Author: VU Faculty

New and renewal policies should be reviewed thoroughly for completeness and accuracy before delivery to the insured. However, at certain times of the year when there is a heavy backlog, this could mean that insureds get their policies months into the policy period. So, how do you balance quality with responsiveness, particularly given the importance of the insured reading his/her policy forms prior to loss?

 

"We are considering changing a long-standing agency procedure. We review new and renewal policies very thoroughly, which is very time consuming for our staff. In the past, we have always checked insurance policies prior to delivery or mailing them to the insured. At certain times of the year when there is a heavy backlog, this could mean that insureds are getting their policy halfway or even more into their policy period.

"We have seen some case law in Mississippi and other states where in court cases alleging an agent's E&O, the judge has held that even though the agent made an error or failed to advise, the insured had the policy in their possession, and had it been read, they would have discovered the problem, and thus ruled in favor of the agent. In one case, the insured wasn't even able to read, but the judge commented that he should've had his wife read it since she assisted him with other business matters.

"We are considering changing our policy so that we make every effort to review the policies within 30 days, but if that doesn't happen, we would go ahead and deliver or mail the policies with a letter stating that we would be reviewing them for accuracy, and suggesting that the insured do the same. Most of the cases we found were won by the agents on appeal, so it certainly wasn't a "slam-dunk," but still leads us to believe that changing our procedure is worth considering. in Tennessee. Do you know of any precedent in Tennessee regarding this subject, or do you have any knowledge of information that would affect our decision?"

The issue of quality vs. timeliness is an important one. I used to ask E&O seminar participants why they thought binders are typically issued for 30 days. My answer was that we used to issue policies in 30 days! With automation, it seems that the new standard is 30 weeks. Think about it...how enforceable would most contracts be if one party was not permitted to look at the contract for months after it was effective. How we can apply exclusions under policies an insured has never seen is a mystery to me. Regardless, below are some thoughts from the VU faculty.


First, I want this person as my agent! From her statements, they sure do seem to add a lot of value to their clients by reviewing the policy. And obviously preventing E&O claims is on their minds. The concern with what they are doing is creating a standard of care that may create E&O exposure. At its simplest, agents have a duty to procure insurance that is requested by the client. So, basic agency fundamentals are to make sure that the application, quote, and policy match up and reflect what the client requested. Best practices of E&O loss control would suggest cross selling additional coverages and offering increased limits. Signed declinations of coverage should be included in the clients file.

Depending on the state, customers have a responsibility to read their policy. While reviewing the policy for accuracy to what was requested is important, I do think that it is prudent for the agency to increase the speed in which they deliver policies to their client. The downside of gettting them to the client faster is that the client may uncover an error in the policy, putting the agency's professionalism in question. The upside, which to me outweights the downside, is that a future error or omission can be avoided.

One of her comments is somewhat bothersome: "we would go ahead and deliver or mail the policies with a letter stating that we would be reviewing them for accuracy, and suggesting that the insured do the same." The agency should definitely review the policy for accuracy but I would not say we are doing this at the same time. I would leave it with something like, "as the policyholder, you should review your policy to be sure it reflects that the coverages requested." There may be some better wording, but you are less overtly creating the standard of care. Let's make the lawyers dig a little deeper then the agency's letter to the client.


I want her as my agent, too.

However, what she should do is immediately deliver the policy to the insured with a warning to read it carefully and make sure it has the coverages the insured ordered. They should, however, continue in their review and, if they pick up a mistake, advise the insured of the problem.

No one is perfect and it is better to have two heads read the policy than one. You will probably get calls from the insureds pointing out problems and that will save you a great deal of time reading policies and checking them against the original order.


I also applaud this agency's commitment to service, but as a practical matter, I would get the policies off to customers quicker than it sounds like they are. I think the kind of delays they are experiencing would work against them to a jury. On the other hand, I would still put the effort into review on the most complex or important accounts. I agree with the comment above about the promise to review in the agency's cover letter. Better to outperform expectations than to build them and underperform, or create an illusional standard of care that could be judged by a jury.


