The E&O Perils of Handling Unfamiliar Products and Exposures

Speaking of his experiences in space, Neil Armstrong said, “I think we tried very hard not to be overconfident, because when you get overconfident, that’s when something snaps up and bites you.”

Knowing what you can and can’t do isn’t rocket science—it’s one of the core pillars of professionalism.

In the pantheon of avoidable professional liability errors, a place of honor is reserved for “dabbling.” In an insurance context, that means wandering into unfamiliar territory with your client’s property, wealth and reputation in your uncertain grasp, armed with the optimistic conviction that “This can’t be that hard!”

Imagine that a new customer comes to you in your Midwestern office and tells you they need homeowners coverage because they’re planning to sign the purchase papers on a vacation home that afternoon. You smile broadly because you’re the King of Personal Lines in Topeka (according to your website) and turn to your computer to begin the application process.

But do you have a moment’s hesitation when the client tells you the new property isn’t located in Kansas, but rather on the Florida coast? Do you know, for example, whether the HO policy form there covers wind? What about flood? How does the cost of coverage compare?

You’re drawn from your musings by a new word: “boat.” Of course there’s a boat associated with the new oceanfront property. That’s not a problem for you, though, because you insure lots of boats on various Kansas reservoirs. But might there be some new issue with a boat docked on the Gulf of Mexico?

The client interrupts you again to inform you that they also have an existing roofing business that needs coverage. They want you to handle the impending renewal as agent of record. Some of the terms the client uses to describe the business are not entirely familiar to you—what does “torch down” mean?—but you put off that question until a more convenient time. Coverage is already in place for the roofing business. Right now, your client wants to discuss a new business: the Fun Bus.

The client tells you $1 million limits will do for this little side business, so you make a note of her instructions. But the business is flying so fast and furious that you don’t have time to consider such questions as: How many occupants will the Fun Bus transport? Who will operate it? It never even occurs to you to ask whether the state of Kansas (or Florida?) has any statutory requirements for minimum coverage on such a vehicle. And what about the workers compensation policy that would be necessary to cover any employees moving back and forth between the two locations?

The policy in place, recently renewed, provides “all states” coverage. Surely “all states” means exactly what it sounds like, so employees can live and work anywhere in the U.S. and still be covered, right? What if those employees leave the continental United States on the new boat?

As your customer makes their way to the parking lot, a voice in the back of your mind tells you this may be a lot to handle, so you consider two alternatives. Option 1: Give it to your veteran CSR—she’s seen it all! Like you, she knows the Topeka insurance market backwards and forwards. Also like you, though, she’s a stranger in paradise when it comes to these new coverages and exposures.

Which brings you to Option 2: Place these new coverages through a third-party broker who has access to the markets in question, along with the requisite knowledge to place the right coverage. Or, refer the business to a known and trusted colleague.

Nobody likes to tell a customer “No,” especially one who’s offering new business. But sometimes you have to for both your sakes. Plato once said, “When a man is out of his depth, whether he has fallen into a little swimming-bath or into mid-ocean, he has to swim all the same.” Before jumping in, ask yourself: How far away is the shore, and how long can I tread water?

The best answer: Stay within the borders of your expertise, and avoid the question altogether.

Matthew Davis is vice president and claims manager at Swiss Re Corporate Solutions and works out of the office in Overland Park, Kansas. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions.