Common E&O Claims and How to Avoid Them

Every financial advisor, insurance agent, or other financial services professional should have E&O insurance. E&O, or errors and omissions, protects you from claims by other people that you either did something you shouldn’t have (an error) or didn’t do something you should have (an omission). As you pay your E&O insurance bill each month or each year, you may wonder what people actually get sued for. Here are some of the most common E&O claims and, perhaps even more importantly, how you can avoid them.

Poor Investment Returns

Anyone who has ever seen a TV commercial or read a magazine ad for a financial product knows that “past performance does not indicate future results.” But that doesn’t stop people from suing for poor performance. It’s pretty common for an investor to think that they are being shortchanged, especially if the markets are up or their neighbor is getting better returns than they are.

Misrepresentation

When a financial advisor is selling a new type of investment to a client, the client often hears what they want to hear. This could mean that they don’t consider that their returns could vary from the historical performance of a stock, or that they ignore the risk that an investment could lose money. In the case of an insurance policy, the client may not hear that certain situations may not be covered.

Insufficient or Inadequate Coverage

Insurance agents frequently find themselves facing and E&O claim because the client feels they were not sold adequate coverage for their circumstances. The challenge of striking a balance between coverage and cost is one that every agent struggles with, and one that many consumers don’t understand. The least expensive policy always seems like a good idea until you have a claim.

Avoiding E&O Claims

The three most important steps you can take to avoid an E&O claim are: document, document, document. Write down everything you discuss with your clients, whether that conversation is held in person, on the phone, or via email. Keep a copy of your notes in the client’s file, whether that is on paper or electronic.

When you present or describe new products to a client, make sure you explain both the advantages and disadvantages clearly. It’s tempting to hand over a prospectus that you know the client won’t read, but that practice could come back to bite you. Outline the most important points and make sure the client understands them.

If you are recommending a product to a client and they decline to purchase it, it can be a good idea to have them sign a disclaimer. The disclaimer should describe the product and your rationale for recommending it, and indicate that the client declined to purchase it. Keep the signed disclaimer in the client’s file. This is particularly important for things like long-term care insurance. In this case, the client may feel that the coverage is not worth the cost. Years later, the client could be confined to a nursing home, paying thousands of dollars a month out of their savings. The client’s children may come to you to ask why you never sold them long-term care insurance to protect the children’s inheritance. If you can show them the signed disclaimer, you may be able to head off an E&O claim.

You Can Win in Court and Still Lose

Even if you explain and document everything, you could still be sued. If that happens, you may very well prevail in court, especially if you’ve followed the above steps to protect yourself. But even if a judge finds in your favor, you will still have spent the time and money necessary to defend yourself. Your E&O policy may protect you here as well, as most policies will cover defense costs.
When it comes to protecting yourself against E&O claims, the best defense is a good offense. Carefully explaining your recommendations, documenting all your conversations, and maintaining good client records will go a long way toward preventing claims on your errors and omissions insurance.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Is Errors & Omissions Prevention Part of Your Agency Business Plan?

Your financial services or insurance agency is in the business of protecting your clients from risk. But do you protect your agency from risk? A comprehensive risk strategy, including errors and omissions insurance, should be an integral part of your agency business plan.

Creating a Risk Strategy

The first part of your risk strategy should be prevention. The best course of action is always to prevent errors and omissions from happening in the first place. There are a few steps you can take to aid in your prevention efforts.

1. Have a process for every activity that you do on a regular basis. Create a list of tasks that you must do to bring a new client on board, develop a financial plan, complete an application for each product type that you provide, or conduct an annual client review, to name a few.
2.  Two sets of eyes are better than one. Have a second person look over your applications, financial plans, and client review notes. The second person could pick up something that the first person misses, preventing a claim by a client.
3.  Have an action plan in the case of a complaint. If a client files a complaint, whether it’s informally with you or formally with a regulatory agency, have a plan in place for what to do. The sooner you can get out in front of a complaint, the sooner you can begin to resolve it.
4.  Document everything you do. This goes for the producers in the office, like financial advisors or insurance agents, as well as administrative staff. Keep paper notes or electronic files in a contact management system, but have a record of every contact you have with every client, what was discussed, and what was decided.

Part Two: Errors and Omissions Insurance

The second part of your risk strategy should be to mitigate any losses from claims with insurance.
Errors and omissions insurance is sometimes referred to as E&O or professional liability coverage. It covers your agency for claims or lawsuits that arise because of something that you did that you shouldn’t have done, or something that you didn’t do that you should have done.

Why Do Financial Services Professionals Need E&O?

Ours is an extremely litigious society. It seems as though, every time we turn on the news, there’s another story about a lawsuit that seems to be ridiculous, but a plaintiff is awarded tens or hundreds of thousands of dollars.

If a client sues you or threatens to sue you, it’s usually because they think you caused them financial harm. You may have recommended an investment that does not perform well, causing the client to lose money. Or you may not have had a conversation with a client about long-term care insurance, only to have the client have to go to a nursing home for several years. Even if the claim is unfounded, you can still incur costs.

What does E&O Insurance Cover?

If your client files a formal complaint with the state insurance department or with FINRA, you may have to pay a fine if you cannot prove that the complaint is unfounded. If the client files a lawsuit, you may have to pay a settlement or judgement. An E&O policy can cover these costs, even if you didn’t do anything wrong.

