E&O Concerns When Serving the High Net-Worth Client

Dealing with high net-worth clients is not the same as dealing with your other clients. They demand special attention.

While it may seem counterintuitive, affluent clients are often frugal when purchasing insurance. For example, these insureds may have high auto limits coupled with umbrella coverage to protect their substantial assets from claimants anxious to share in that wealth.

But because it costs extra, they won’t necessarily want the umbrella coverage to include uninsured/underinsured motorists coverage—until, of course, they sustain injuries in an accident, at which time they will argue that they would have gladly paid the premium had you only offered it.

Some high net-worth clients are asset-rich through inheritance, but cash-poor. In this type of case, insist on appraisals and document when the client refuses to insure to value.

Consider the case of an affluent client who owns a family mansion built in the 1850s. The client directs their agent to insure the home based on what it would cost to build a new, “generic” 10,000-square-foot home. A thunderstorm blows a large tree onto the home, damaging the roof and third-story framing and causing water damage through all three floors. The carrier agrees to pay the loss, but will not replace the roof with the original hand-hewn slates. Nor will the 150-year-old hard wood floors or 12-inch crown moldings be restored to their original condition.

Your client's inevitable response? “Unacceptable!”

Simply putting the square footage of an old or otherwise unique structure into a calculator will not give you an adequate assessment of necessary coverage. Go on record explaining why an appraisal is required to assess an accurate value to not only replace, but restore the home to its former glory.

Affluent clients can also be very hard to reach. You’ll likely be dealing with an assistant, who will sometimes ask you to sign the client’s name on applications for them. Cutting corners due to the client’s inaccessibility may seem like a practical necessity during the application process, but if a loss occurs, this practice serves to insulate the client and set you up for an E&O claim.

Be sure to deal directly with your client or, at the very least, obtain documentation from the client expressly authorizing a third party to make these decisions. And never sign an application for your client.

As part of their mobile lifestyle, many affluent clients own multiple homes. They can only be in one place at a time, so their various residences often sit empty for weeks or months. Regular homeowners policies exclude coverage for certain exposures—such as water, freezing or mold damage—if a home sits vacant for a specified period of time. If you are placing multiple homeowners policies for a high net-worth client, many specialized carriers offer well-suited policy solutions.

Finally, moneyed clients often have extravagant toys and exotic pets. Insist on visiting the home and any other properties they own to look for things like a commercial waterslide at the residence, pet tigers, yachts and planes. Swiss Re Corporate Solutions has seen claims on all of the above, which the agent overlooked when placing coverage. To avoid these problems with affluent clients, review coverages annually—they have the means to make major purchases, sales and renovations more often than other clients.

You are also likely to place coverage for a well-off client that you have never placed before. Be prepared to consult with an expert or enlist the help of a broker when you first place the coverage to make sure you get it right.

Wealthy clients can be a terrific source of business, but you need to pay special attention to them for their sake and yours. Their losses are outsized, so your E&O exposure will be, too. It's even more important than usual to document everything you offer to your high net-worth client because, in the event of an uninsured or underinsured loss, they can afford the best lawyers money can buy. To make matters worse, knowing that they can afford to lose, affluent litigants are more likely to ignore the cost of litigation and roll the dice simply to make a point.

For such unconventional clients, you would do well to heed unconventional wisdom: The bigger they are, the harder you fall.

Jim Redeker is vice president and claims manager at Swiss Re Corporate Solutions and works out of the office in Kansas City, Missouri. Insurance products underwritten by Westport Insurance Corporation, Kansas City, Missouri, a member of 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.