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What If Your Client Tells You Not to File His Liability Claim?

An agency’s insured is facing a liability claim against him. He calls the agency to tell them not to file the claim. Meanwhile, the claimant also calls, instructing the agency to do the opposite. Is the agency obligated to file the claim without the insured's permission?
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An agency’s insured is facing a liability claim against him. He calls the agency to tell them not to file the claim. Meanwhile, the claimant also calls, instructing the agency to do the opposite. 

Q: "By law, are we obligated to file without our insured’s permission?"

A: “We can’t give you a legal opinion, but we can provide some guidance from a procedural and E&O standpoint. As an agent of the insurer, you are likely responsible to the principal (insurer) under the law of agency to report this information, since the principal is charged with the agent’s knowledge. More specifically, failure to do so might very well violate the agency/company contract.

It is also foolish on the part of the insured to refuse to report a known claim. Most policies require claims and suits to be reported promptly—otherwise, the insurer is usually within its right to deny defense and indemnity under the policy. The Big ‘I’ Virtual University (VU) offers a couple of articles on this topic:

In sum, the insurer should be made aware of such claims by the insured and/or the agent. But that being said, I can tell you it is routine practice at many agencies to not report a claim if the insured requests it. A frequent example is fender benders where it doesn’t appear any real damage has occurred. But if something develops that results in a claim or suit and if the insurer has been prejudiced, the insured and agent can find themselves in serious trouble. If you’re aware of something that the insurer should or would want to be aware of, you should advise them accordingly.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.

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Tuesday, June 2, 2020
E&O Loss Control