Errors & omissions claims usually arise from a specific type of error. But once in a while, a claim comes up that’s downright bizarre. Would your agency be susceptible to a similar E&O claim?

Scenario 1

A customer comes in to complete paperwork to secure coverage on a new vehicle, but does not have money with him for the down payment. The agent offers to pay the additional premium based on a promise from the customer to return the next day and repay the agent.

The customer does not return and avoids the agent’s phone calls. The following Friday, the agent speaks to his wife. She says her husband found other insurance and asks to cancel the auto policy the agent just placed. Based on this conversation, the agent cancels the policy and asks for a premium refund.

Over the weekend, the customer is involved in an auto accident. The auto carrier has to pay the claim because the agent did not have authority from the policyholder to cancel the policy. The carrier then files a claim against the agency for cancelling the policy without authority and for binding coverage on an unacceptable risk per the underwriting guidelines.

Scenario 2

A new customer needs insurance because she’s moving out of a relative's home, but doesn’t have the money for the premium payment. The agent pays the entire premium payment on behalf of the customer with the promise of repayment when she receives her refund on her current renters policy.

When the customer visits the agency to pick up her new policy, she still doesn’t have the money to repay the agent. The customer advises the agent that her refund check must have been mailed to the relative's home instead of her new address. The customer cannot go to the relative's home because she fears physical harm. The agent is determined to receive repayment, so he visits the relative's home, pushes his way in when the door opens, takes the mail out of the hands of the homeowner and leaves with his customer's mail. The agent then opens his customer's mail to look for the refund check without permission from the customer and does not find the refund check. The agent faces various criminal charges, and the E&O carrier disclaims coverage because the agent's policy does not cover intentional or criminal acts.

E&O TIP: Avoid fronting money to customers for premium, and never cancel a policy unless the named insured instructs you to do so in writing.

Scenario 3

A licensed agent places her own auto coverage through the agency. Unbeknownst to the agency owner, this agent places vehicles owned by relatives on her own auto policy because the agency waives commissions for employees. When one of her relative’s vehicles is stolen and the relative files a claim, the auto carrier denies coverage because the agent/named insured does not have an insurable interest in the vehicle. The carrier rescinds coverage back to inception for the vehicle.

The relative brings an E&O claim against the agency. The E&O carrier considers this a liability claim and pays the relative. The agency not only has to pay its deductible, but also must live with this claim on its loss history.

E&O TIP: If employees purchase coverage through the agency, another employee—who has no interest in covering the property—should manage the account.

Scenario 4

A customer sends an upsetting email to her agent. The agent sets out to forward the customer’s email to some coworkers with comments threatening bodily harm to the customer. But the agent replies to the customer’s email instead of forwarding it. The customer reads the reply and demands money for compensatory and punitive damages. The agency’s E&O carrier disclaims coverage for the claim.

E&O TIP: Always ensure emails are addressed only to intended recipients and keep content professional.

Scenario 5

An agency principal signs an agreement with a broker without fully reviewing the contract. The contract states that the agency is responsible for payment of premium the broker pays the carrier. A customer of the agency has a history of failing to pay premium or paying it late. The broker pays the carrier the premium and bills the agency for the unpaid premium. The customer does not pay the premium to the agency, so the agency, in turn, does not pay the invoice from the broker. In the end, the agency is forced to pay the broker for the unpaid premium because of the contract.

E&O TIP: Read all contracts thoroughly or retain personal counsel to review. Know what you are agreeing to and avoid surprises.

Janice S. Blanton is an assistant vice president, claims specialist with Swiss Re Corporate Solutions and teleworks from the Overland Park office.