No Tomorrow? The E&O Challenges of Business Continuity Planning

Between now and the day you retire, unforeseeable outcomes may get in the way of your workplace farewell. What will happen to your agency, and how can you minimize disruption?

Here are a few real‑life claims examples that should encourage you to start changing “I’ll do it tomorrow” into “I’ll do it today.”

Untimely demise. After an agent’s client has an auto accident but no coverage in place, they make an errors & omissions claim against the agency. But in the midst of the ensuing lawsuit, the agency owner unexpectedly passes away.

Because it was one of the household’s major assets, the grieving widow has little choice but to take over running the agency. She has no experience in insurance or running a business and, worse, no idea how to locate documents and information to assist in the defense.

Without the testimony of the owner, the agency must rely on a long‑time employee to assist with locating supporting documentation. Fortunately, the owner was diligent in his documentation, so the loyal employee is able to locate materials that result in a favorable outcome for the agency.

What’s your plan to help your family grapple with your untimely demise? Creating a sound succession plan is essential to not only the business continuity of your agency, but alleviation of the added stress your family, customers and employees already face in the wake of your untimely demise.

Disability. An agency owner has a stroke that leaves him permanently incapacitated. The owner’s daughter had started her career at her father’s agency, moved to another state and works in a much larger agency in a large city. Upon learning of her father’s stroke, she returns home to take the reins.

When she arrives, she finds that a 30‑year employee of the agency has already taken over and claimed the agency as her own. Her story: She had planned to leave 10 years earlier to start her own agency, but the owner talked her out of it. Instead, her commissions were decreased slightly as a way for her to buy her way into agency ownership.

According to this employee, the owner told her that, upon his retirement, the agency would be hers. She provides evidence of the discussion in the form of notes and draft agreements, although nothing formal was ever completed or signed.

Westport denies coverage because an E&O policy does not cover internal ownership disputes. The last we heard, the daughter and the employee were fighting it out in court. Is this the legacy the agency owner intended?

Retirement. An agency owner sells his agency and retires after a long, successful career. The new owners merge the purchased agency customers into their existing insurance agency.

A few years later, a client files a lawsuit against the former agency, prompting the original owner to report an E&O claim under the tail coverage he had purchased. When counsel requests his file documents for both sides, the retired owner is shocked to learn that the purchasing agency destroyed his agency records, despite the state’s record retention requirement of seven years.

The former owner and Westport are left trying to defend a suit with no agency file—increasing defense costs and eventually resulting in a settlement with the plaintiff under less favorable terms than the owner expected.

While this owner did not destroy the records directly, the purchasing agency did not consider the time requirements and legal implications prior to destroying the records prematurely. By scanning or copying the customer files and preserving the activity log notes, the former owner could have avoided being penalized for the decisions of the purchasing agency. When the day comes to retire, retain a copy of all customer files for the minimum document retention period your state requires.

Maintaining a business continuity plan, open communication and good documentation is key to your agency’s continued operations and defense against not only E&O claims, but also statutory violations. It’s never too early to put a plan in place that will protect your family, partners, employees and customers.

Janice S. Blanton is an assistant vice president, claims specialist with Swiss Re Corporate Solutions and teleworks out of the office in Overland Park, Kansas. Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re.