In February, I presented two seminars in Michigan entitled “When Words Collide: Resolving Insurance Coverage and Claims Disputes” and “Finding & Fixing Coverage Gaps.” Within two days of returning home, I was contacted by an attorney looking for an expert witness in a case that was exactly on point with one of the main premises of these seminars, that the best way to fix a coverage gap or resolve a claim dispute was to prevent the gap from occurring.
A property management company was being sued for carbon monoxide poisoning from a faulty heating unit. The claim was denied because the company’s CGL policy included the CG 21 49 – Total Pollution Exclusion Endorsement, which also governed coverage (or lack thereof) on the umbrella policy.
So, of course, the next suit being considered was against the agent, the reason being that the carrier under the prior agent had attached the less onerous CG 21 65 – Total Pollution Exclusion With A Building Heating, Cooling And Dehumidifying Equipment Exception And A Hostile Fire Exception endorsement. The question to me was whether there was a viable E&O claim against the current agent for “allowing” the total pollution exclusion endorsement (CG 21 49) to be attached. I’ll return to this issue momentarily.
In the aforementioned seminars, I contend that the three primary sources of coverage gaps that lead to claim disputes are:
- Failure to identify and/or quantify exposures
- Failure to insure or risk manage known exposures
- Failure to quality control policy deliverables and risk information
Even if steps 1 and 2 above are properly carried out, the agent’s job is not over until the policy deliverables have been quality controlled. The agent will, of course, make sure that requested policy forms are included or, if not, forms of equal or better relevance have been provided. But the agent must also be vigilant by reviewing forms that were not requested.
It is not uncommon for carriers to add numerous exclusionary or limiting endorsements to policies. Some of the endorsements may be mandated by the Commercial Lines Manual or other underwriting guides. For example, any ISO CG 21 xx endorsement that shows up on a CGL policy will not be good for the insured. The agent may then see if the carrier will remove the endorsement or substitute a less restrictive form. This is sometime accomplished simply by asking and may involve no or minimal additional premium.
So, the question to the expert witness is, does the current agent have potential liability for failure to have, if possible, the CG 21 49 endorsement removed or at least replaced by the CG 21 65 endorsement that was on the prior policy? Such legal liability rests on whether the current agent had an obligation to proactively do anything and that depends on the standard of care for that jurisdiction, the facts of the case, and how a “reasonable” agent would have handled the matter. Whether or not the insured asked for “the same or better coverage” than he had previously might also be material.
Good agents do the right things, though legally that doesn’t necessarily mean that the failure to do so is legally actionable against agents whose agency motto is “We’re No Worse Than Anybody Else!” We’re all familiar with the adage, “Be careful what you ask for.” The learning point here for agents is, “Be careful what you DON’T ask for.”
Photo by danoxster 
Bill Wilson
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Yes, absolutely check form numbers, but don’t overlook the edition date. Significant changes can happen between various versions of the same form.
I have several examples I use in seminars and webinars on the edition date issue. One is various claim scenarios involving riding lawn mowers and whether liability for their use is covered under the 1991, 2000, or 2011 ISO Homeowners forms.
Bill:
“What you don’t ask for.”
Excellent subject and the source of a few nightmares. Especially true with some “speciality” markets like churches. The church specialist will stack on a number of endorsements to provide coverage or increase coverage which extends far beyond that provided by most ISO forms. I then try to interpret the language in order to make a valid comparison. Extremely time consuming and no guarantee my interpretation will match that of a court of law at some future date. And then the carrier will change a few words in their form and next year, we are faced with a brand new ball game. I have never had an E & O claim in fifty nine years in the business but feel I am running on borrowed time.
Thanks Bill
One of the items of discussion I share with new agents and CSRs is to review the forms list located on the insured’s declarations page. In that discussion emphasis is placed not only on the form numbers but also the edition dates. While those of use who have been in this business long enough to remember the BC Era (i.e. Before Computers Era) know how important this step is, many of the newer agents and CSRs are either totally unfamiliar with this review step or worse, don’t know how to locate a form’s edition date.
I know a book they can to help….