I agree completely that the letter to the insured should simply instruct them to review their policy for accuracy and call with any questions.

I would add, however, that an acceptable standard for getting policies in the hands of a policyholder should be 5 working days from receipt (plus up to 5 additional days if being delivered by a producer). It's bad enough that the carriers take so long to issue them...the agency shouldn't add to the problem. I know this will seem an impossible task to many agencies, but it can be accomplished by adherence to procedures and using a workflow system that eliminates and prevents backlog.


Insureds need their policies ASAP. How can you enforce a contract the insured hasn't even seen? I'm assuming that the agency review is more that all the pieces are there rather than actually reviewing the policies themselves relative to exposures?


I participate in a Yahoo! discussion group of commercial lines agents, risk managers, etc. This was just being discussed and risk managers were saying they had policies coming up for renewal in days and still hadn't received policy forms from the prior renewal. Others (apparently with more clout) insist on policies within 30 days and claim they get them. I think the important thing is to get the documentation to the client as quickly as reasonably possible after an agency review and do a final joint review.


Let us begin with the premise that "...at its simplest, agents have a duty to procure insurance that is requested by the client."

As one involved in helping defend agents in E&O cases, and also helping sue agents in E&O cases, let me ask you to consider policy delivery in terms of both quality of service and sales opportunities. 

One of the more common problems in policy delivery is omitting a named insured or additional insured. If the insured receives the policy and sees their name omitted, or a contractual obligation to name their landlord or principal in a construction project, what do you think happens to their opinion of you as an agent?  When a loss occurs and an interest is omitted, they are ready to burn their agent at the stake, particularly when they have paid a premium for the exposure.

No policy should ever leave an agent's office without a careful check. That is a perfect way to undermine your relationship with the insured and set yourself up for an E&O suit you may lose. 

The second component is the opportunity for the agent to get the insured to disclose certain matters related to routine commercial transactions. Policy delivery is a sales opportunity.  

As an agent, I delivered policies to the insured by letter with a request for the insured to review certain components. We affirmed their instructions in the order and listed the named insured and any additional insured. We asked the insured to make sure no party at interest had been omitted. We asked about contracts, leases, and rental agreements requiring additional parties to be named. 

I asked the insured to think in terms of a catastrophic loss that could occur under this policy. What is your position of your building is destroyed, your most trusted employee cleans out your bank accounts, or you are involved in a catastrophic liability mishap. Then I provided a generic description of coverage, limits, coinsurance and other elements.

The insured's responses were excellent. They proceeded to look at leases and contracts and assess limits on their buildings and liability coverage. This practice sold additional coverage. But more importantly, these customers better understood the importance of disclosure. They were much more aware of their obligation to disclose information about their operations to see if additional coverage was in order.   

Our competitors weren't asking about contracts and leases or performing qualitative surveys to identify risk. They didn't attempt to get the insured to think in terms of a catastrophic loss. Consequently, account retention was very high. 

The quality of service sells additional insurance and improves account retention. It is also an E&O prevention tool.

Do you have an opinion on this subject? If so, let us know how you helped your client resolve the problem. Email your comments to Bill.Wilson@iiaba.net and we'll post them here. If you don't want to respond anonymously, include your name, agency, city, and state for attribution.

One part of this issue that was not discussed was the fact that policies get to the agency in a timely manner and are a mess. Many have numerous changes that are requested by the agency. Change requests take even longer than getting the policy issued from many of our companies. If change requests are relatively minor we deliver or send the policy to the insured with a copy of the change requests. That way when the endorsements are sent to our insured's with the changes, our insureds know why they have been sent. If the policies are really bad we send them back to the carrier and have them reissued properly. 35% of our Customer Service Reps time is spent getting policies corrected in commercial lines. If our carriers issued the policy correctly, our service expenses could be reduced dramatically.