Even if a lawsuit never gets to court, you may have to pay an attorney to defend you or to provide you with advice on how to proceed. You may also lose time from work to meet with your lawyer, give depositions, and try to negotiate with the plaintiff. All of these things cost money, and your errors and omissions policy could cover these expenses as well.

In a perfect world, there would be no unhappy clients and no need for a risk strategy to protect your firm. But given the environment in which we operate, having a comprehensive strategy to address any complaints, claims, or lawsuits makes good business sense.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

How to Avoid Gaps in E&O Coverage

Having errors and omissions coverage is important for any business. You can be sued for something you did that you shouldn’t have (an error) or for something you should have done but didn’t (an omission). You can even be sued if you haven’t done anything wrong, and that claim or lawsuit will cost you money even if it is found to be without merit.

Mind the Gap

Most E&O policies are so-called ‘Claims Made and Reported’ policies. This means that the claim must be both made by the insured and reported to the insurer within the coverage period. Many policies also state that the error or omission that the claim cites must have been made within the policy period. This is where the danger of the gap comes in.

You can have a claim that is made and reported within the policy period, but if the wrongful act occurred outside the policy period, your claim can be denied. If there is a gap in your coverage, even for as little as a day, the policy period doesn’t start until you get that new policy. This means that everything you did prior to obtaining the new policy is no longer covered.

Maintaining an E&O policy consistently is the only way to protect against this. If you or a client receives a non-renewal notice, be sure to obtain another policy prior to the expiration of the existing policy. Keep records of the application for the new policy, and copies of all policy documents, with dates of coverage. These will be needed if you have to show that you had coverage for a certain period of time.

The Risk of a Gap

Here’s an example. Jane is an insurance agent who has been in the business for 15 years. She has maintained her E&O coverage since she became an agent, and she has never had a claim. Last year, Jane went on a month-long cruise. While she was gone, her E&O insurance policy came up for renewal, but she didn’t see the bill until she came back.

When she realized her coverage had lapsed, she called her E&O broker and applied for a new policy, which went into effect as of the day she reapplied. She breathed a sigh of relief knowing that she was now covered again.

Six months later, Jane got a call from a client who had purchased a commercial liability policy from her several years ago. The client was upset because they had a claim that was not covered, and they felt that Jane should have sold them a rider that would have insured them against the claim. The client filed a complaint against Jane.

Jane submitted a claim against her E&O policy, but her claim was denied. Because she had a gap in coverage while she was on vacation, and the claim that was made against her stemmed from a policy sold before her new coverage began, the claim is not covered.

Your Clients Face the Same Risk

Keep in mind that if you sell E&O insurance, your clients face the same concerns. If a client’s E&O policy is subject to non-renewal, either because they neglected to pay the premium in a timely manner or if they have had a large claim and the carrier declines to renew them, it’s important to stay on top of it. Being able to write a policy with a new carrier in time to avoid a gap will keep your clients from suffering losses.

Keeping your E&O coverage in force at all times is critical. Avoiding gaps in your E&O coverage will ensure that any claims that are made are covered.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

How to Protect Your Agency or Firm Against Cyber Attacks

The losses resulting from cyber-attacks run into millions of dollars. What’s even more shocking is that nearly 60 percent of small businesses have to permanently close their doors after enduring a cyber-attack. In today’s world where businesses have a big online presence, it’s hard to escape cyber security threats. While threats of a very serious nature do exist, companies can take a few measures to block attacks and mitigate their risks.

Easy Ways to Protect Your Agency from Hackers:

Know Your Risks
As the frequency and scale of data breaches grow, you can’t go without having a plan of counterattack. You need to assess your risks, identify points of weakness in your system, and be aware of the latest cyber threats that are affecting businesses worldwide. It’s important to mitigate your risks and protect your networks by switching to encrypted e-mail providers and using full-disk encryption tools.

Keep Updating Your Software
Most business owners can’t fully control company computers. To curb threats, it’s important to download and update spyware and anti-virus software. Patch management is equally essential. It ensures that each and every computer remains updated with the latest patch releases from OS and application vendors.

Penetration Testing and Website Monitoring
Once you’ve completed all your preliminary measures, run vulnerability and penetration tests on your system to determine how strong they are. Vulnerability scanners protect your software throughout its lifecycle. They identify threats and help you prevent attacks.

Secure Your Hardware
Despite taking all necessary precautions, companies can still succumb to security threats when thieves walk away with electronic equipment. It’s important to secure server rooms and USB drives so your sensitive data doesn’t end up in the wrong hands. Go one step further and backup in the cloud. That way, even if your hardware is destroyed due to fires or other incidents, you’ll have the chance to access your data and resume operations without delay.

Be Prepared to Counter Attack
Make sure you have an incident management team ready to handle breaches. If you haven’t employed data breach specialists, consult a security firm to protect your company. Incident management teams are familiar with compromised systems. They know how to coordinate the recovery process and mitigate further risks.

Employee Training
Small mistakes often lead to big problems. To ensure there aren’t any loopholes in your online system, train your employees and encourage them to undertake preventive measures to block attacks. Employees must know how to handle sensitive data. They need to understand how they can easily become victims of fraud, phishing attacks, and ransomware. Make sure all employees attend security practices training at least once or twice a year.

