Author: Frederick J. Fisher, J.D., CCP 

Insurance agents, brokers, and /or producers have a lot to worry about these days. Insurance itself has become more complicated, and the standards expected of agents by the consumer continue to dramatically increase. One might think that personal lines insurance is uncomplicated and is driven solely by price. All too often, we are bombarded by advertisements about how we can save money with one insurance company over another. That mistaken approach implies that all policies are the same, which we know is not true.

Personal line agents may find that issues of coverage are just as complicated today as any commercial policy can be and sometimes even more so. The real question is how you approach the challenge, and more importantly, how you document what you did and why.

The Differences Between General Liability and Professional Liability Insurance Coverage

Many newer agents may not realize there is a big difference between general liability (GL) and professional liability (PL), and that they are not mutually exclusive. A general liability insurance policy is designed to cover bodily injury or property damage arising from an occurrence. That occurrence is usually an accident which must usually take place during the policy term (setting aside for the moment that there are GL policies written on a claims-made basis).

That seems simple enough, but GL policies also can cover medical payments and some degree of personal injury coverage such as libel and slander. What is equally true is that insurance companies are getting more targeted at denying coverage, especially for what's called an “intentional act."

Such policies generally cover accidents, and other unexpected events. But when somebody commits an intentional act, even if in defense of their own safety, they intend to hit or harm another person. Insurers may deny coverage on that very basis and they may prevail in their denial by claiming that the event was not an accident but was intended. This is even true as noted when one is trying to defend themselves from an intruder. Yet, what did you tell your customer about that?

What is Professional Liability Coverage?

Even if one is focused primarily on selling personal line coverages, another important coverage, the agent or broker selling such coverage needs professional liability insurance. Professional liability (PL) insurance is generally designed to cover the economic loss suffered by a third party because of your act, error, or omission.

Most professional liability policies do not cover property damage or bodily injury unless there is a special endorsement to cover that. That coverage is called a contingent bodily injury or property damage endorsement (conditioned on the service provided that can give rise to a BI or property damage loss). Thus, there is generally no direct coverage for bodily injury or property damage under the PL policy.

This is quite a quandary for personal lines agencies because you will sell homeowner policies with liability insurance attached to them, as well as automobile liability insurance which covers bodily injury. In the event of an act error omission in placing such coverage, your failure to do something properly would mean that your client suffers economic loss even though the underlying matter might involve bodily injury or property damage. This is rather subtle but should not be ignored.

Agents' Standard of Care Varies by State

Insurance agents involved in personal lines sales to the client usually realize how complex those coverages can be. On the same token, no doubt you attend continuing education sessions and seminars where you are told that the standard of care in most states only requires that you diligently try to obtain the coverage requested, but that you have no obligation to advise your clients or explain anything to them. That standard, however, can be elevated to a higher standard of care should you advertise your expertise, for example in high-net worth personal properties, or specialize in a particular type of coverage.

Then there can be a duty to advise. Many agents and brokers today are being told to provide no advice and do nothing other than trying to obtain the coverage requested. You have no obligation to explain anything to your client. Note that most states follow a rule that if you misrepresent coverage, you can also be held to a higher standard of care. Hence, silence can be a misrepresentation

But you could always beat the competition, sell more insurance and be more successful if you do the exact opposite. You know the policy coverages, and some coverages such as homeowner policies, rental policies, and auto policies, probably better than anyone. With only five years' experience, every agent knows more about that policy and how it functions than any consumer would ever know. Thus, even though you might never advertise, you give advice or counsel.

We all know that homeowner policies have a basic fire limit. It is possible to get a guaranteed replacement cost language, including an additional cushion of anywhere from 15 to 30% of the fire limit to help ensure there are adequate limits to rebuild the property. What about code and ordinance upgrades? That can also be part of the cost of replacement yet is a separate limit, sometimes limited to only 10% of the fire limit. 

Debris removal, sewer backup coverage, water damage and shrubbery coverage are also supplements that are automatically in many fire policies.  Why not go over those basic limits with the client and ask if they think those limits are adequate?

You might even take the extra step in getting rough ballpark quotes for higher limits for these additional items. That extra service displays excellent service that your competitors might not be doing, but your client might actually think about it and decide that the basic limit provided is not enough. They might spend a little bit more money to have more thorough coverage. That's a decision they make, and you are obligated to implement. Yet you have given no advice technically that would give rise to a higher standard of care.

Automobile insurance equally can get complex, again, when dealing with coverages on leases and/or installment sales, which would cover the immediate depreciation of the vehicles worth as soon as it drives off the lot. It's called gap coverage although it may not be available in all states.

Consider clarifying to your clients that insurance companies are now stricter regarding disclosure of any person that lives in the household under a particular age. Even if they are obviously too young to drive, if it's not disclosed that a 12-year-old is living in the residence, an insurance company can later deny coverage due to misrepresentation if they specifically asked that question. The question usually is whether there is anyone living on the premises under a specific age. It doesn't matter they may be nine or 10 years old and therefore not licensed to drive. The question is broad enough that requires an honest answer. These are the mistakes that are causing error and omission claims.

One thing is for sure is that when you do more than your competitor, you often get a bigger sale which means a higher commission.

Know the Policies You Sell

The bottom line is that you know the ins and outs of the policies you sell, or at least you should. You need not hold yourself out as an expert or specialist to provide additional quotes for higher limits, especially in the coverages that most people don't think about. That way, by giving your client more options, they must make the decision. If they decide not to accept higher limits, the offer was still made which eliminates significant error and omission claims (as long as you document that offer/rejection!).

The point is those who provide good service will always beat the competition who simply wants to be an order taker.

If you do everything possible to avoid what can go wrong, you can still be sued.  Even if you are sued, with the proper documentation, the suit will usually end quickly, and might even be considered malicious. This includes delinquency on premium payments, making sure all contingencies are obtained before binding, or even asking pertinent questions. If you don't give advice, you may win a lawsuit (assuming you aren't pressured to settle). But what's better, fighting it out in court, or not having a lawsuit at all?

Frederick Fisher, J.D., CCP is a specialist in Professional Liability. He is a Member of the Editorial Board for Agents of America,  an original Faculty Member of the  Claims College,  School of Professional Lines sponsored by the Claims & Litigation Management Association, Senior Technical Advisor for over 33 years for Professional Liability Insurance, published by the International Risk Management Institute,  and is a founding member and Past-President of PLUS.

Mr. Fisher expertise started with a 20 year career as a Professional Lines Claims Adjuster, which included qualitative claim auditing, risk management & loss control services, and acting as a TPA.

He then founded ELM insurance Brokers and served as CEO for another 20 years. During his 48 year career, he has authored over 80 Trade Journal articles and 1 book. He was elected to the PLUS Board of Trustees in 1993 and was elected President in 1997. He remains a subject matter expert for several RPLU courses. In 2019, he was the PLUS recipient of the Founders Award. He has taught or given over 150 CE classes, lectures and Webinars about Specialty Lines Insurance Issues and coverage and claim Prevention. He is an A.M. Best's recommended expert and has been testifying as an Expert witness for over 30 years. He consults regularly with Businesses concerned with "gotchya's" so prevalent in Executive Liability and Specialty Lines Insurance.

Mr. Fisher is a strong proponent of advising and providing financial security to customers and clients. 

Published: January 26, 2024

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