assuming it would be used after hours and on weekends. From an E&O perspective, what are the risks of providing this service? Would a disclaimer about 'leaving payment not constitute an extension of coverage until it has been accepted and confirmed by a licensed agent' or something like that lessen our risk? I would greatly appreciate your thoughts on this matter. Thank you!"

As agencies often do, you are weighing a business decision against an E&O decision. So, of course, you know what we're going to say. Seriously, there are many ways to provide value-added services with less increased risk. Below are some observations of our agency management gurus.

There are many hazards and a need to immediately confirm receipt of the funds and provide advice to the client that if they do not receive confirmation by the next working day that they can conclude the payment was not received. It might be easier to give them a stamp or a free account with UPS, DHL OR FEDEX.

The risk is that no documentation exists that the payment was received. This is a huge risk. Customers can claim anything and the agency has no defense because it has no documentation. The disclaimer might help, but the agency would have to make sure all payments are given to licensed agents during normal hours, not the receptionist or the bookkeeper (unless they are licensed). This would likely decrease productivity if payments at the office occur regularly. The disclaimer would need to be different too because extension of coverage conveys the wrong message. The standard "no coverage is bound or provided..." is probably better.

Agency bill is one thing, but accepting direct bill payments at the agency is a recipe for disaster, not to mention it defeats the purpose of having people on direct bill in the first place. The agency will incur an additional expense while probably receiving lower commission. This just doesn't make good financial sense to me. Your concern about E&O is well-founded. I don't believe you could put enough disclaimers on your drop box, and certainly don't lead them to believe that the payment is received when it reaches a licensed agent...it only counts when it's received by the carrier. Without a doubt, what will happen to one of these "dine and dash" customers is that the payment will actually take longer to reach the company because of your internal processing, a policy will be canceled, and you will get the blame when their loss is not paid. The most I would do is hand them a postage stamp and point them to the nearest mailbox.

I would avoid this, particularly on direct bill accounts. It’s almost certainly inviting an E&O claim.

If the agency is accepting checks made payable to the carrier, they should be forwarded via USPS to the carrier. There is certainly an E&O exposure, particularly cancellation arising from late payment, if the insured thinks delivery to the agent is delivery to the carrier. I would ask why is the agency even considering accepting these checks? I’m not sure what kind of valuable service this would really provide to customers…why is it more convenient if they pay you rather than the insurer? If the insured is only trying to save postage, do what one agency has done and give the insured a stamped envelope addressed to the carrier so that they can put the check in it and drop it in the mail. I encourage agents to encourage their clients to make direct bill payments directly to the carrier

There are a number of value-added services agencies can provide to preferred customers. I don’t think this is one of them. Keep brainstorming!

My first reaction to this suggestion is what about the post office? You know, put a stamp on the envelope, etc. If people are making their payments after they are due, then you might have a problem. If not, why don't they send them in the mail? But, seriously, if you are going to consider a "drop box" it is very important that you have a disclaimer that payment is not considered accepted until received by the insurance company. But, then I have a question...where can you post this disclaimer so that people must read and acknowledge it before dropping their payment in the box? Therein lies the problem.