Purchase Cyber Liability Insurance
Since data breaches have a crippling effect on most organizations, it pays to have a good cyber liability insurance policy in place. Make sure your policy is ideal for your particular company and its unique risks. Cyber liability insurance doesn’t stop malicious attacks, but it covers the hefty cost of breaches and data theft.

Now more than ever, data breaches have become a pressing issue. Without comprehensive cyber liability coverage in place, businesses risk losing everything. Cyber liability insurance covers the cost of forensics investigations, monetary losses experienced because of network downtimes, the cost of managing a crisis, legal expenses, and the cost of credit monitoring.
These are some of the most commonly reimbursed expenses. Policies can also be tailored to offer additional coverage.

Today, cyber security is a real threat to businesses of all sizes. Companies, therefore, need to invest in cybersecurity infrastructure to stay ahead of those that threaten organizations.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

5 Tips to Prevent Errors & Omissions for Your Registered Investment Advisor (RIA) Firm

Registered Investment Advisors, or RIAs, are in the business of helping their clients take appropriate risks in order to enjoy the rewards that investing can provide. By comparing the risk with the potential reward of a given investment and aligning that with a client’s investment objectives, RIAs help to grow and manage their clients’ wealth.

When you take a risk, there is always the possibility that things will not turn out as planned. In addition, everybody makes mistakes. This is why it’s important for RIAs to take steps to prevent errors (things you did that you shouldn’t have) and omissions (things you should have done that you didn’t). These five tips can help.

1. Understand your clients. Doing a thorough fact find before you make a single recommendation is critical. Collect as much information as you possibly can about their current situation and what they hope to accomplish, and document everything you find. Providing your client with a written summary of what they’ve told you and asking them to sign it will prevent many claims.

2. Do your due diligence. Before you make a recommendation to a client, make sure you understand the risks of the investment so you can explain them to the client. Then, make sure the client understands all risks involved by asking your client to explain them to you.

3. Document everything. Often, you will find that a client does not remember everything that was discussed at a meeting, particularly the parts they don’t really want to hear. In many cases, you will find that simply reviewing your notes from the meeting with the client will show them that you did, in fact, explain that alternative investments are riskier than money market funds, or that their IRA that’s invested in mutual funds will not grow as fast as the S&P 500.

4. Keep an eye on your technology. RIAs are as vulnerable to data breaches as any other organization. If your computer system is hacked, you could be liable for costs associated with any theft of personally identifiable information. Even if your data is compromised unintentionally and your clients don’t suffer any financial loss, you may be required to provide credit monitoring.

5. Address any complaints immediately. By talking openly with an unhappy client, you may be able to avoid having to go through regulatory channels to resolve the complaint. If you ignore a client complaint, you can be sure they will escalate the matter to the point where it becomes a legal or regulatory issue.

The regulatory landscape for RIAs is becoming more and more demanding, and clients know this. They know that they have the right and the ability to take action if they feel they have been treated unfairly. By maintaining good client relationships, ensuring transparency in all your dealings, and addressing any issues that clients raise promptly, you may be able to prevent your business from being the target of an E&O claim. Sometimes, however, no matter how diligent you are, you may find yourself the subject of a claim. Be sure that you’re adequately insured.

Regulatory requirements do not always indicate that RIAs need E&O insurance. However, any RIA who doesn’t maintain it is playing with fire. Some RIAs will try to do a cost benefit analysis to justify the premium. But taking the total amount that all RIAs pay in claims and dividing by the number of firms is flawed logic. You need to protect yourself against the largest claim, not the average claim, in order to avoid a catastrophic loss.

Preventing a claim in the first place is always preferable from having to defend yourself against one. But if you do find that someone has made a claim against you, having insurance to fall back on will give you peace of mind.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied. 

The Challenges of Multi-Cultural Clients

Dealing with the differing cultures in our communities provides great opportunities for the insurance agent, but presents a number of dangers from an E&O perspective. Insurance carrier studies have confirmed that the vast majority of claims against agents result from either a lack of communication or misunderstanding between the agent and the client. The potential liability exposure related to miscommunication is exacerbated if a language barrier exists.

The primary goal for an agent in such situations is to find a means to effectively communicate with his customer in order to understand their insurance exposures, what coverage they are requesting, and make certain that they understand both the product and the process. Just as in any other client communication, documentation is extremely important.

It is preferable that all written material be in English to avoid potential misunderstanding related to differences in dialects within a language. Many agencies doing business in ethnically diverse areas maintain multi lingual staff to assist in communicating with members of those ethnic groups prevalent in the community. In other situations the customer maybe encouraged to enlist an English speaking adult friend or relative to act as a translator to aid in ensuring that both agent and customer clearly understand the issues and answers. Non-English speakers as well as interpreters may have particular difficulty understanding terminology unique to the insurance industry and the agent must take the necessary time to explain the process, application questions and coverages, and look for any signs that either the customer or the interpreter is confused or does not understand the information being conveyed or requested.

Using an interpreter can be extremely helpful in asking those questions necessary to ascertaining the coverages required and obtaining answers to the application questions. However, the application itself should always be completed by agency staff. The customer, through the interpreter, should then be asked to review the application to ensure that the information supplied has been correctly entered. Contact information for the interpreter should be maintained in the client file to help in resolving any issues that come up during the client relationship.  Always document the items discussed with the client through the interpreter.

Taking the time to implement the steps outlined above will help mitigate the potential E&O exposures and maximizing the potential benefits of establishing a multi-cultural agency.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

E&O Prevention

Take a look at the below claim scenario to see how you may prevent errors & omissions while conducting business:

Claim scenario: A restaurant and bar owner asked his agent to replace his liability insurance coverage which was being non-renewed by its current carrier. The agent located a market and replaced the coverage for the insured. Unbeknownst to the agent, the policy that he placed contained an assault and battery exclusion. The insured’s prior policy did not contain such an exclusion but the agent never requested a copy of the policy. The insured requested that the agent get the same or better coverage than the expiring coverage provided. The agent represented that the replacement coverage matched the prior coverage but he never reviewed the policy and never pointed out this exclusion. Later that year, the insured’s bartender was involved in a physical altercation with a patron. The patron was injured by the bartender and, as a result, the insured was sued over the incident. When the insured reported the claim, it was denied based on the assault and battery exclusion on the policy. As a result, the insured was surprised to learn there was no coverage for this claim and thus brought a claim against his agent for failing to provide adequate coverage.

Loss prevention tip: When a client requests the “same” coverage as his or her current policy, be sure to thoroughly review the current policy and ensure that the replacement coverage adequately matches the coverage being asked for by the client.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Your Files Can Help - or Hurt

Will your files help you or hurt you when it comes to E&O? Take a look at the below claim scenario and risk management tip to learn how you may protect yourself with regards to your files.

Claim Scenario: An agency's customer claimed the agency had committed an error in handling his insurance and retained an attorney who subpoenaed "any and all" of the agency's customer files for review. The attorney's goal was to determine whether there were discrepancies in the manner in which the agency handled their client's insurance needs. The agency had no written procedures regarding file handling or business processing, and no formal internal quality control or auditing program to monitor adherence to such procedures. Without formal procedures in place the agency was unable to effectively object to the breadth of the subpoena, resulting in over 1000 customer files being turned over to the claimant's attorney. After reviewing and comparing those files to the claimant's, the attorney discovered multiple inconsistencies in file documentation including the manner in which coverages were offered, written, and documented. As a result he was able to present a compelling case that the agency had discriminated against and breached its duty to the client at trial, resulting in a large adverse verdict against the agent.

Risk Management Tip: Your agency's file documentation is often its first and best line of defense in the event of a claim. This loss could have been avoided had the agency developed, implemented and monitored an internal quality control (QC) program including office procedures regarding documentation of the processing of business. QC Procedures should cover subjects including binders and certificates of insurance, records management and disposal, telephone, claims handling, mail and e-mail, and cash management to name a few. Your quality control program should also include standardized form letters  and in-house forms regularly used by the agency. Even with such procedures in place, the agency must be able to prove that they are followed consistently by all employees and that compliance is monitored on a regular basis.

A formal quality control program including a written office procedure manual should be one of the cornerstones of your agency's risk management program.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Premium Financing Woes

Claim Scenario:

John and Jane Doe, an extremely wealthy couple, met with their insurance agent who advised that $10 million in life insurance coverage would be appropriate given their financial status and estate planning needs. He recommended a whole life policy that earned dividends and accumulated cash value. Given the couple's age and health concerns, annual premiums for the policy were determined to be approximately $275,000.When the Does advised the agent that they were unable to pay the premiums out of pocket and unwilling to liquidate substantial portions of their investment portfolio to do so he recommended premium financing. Under the plan he outlined for the Does, premiums for the first few years could be borrowed, with future premiums paid by accumulated cash values of the policy. The agent backed up his recommendation with a professional presentation provided by the premium financing company, and the Does agreed to finance the premiums for the first five years of the policy.

Five years later the Does, having incurred loans of over $1.6 million plus interest, discovered that the policy's earned dividends were insufficient to pay the premiums on an ongoing basis, and filed claims against the agent, the carrier, and the financing company. Although the agent responded that he had not guaranteed any level of accumulated cash value or that it would be sufficient to pay premiums after five years he was able to produce no written documentation other than e-mails characterizing the financing scheme as "solid" and "extremely reliable".

Risk Management Tips:

Claims related to premium financing generally involve relatively large amounts as the involved policies have high limits and premiums to match. In many cases collateral is aggressively sought by the financing company and often ultimately lost. Given the foregoing, full disclosure of the risks and mechanics of the transaction must be made to the client and comprehensive documentation provided and maintained by the agent. Agents should consider requesting involvement of the client's own legal counsel to ensure that the financing structure is proper and understood by the clients. Doing so will provide additional protection to the agent in the event of a claim. Bear in mind that in many jurisdictions promoting premium financing may be considered as creating a special or fiduciary relationship with the client which may in turn serve to elevate the agent’s professional standard of care and disclosure.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Beware Ransomware

Ransomware is malware that denies users access to their own device. It is increasingly showing up on mobile devices. Mobile ransomware infects the victim's phone by blocking access to apps while displaying a message explaining how to pay the demanded ransom. Various forms can lock the keys and replace the home screen with fraudulent official warnings which state that the ransomware recipient broke the law by visiting illegal websites. The ransomware shows screenshots from the illegal website and the user's browser history, and demands a $500 fine. Attackers are indiscriminate in selecting victims, who simply need to click on the wrong link on a smartphone to be infected.

