Avoid a ‘Swearing Match’ in E&O Claims

Author Foster Meharry Russell said, “Every story has three sides to it—yours, mine, and the facts.”

An errors & omissions claim against an agent can often devolve into the agent’s word against the client’s. When a lawsuit involves this type of “swearing match,” getting the case dismissed on a motion is usually not an option—and if it goes to trial, it’s up to a jury to decide who’s telling the “truth.”

Unfortunately, many jurors don’t like insurance companies—or, by extension, insurance agents—and are more likely to side with the claimant, who is just another person like them from their hometown.

Your best weapon against this type of case: documentation of the facts. Better still, if your agency has a Swiss Re Corporate Solutions policy, proper documentation may serve as the basis for up to a 100% reduction in the deductible under the new policy.

The current Swiss Re policy includes a “deductible reduction provision” that gives the agency a 50% reduction of their deductible up to a maximum of $12,500, in the event that the agency “generates and maintains contemporaneous written documentation in the agency file of the refusal of any customer to accept any type of coverage or limits recommendation made” by the agency, and a subsequent claim alleges failure to secure the recommended type of coverage or limit.

Under the new Swiss Re policies that will phase in this year, the deductible reduction provision now gives agencies in most states a 100% reduction in the deductible, up to a maximum of $25,000. The same requirements apply.

As a Swiss Re policyholder, how can you secure this benefit? The first best practice is to always send your client something in writing that outlines the quote and/or policy and clearly states your recommendation that they consider “the following optional coverages and limits,” along with the cost of those coverages. Require your client to initial and sign any coverages they reject.

Logistically, it is not always possible to get a signed rejection of the coverages back from your client. For the purposes of the deductible reduction provision, it is enough to have documentation that you sent your client something in writing that included your offer, and documentation that they rejected the coverage. Note that this documentation must be “contemporaneous,” meaning it either existed or occurred during the same time period as the claim involving the coverage or limit.

It’s much easier to defend an E&O claim when you’re armed with undeniable facts, not just a memory of what took place.

Take this example: An agent places coverage for a truck repair shop. At the time of the renewal, the agent’s quote also states: “The following extensions of coverage are available and we recommend that you consider including them in your insurance program.”

The agent highlights in red the option for business interruption coverage. The customer calls the agent to discuss the letter, and the agent documents that conversation in the agency file.

Later, the client files a claim alleging failure to offer business interruption coverage. The agency’s $25,000 deductible is reduced to $12,500 under Swiss Re Corporate Solutions’ deductible reduction provision. In addition, when defense counsel provides copies of the documentation to the plaintiff’s attorney, the plaintiff’s attorney agrees to dismiss the case against the agency.

Documentation can reduce or completely eliminate E&O exposure in many claims. Here are a few examples of communications you may want to have and document with your client:

• Consider obtaining a DP3 policy instead of a DP1. The DP1 is a basic policy, does not cover most water damage claims and does not include the broader DP3 coverage. In addition, a DP3 covers a loss at replacement cost, compared to actual cash value in the DP1.
• If you’re dealing with rental properties or commercial buildings, contact us to explore coverage options. In many cases, if a property is vacant for more than 60 consecutive days, you may face coverage gaps around claims involving vandalism, sprinkler leakage, building glass breakage, water damage and theft.
• Consider umbrella or excess coverage.
• Make sure your limits are commensurate with the total value of your inventory.
• Consider business interruption and employee dishonesty coverage, especially if you’re a small business.

Caryn Mahoney is an assistant vice president, claims specialist with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products underwritten by Westport Insurance Corporation, a member of Swiss Re Corporate Solutions, Overland Park, Kansas.