Every insurance agent wants to delight a customer. A customer who is thrilled with your service as an insurance agent will greatly benefit your agency. Not only does this create a positive relationship for the agency's continued business, but a happy customer will likely result in new referral business. But when does an insurance agent go too far?

A number of agent errors & omissions claims have been reported as a result of an insurance agent procuring coverage in an area in which they have little or no expertise.

In one case, the insurance agent's customer requested a commercial policy. The agent had little experience in procuring commercial policies but agreed to provide the coverage to keep the customer happy. The customer wanted to make sure that they had appropriate insurance coverage if a hurricane hit, and the agent informed the customer that the commercial policy contained business income extra expense coverage.

Later, the customer's biggest concern came true—their business sustained a loss as a result of a hurricane. A claim was submitted to the commercial liability carrier, but the claim was denied because the policy did not contain business income and extra expense due to power outage of utility services or spoilage coverage. The agent did not realize that this coverage needed to be added specifically via an endorsement to the policy, and the agent misinformed the customer regarding the extent of coverage under the commercial liability policy.

The customer brought a claim against the agent and the agency for the non-covered loss. The agent had no valid argument to counter the customer's claim that the agent breached the standard of care in procuring the commercial liability policy. The insurance agency was liable for its customer's loss.

Dabbling can also occur when an insurance agent procures coverage for a customer in an unfamiliar state. An E&O claim resulted from a seasonal dwelling policy the agent procured for their customer in a state that the agent had no familiarity with. The customer's property sustained a significant water damage loss, which was discovered by a caretaker several days later because the customer was not living at the seasonal property at that time.

The seasonal dwelling policy carrier accepted the claim. The claim progressed with remediation, rebuilding and temporary living being provided. Then, the carrier informed the customer that the policy's water mitigation limits were exhausted, and the carrier would not pay any additional claim monies. The customer made an E&O claim against the insurance agent.

This claim resulted because the insurance agent did not have expertise in writing seasonal dwelling policies in the state. Homeowners policies issued in the agent's home state do not have an option to increase water damage coverage because the increase is automatic. The agent was unfamiliar with the state where the seasonal property was located and the need to increase the water damage limit. The agent admitted the water damage limit should have been 100% and intended to write the policy on a replacement cost coverage basis.

The agent had no valid argument to counter the customer's claim that the agent breached the standard of care in procuring the seasonal dwelling policy. Again, the agency was liable for its customer's uncovered loss. The claim was resolved with a settlement payment to the customer for the uncovered portion of the loss.

In another recent claim, the insurance agency primarily procured professional liability, workers compensation and cyber insurance for customers. However, one of their clients, a doctor, requested a business property policy.

The doctor informed the agent that he planned to update and remodel the first floor. The agency obtained a commercial property insurance quote to cover the buildings and contents.

A few months later, the agency received a call from the doctor that copper had been stolen from the building. However, the carrier denied coverage for the theft claim because the building was considered to be vacant.

After the loss, the investigation revealed that the doctor had received quotes for remodeling but work had not started. The doctor did not have a contractor but began to clear out the first floor. However, the doctor had informed the insurance agency that he had people working for him at the location every day, as well on the weekend. He also advised the agency that the renovation was ongoing and could take 10 months.

Because the agent rarely procured commercial property insurance coverage and lacked expertise for when a commercial property was being renovated, the agent was unaware of the need to procure coverage to address certain perils, such as theft. The agent should have recommended the doctor purchase a business owners policy that would have provided insurance coverage to the doctor's business from claims of property damage, bodily injury, theft and more.

The doctor filed an E&O claim against the agent and agency for the uncovered theft loss, which was resolved with a settlement payment.

An agent may think they are helping a customer by procuring coverage in an area that they have little or no expertise in. But the result may have the opposite effect if a customer sustains a loss and the carrier denies the claim because the coverage the agent procured was insufficient. Further, the agent-customer relationship may be irreparably broken.

When a customer asks an agent to procure an insurance policy the agent has little or no expertise in, best practice is that the agent is up front with the customer by explaining their unfamiliarity with the coverage and politely declining the customer's request.

Additionally, to protect themselves, the agent should not only document the agency file but also provide the customer with a written communication confirming that they cannot procure the specific coverage the customer requested because it is outside their area of expertise.

Kristina Miller is an assistant vice president and claims specialist with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products are underwritten by Swiss Re Corporate Solutions America Insurance Corporation and Swiss Re Corporate Solutions Capacity Insurance Corporation, a member of the Swiss Re group of companies (“Swiss Re").

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of Swiss Re and/or its subsidiaries and/or management and/or shareholders.