To defend your agency's devices from ransomware and other malware:

• Password protect devices.

• Update software regularly. Malware is constantly being modified and improved. Outdated software simply won't stand up to more advanced malware.

• Avoid questionable downloads. If you don't trust the source of a download, don't download it. Otherwise, you're inviting an attack. Beware of app reviews; many fake ones seek to give you confidence in malicious apps.

• Employ mobile security. You may have the latest spyware and virus blockers on your agency desktops, but do employees have the same on their tablets, phones, and other portable electronics? If not, once connected to your network, these devices may leave it vulnerable to breaches. Establish mobile and employee owned device policies to make certain employees don't create unguarded network access points.

• Don't allow employees to access sensitive data through unsecured connections, such as a local fast-food franchise's or coffee shop's free Wi-Fi. Public Wi-Fi hotspots are especially prone to malware.

• Use encryption software. Unencrypted company devices can be "mined" for company data and information for sale to competitors and provide easy access into company files and email. Enforce encryption policies to mitigate this risk.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Responding to a Carrier Rating Drop

You may have followed all best practices of the industry in placing business for your clients in markets approved by your agency's selection protocol in order to protect the agency from potential claims and the client from loss. You followed up by monitoring the ratings and activities of the carriers involved according to agency guidelines. In short, you've done everything right. But what do you do when one of those carriers suffers a rating downgrade? The following tips may help you to provide further service to your clients while minimizing potential liability exposure to your agency:

1.     Immediately notify clients of the downgrade and answer any questions they may have to the best of your ability.

2.     Continue to keep your clients apprised of developments - use carrier      approved notices/forms when available.

3.     If a potential solvency issue exists make your clients aware of available guarantee fund protection.

4.     Discuss with your clients their options including implications of a coverage move either at mid-term or expiration and potential impacts on premium involved. Allow the client to make client to make the decision as to which options to exercise and confirm in writing.

5.     Be consistent - treat all clients in the same manner and document all client communications and agency actions taken in writing.

6.     Consult with legal counsel regarding agency actions and content of client communications.

7.     Maintain a positive relationship with the carrier. Avoid negative references and review your contract with the carrier to determine any duties or restrictions you may be subject to in regard to the downgrade. 

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

You Say Tomato, I Say Tomato

Agents selling life insurance coverage must always focus on risk management and pay attention to details to avoid simple errors which could have catastrophic results. One of the most common errors involves client communication, or the lack thereof. Unrealistic and unrealized client expectations are contributing factors in the majority of professional liability claims in any discipline, and particularly so in those involving insurance agents and brokers. Unrealistic expectations are most often caused by simple communication failures between the agent and his client. Those failures need not happen, and can be avoided by consistently employing a few basic strategies.

Never overestimate the client's knowledge of the services you intend to provide, regardless of the client's level of sophistication. It is your responsibility from the outset of the client relationship to clearly explain exactly what services you will perform and - equally important - those you won't. Carefully explain all coverages to your clients as well as any exclusions to those coverages. Never indicate to a client that you will place a policy until you have confirmed that it can be placed - if you don't know, say so. In advising clients always remain within your own area of expertise - do not attempt to render legal, accounting or any other type of advice. Make sure that communication is two way - have your client clearly explain has or her desires, needs and expectations Never volunteer information regarding your errors and omissions coverage. Clear communication can help ensure that you clients have the information and expectations they need to understand your responsibilities and liabilities regarding your scope of services.

Even when verbal communication is frequent, memory failure and misunderstandings often can result in disputes and litigation. For most of us, memory does not improve with the passage of time, and memory lapse tends to be aggravated when large sums of money may be at stake. Few of us remember all the details of telephone calls, group teleconferences, or face to face conversations shortly after they take place. Accordingly, agents should confirm verbal communications in writing, especially if they involve an agreement or commitment, notification, or a request for action or follow-up. Remember that voicemails pose a great risk for miscommunication and should be followed up in writing as to any points of significance (i.e. agreements, notification, request for action), correction or clarification.

Agents should also be aware that e-mail in the context of client communication is never actually casual of informal. From a legal standpoint e-mails are given the same standing as any other formal written document, are never totally deleted, and always form a key component of the client record for litigation purposes. For these reasons every agency should have a formal, mandatory e-mail communication policy in place requiring appropriate content, transmittal to all interested parties, and filing of hard copies of e-mails in client files. Use the "return receipt' e-mail function to confirm that your message has been received and opened. Follow up promptly if it appears that your message has been ignored, misdirected or lost. Texts to clients should be only used for the limited purpose of scheduling and requests for communication, and never for the purpose of transmitting substantive content.

Clear communication is a vital key to a successful and profitable client relationship void of disputes and claims. Effective communication should be a core competency of any agency that strives to understand and meet the needs of its clients. With expectations properly communicated, documented and verified any issues can be addressed quickly, calmly and effectively with minimal negative impact on time, costs and relationships.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Avoid Simple Mistakes That Can Lead to Liability

Insurance industry studies indicate that approximately 5% of E&O claims involve the sales or administration of life insurance. While they are relatively rare, when those claims occur they can be significant. The majority of claims filed involve common errors that are easy to avoid with proper attention to detail and documentation.

