The trial bar is pursuing all possible sources of recovery for business interruption claims. Initially, their primary target has been insurers. However, some agencies and brokerages have also been sued and, with anticipated claim denials by carriers that are likely to be upheld by the courts, agencies (and their E&O insurers) should expect to become higher profile litigation targets as this process plays out.

Lawsuits against agents may be made on many grounds. For example, if a COVID-19 claim is denied by the carrier on the basis of a virus exclusion, the agent might be sued for negligence in the failure to place coverage with an insurer that does not have a specific virus exclusion or that otherwise might offer such coverage. Independent agents might be more vulnerable than captive agents to such suits because of the greater availability of markets.

This article addresses some of the things agencies and brokerages can do to minimize their E&O exposures while assisting their customers and what they can do to minimize future E&O claims.

First and foremost, don’t tell insureds NOT to file claims. According to a survey recently conducted by the Iowa Restaurant Association, as reported by Business Record Daily, “…nearly half of those business owners with business interruption policies said they were told by the agents not to file a claim, because it would be denied.”

Agents should NEVER deny claims. That right is reserved by the carrier as a party to the insurance contract. There have been reports of some insurers actually directing their agents to deny claims on their behalf. NEVER do that. In addition to it being inappropriate, effectively acting as an adjuster may be illegal under state insurance laws and regulations, including licensing requirements. In addition, unfair claim settlement practices laws impose very detailed requirements regarding the investigation and handling of claims, especially denied claims.

All claims should be reported to all carriers that might become involved in the claim. For example, liability claims should be reported to excess/umbrella carriers in addition to CGL or BOP insurers.

If a COVID-19 claim is denied by the insurer, do not advocate for customers in a manner that might incriminate the agent. Good agents, if they believe a claim has been wrongly or improperly denied, often successfully advocate for their customers in reversing such denials. However, in the case of COVID-19 claims in particular, this can be dangerous because of the number, size, and complexities of these claims and the many unknowns regarding judicial interpretations and governmental actions.

DOCUMENT all communications. This is caveat #1 of all potential E&O claims.

Be wary about articles and social media posts, especially those that opine about coverage. In the event of an E&O claim, during the discovery period plaintiff’s counsel will undoubtedly request copies of communications and publications related to the claim.

If you THINK you MIGHT have an E&O claim, contact your E&O carrier immediately. Read your E&O policy and you’ll probably find out that your reporting requirement is not triggered by a claim or suit, but rather your knowledge that one is possible. Aside from any such contractual requirement, early reporting will enable your E&O carrier to provide you with advice on how to proceed.

Try to identify coverage gaps created by the pandemic that impact the agency and your customers. For example, with a few exceptions, most property coverages are limited to property at the described premises. If you have employees working remotely, they may have significant values of agency business property in their homes. Business income coverage is also usually triggered by damage to property at a described location, not at employee homes. Likewise, certain crime and cyber coverages may be tied to a described location. Consider exclusions and limitations for business vacancies…check policy language and discuss with insurers to determine if they plan to enforce such contractual provisions.

IMPORTANT: Discourage customers who contact the agency to cancel or suspend coverage and document such inquiries and actions. Make sure the person contacting the agency is authorized to make coverage changes and, if coverage is reduced in any way, consider using a signed disclaimer form.

Do not offer or provide advice beyond your expertise or the coverage bounds of your E&O policy. Just today, an agency asked how they could help a private swim club with waivers and standard procedures as they reopen. Unless you are a risk management expert, you probably cannot and should not provide such advice. Unless you have a law degree, you should not be drafting waiver agreements. Agencies should consider seeking their own legal advice (procedures, waivers, disclaimers, etc.) when dealing with customers who are looking for consultations beyond the sale of insurance products. Given that most policies have or will have some sort of communicable disease, virus and/or pandemic exclusion, the agency’s E&O policy (if it doesn’t have such an exclusion) could be a prime candidate for someone looking for coverage.

As soon as practical, update the agency’s operations manuals. Adopt or revise the agency’s disaster plan to include pandemics. Update the agency procedures manual and employee handbooks and HR materials.

Stay informed about COVID-19 developments. Pay particular and timely attention to carriers’ positions on coverage, cancellation, late premium payments, etc. Carefully review renewal policies for newly added exclusionary or restrictive endorsements and make sure the carrier points out such changes to insureds. Monitor and follow regulatory directives from state insurance departments or other controlling government agencies. Keep up to date on coverage and legal issues from trusted publications and other sources.

Additional Resources

Do you have anything to add to this discussion? If so, please respond in the Comments section below.

On May 11, I will be part of a panel discussing COVID-19 issues and their impact on agencies. For more information about this free webcast:

COVID-19 and Business Interruption Insurance: How Will Your Agency Be Impacted?

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information