The most common mistake made by financial representatives is the failure to administer the application process diligently. They often fail to exercise due care in assisting their clients to answer the questions on the application - i.e. they fail to make sure that each question is answered correctly and accurately. Failure to do so may result in an E&O claim by the intended beneficiary if payment is denied by the carrier.

Financial representatives also often fail to recognize answers that do not correctly represent a client's health status. Questions such as "Have you ever been diagnosed with an eye, ear, nose or throat disorder?" are often answered in the negative by "ordinarily healthy" applicants. A long list of "no" answers should raise an alarm if the financial representative is paying attention. Often both the representative and the client fail to consider that simple issues such as a prescription for glasses or allergy treatment are relevant from the carrier’s perspective.

Another common mistake is the failure to maintain documentation of all communication with the client. For every meeting with a client a record should be made of who said what and what they the parties agreed to do. Financial representatives are often targeted for lawsuits by beneficiaries whose claims are denied, and must be prepared to defend themselves with proper documentation.

While you can be sued by anyone, you can make it harder for them to make a case against you by attention to detail and proper documentation.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

E&O Prevention for Insurance Agents & Agencies

Many people today are glad to bring a lawsuit against a company for the smallest reason or for what they think is a legitimate reason. If you or your agency provides them with a reason, even casually, you may find yourself in court. Errors and Omissions, or E&O prevention is not an option for insurance agents and agencies; it is an essential for solid risk management. Here are some steps to take to reduce E&O causing problems.

Inform Each Staff Member
Effective prevention starts when insurance agents become especially aware of what can lead to an E&O. Being educated about what might trigger an E&O lawsuit is the first step in being able to avoid them. Not only should the agents be informed about possible trigger events, but also the secretaries and anyone else in the office that deals with the public or with clients.

Develop Policy Procedure Manuals
Make sure everyone in the office is on the same page for preventing E&O by putting all procedures in writing. Then, ensure that each staff member and all agents are familiar with those practices, and notified immediately when updates or new practices are to be implemented.

Evaluating the Needs of Clients
Agents need to ensure that they take time to learn about all of the client's assets so that the right amount of risk management can be determined. More than half of the E&O cases stem from a failure to provide the right amount of coverage. This problem can be eliminated if agents would take more time to understand the client’s needs and write them down.

Document Everything
Another effective way to help reduce claims of E&O is to be sure to document everything that takes place between clients, agents, and staff. Information needs to include time and date of the call, the names of client and agent, overall nature of the conversation, action needed, and a note of completion when the desired actions are taken. If a lawsuit should arise, the lawyer will ask for a copy of all documentation about the client.

If a particular coverage is suggested and then declined, get the client to sign a statement to that effect. Have the spouse verify it, as well.

Add electronic documentation to the office, too. Put everything on the computer so that it can be easily found again when needed.

E&O Seminars
Attend E&O risk management seminars. This is not only for agents but also for staff members. Seminars are a good way to keep everyone informed and reminded of the potential problems that can lead to an E&O lawsuit. Instructors can provide reinforcement to the agency's need to stay alert to potential problems.

Encourage Clients to Verify Policy Contents
Once a policy is delivered to a client, have them review it and confirm in writing that it is what they wanted. If there are any questions, have them contact the agent immediately for clarification.

Detail Property Carefully When Involved
When property is involved, be sure to physically drive by and look at it. Do not take a client's word for its condition. This is especially true when dealing with another insurance company and they want an evaluation. Agents need to cover themselves by carefully describing the property and making sure that they add in any problems seen. A claim later may be paid by an insurer, but they may turn around and sue the agent if the information given is in any way misleading.

Be Careful about Binding
If you do not have the authority to bind, make this clear to the client. Do not let them think they are covered if they are not. This has led to many lawsuits in the past.

Problems with E&O can often be prevented by being careful and following established rules in the office and in the field. It is true that having better information is safer. Proper training and keeping up with new recommendations given in seminars is a great way to stay ahead of potential legal problems.


All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Advantages to Working with a Broker that Specializes in Professional Liability Insurance

As an insurance agent, you spend your day helping others gain the necessary coverage to protect them in their daily business. However, how often do you think about the insurance you need for yourself? Professional liability insurance should be a key component of your own insurance coverage mix.

In the event that a former client should sue you, it is important that you are fully protected to save your livelihood and potentially that of your company. More commonly known as error and omissions insurance (E&O), professional liability insurance fills in the gaps not covered by other insurance policies you may have. In choosing who to purchase your E&O insurance from, you'll have a number of factors to consider. An insurance broker who specializes in professional liability insurance will likely be your best source of information on the topic, and here's why:

Customized Group Programs

If you work for a larger insurance company, it is likely that a professional liability insurance broker can develop a unique plan that is tailored to your company's needs. Rather than opting for a one-size-fits-all approach, the insurance broker can evaluate the unique requirements of your organization so that you and your fellow employees can get the coverage they need without paying extra for coverage that they don't.

This will save both you and your company time and money in choosing which insurance coverage you need, simplifying the process for future employees wishing to obtain adequate E&O coverage. Another added benefit of group purchasing is that your company can often save money by bundling multiple policies together for a discounted rate. This helps everyone in your organization to cut down on the costs for professional liability insurance coverage.

Competitive Advantages

In dealing with a broker who specializes in professional liability insurance, it is likely that the broker has cultivated successful working relationships with a variety of carriers, giving you the option to choose which carrier offers the best policy to meet your needs. In building those relationships, your broker can often negotiate lower rates, thanks to his ongoing work with those companies.

It is a mutually beneficial relationship for both the broker and the insurance company, so it is in the insurance company's best interest to keep the broker satisfied. That way, he will be more likely to send them new clients in the future. This benefits you because you can take advantage of that relationship to keep your cost down as well. If you were to contact the insurance company directly, you would not have as much bargaining power in negotiating better rates for yourself. Your broker can also guide you in evaluating the various insurance organizations to ensure that you are getting the best policy to meet your needs.

Additional Services

Through working with a specialty broker rather than going it alone, you may be able to gain access to additional services that the broker offers. This can include things like administration, claims handling and other services related to your policy. Because the broker specializes in the professional liability insurance area, she will have a better handle on dealing with the insurance company than you will. After all, it is the core of her business and something that she deals with on a daily basis. This can save you a lot of time and hassle in the event that you ever do need to file a claim. The broker can streamline the process for you, freeing you up to continue handling your day-to-day business duties, rather than having to focus on dealing with the insurance company yourself.

These are just a few of the key benefits to working with an experienced professional liability insurance broker. Before purchasing any new insurance policy, it is always best to conduct your own independent research to ensure that you understand the process and know exactly what you are getting. The more you know, the better your broker will be able to assist you in obtaining the best policy for your needs.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Understanding the Difference Between a Broker, Third-Party Administrator (TPA) and Managing General Agency (MGA)

In the professional liability insurance realm, there are a lot of nuances in terminology that you need to be aware of. Understanding the difference between the various parties that work in insurance can help you in choosing who to work with and what is best for you. Here, we'll explain the difference between brokers, TPAs and MGAs, and what each can do for your insurance business.

Insurance Brokers

An insurance broker acts as an intermediary between the client and the insurance company. In this role, the broker serves as an advocate for the client in contracting with a particular professional liability insurance company. A broker may maintain relationships with a variety of insurance companies but is not employed by any of them. In dealing with insurance companies, the broker keeps the client's interests top of mind, making the process as streamlined as possible for the client. The broker advocates on behalf of the client to help them achieve the appropriate coverage for their needs and within their budget. Some brokers assist clients with filing claims as well.

Third-Party Administrators (TPAs)

A TPA is employed by an insurance company, typically to assist with risk management and the handling of claims. In the wake of the recession, many insurance companies were forced to cut back on their staff levels, and claims and risk management were some of the hardest hit. Rather than employing more staffers, many insurance companies turned to TPAs to help expedite their claims processing efforts. TPAs usually have expertise in one or more areas, like professional liability insurance, enabling them to process claims in an efficient and expedient manner, freeing up the insurance company to focus its efforts in other areas, rather than on claims.

Managing General Agencies (MGAs)

An MGA is similar to an insurance broker but is a bit more specialized. The MGA is granted underwriting power by an insurance company, whereas regular brokers do not have this privilege. Thus, an MGA has more power than a broker and can even assign new agents or brokers in retail insurance offices.
MGAs typically specialize in particular areas of insurance, like professional liability insurance. This takes the pressure off the insurance company to need to have on staff an expert in each type of insurance they offer or to have to spend time and money to train someone new. Instead, they contract with an MGA to handle more obscure areas of insurance.

Benefits of These Roles

Some companies are able to act in all of these roles in different scenarios. For your insurance business, it can be a great help to employ these services. Insurance is a somewhat complex topic with a lot of nuance and detail, so it helps to have people who understand these nuances and specialize in certain areas. Rather than having to learn every little detail yourself, you can free yourself up to focus on other areas of running your business, leaving it to the experts to handle more detailed tasks.

It is important to understand exactly what each of these entities offers before getting into a contract with one or all of them. Ask plenty of questions to get a better understanding of what they can and cannot offer you and your business. Make sure that you fully understand what the scope and limits of their responsibilities will be, as this can vary from case to case. It is important to do ample research in advance to ensure that you have the full picture. This will better enable you to make an educated decision about what is right for your business and your needs.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Minimizing E&O Risk for Insurance Agents

As an insurance agent, you spend much of your work day putting together insurance plans for your clients to make sure that they have the proper coverage to protect them in the event of any incidents. However, you need to ensure that you have ample coverage for yourself as well to protect you and your company from any errors and omissions claims, which can result in debilitating costs for your company if not covered under your regular insurance policy.
Having professional liability insurance to cover E&O claims provides an extra layer of protection for you and your organization. In addition to having this additional coverage, there are a number of practices you should employ to help minimize the risk of incurring such claims in the first place:

Follow Correct Procedures

First of all, make sure that you fully understand the intricate details of all of the insurance options your company offers and the extents and limitations of each policy. You need to know exactly what you are providing to your clients so that you can make the best possible recommendations for their individual needs.
Be sure to follow all applicable regulations, and always employ ethical business practices. If you are unsure whether a particular action is ethical, it is usually best to err on the side of caution until you can be completely sure. When completing application forms for your clients, always make sure that each question is answered fully and accurately to prevent future complications due to misrepresented information.

Communicate with Your Clients

Throughout the entire process of developing an insurance coverage plan for a client, take the time to explain everything to the client in detail. You want to ensure that your client fully understands the products that they are getting and the scope of coverage. If a client chooses to decline a particular aspect of coverage, impress upon them the potential risks of not obtaining that coverage and what it could mean for them in the future. The last thing you want is for a client to file an E&O claim against you simply because you did not make them aware of potential complications with their policies. In the event that you must switch your client over to a different insurance carrier for a particular policy, be sure to alert him or her to any changes in levels of coverage, deductibles, or other pertinent information.

Document Everything

As you work with your clients, both during the application process and in subsequent conversations regarding policy changes or claims, keep a record of everything that was discussed and the results of those conversations. Any time a client elects to make a change to a policy or remove certain coverage options, get it in writing with the client's signature. Having this paper trail can greatly reduce your liability in E&O claims because you will be able to prove that you provided the client with all of the information needed for them to make an educated decision and that the changes you made to the policy were at the client's direction. While it is unlikely that you will ever need most of this documentation in the future, it is best to keep track of everything just in case there is ever an issue.
By following these tips, you can greatly reduce your risk of E&O claims in your insurance practice. However, it is important to remember that we are all human, and even with the most careful application of these practices, mistakes can still happen. Any time there is a discrepancy, report it to your E&O insurance provider immediately. The faster you take action, the better your insurance company will be able to help you weather the storm.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.

Understanding Professional Liability Insurance for Insurance Agents

As an insurance professional, you understand the critical importance of comprehensive coverage. After all, it’s your job to showcase the importance of coverage for the insurance you offer to your clients and customers.

Why wouldn’t you apply this same principle to your own business?

Professional liability insurance is a critical element to every agent's ongoing practice. Without a solid liability plan in place, you risk significant damages in the event of a negligence claim or civil lawsuit award from a client. Accordingly, it is critically important to understand all the aspects of professional liability insurance for insurance agents – and get yourself sufficiently covered.

The Nuts-and-Bolts of Professional Liability

At its heart, professional liability insurance is a service for the protection of agents and brokers. This protection helps keep you from being responsible for all costs and damages from defending yourself from a negligence claim or bearing all the costs of a civil lawsuit award.
This type of coverage primarily protects you when it comes to allegations or lawsuits about your failure to perform a duty or service for policyholders working through you. These include any of the following areas:

• Not Performing (or Improperly Performing) a Service for a Client
• Financial Losses Caused by a Product/Service Sold to a Client
• Errors or Omissions in a Policy, Product, or Service Sold to a Client

These elements are potential areas for legal recourse from a client. If you’re not protected, you could face dire financial consequences and even the loss of your business.

Is General Liability Okay?

For the most part, professional liability insurance is required by law to operate as an agent or broker. However, this may not always be the case – and you may not realize the importance of having it.
If you think you only need general liability insurance, then you need to understand the distinction. General liability insurance policies typically will not cover the specific elements faced by brokers or agents. Getting a specific professional liability plan will ensure coverage for these more direct elements of harm.

What’s Covered in Professional Liability Insurance?

• Wrongful Acts: A broad-scope definition of this term includes any type of act, error, or omission as well as personal injury.

• Claim: Claims also include everything up to disciplinary actions and proceedings (with specific limits based on your coverage).

• Professional Services: This specifically covers your insurance service given for a fee – including agents, brokers, consultants, managers, financiers, administrators, adjusters, handlers, and notary publics.

• Loss: A loss specifically covers you for punitive damages which are insurable by the law, including interest for pre and post-judgments.

Group-Sponsored Errors & Omissions Insurance Programs

Another important component of your liability insurance should also include coverage for errors and omissions (E&O). Group-sponsored E&O coverage keeps you protected in all of the following areas:

• Negligence in your actions, errors, or omissions in any of your professional services as an agent or broker. This also includes negligence for registered principals or registered representatives such as notary publics.

• Any type of personal injuries which are specifically defined in your particular E&O policy. These will likely vary depending on your specific coverage, so ensure that you review what it covers and what it doesn't.

• If you're a district manager, this also includes any additional negligence, omissions, and related errors you may cause while training, supervising, and even recruiting other individuals.

Group policies often come when you’re an agent or a broker through a specific insurance firm. As mentioned, specifics will vary depending on which insurance firm you work with or which coverage you choose.

Keeping Yourself Covered At All Times

While agents likely already have professional liability insurance, make it a point to learn all the components of this essential element to your job. And make sure that your policy includes all the coverage you’ll need to remain fully protected throughout your business operations.

If you are interested in a group sponsored E&O program for your insurance entity, please contact CalSurance Associates at: (800) 745-7189.

All information provided in this blog is for informational purposes only. The sources used are presumed accurate. CalSurance Associates, Brown & Brown Program Insurance Services, Inc. and Brown & Brown, Inc. will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use and will not assume responsibility for any misguided information. No guarantees are implied.