It Doesn’t Get Easier.
The producer gets a call from a new prospect. What they want is simple enough: General Liability coverage with $1,000,000 per occurrence and $2,000,000 Aggregate and Workers’ Compensation on a minimum premium basis. Since this is a local account, the producer makes an appointment to go out to meet with the prospect. Turns out the prospect is a small artisan contractor that performs some fabricating in their work shop that is separate from their residence.
The producer discusses the following:
Where is the shop insured? Answer: Through my (direct writer) homeowner’s policy and no, I don’t want a quote.
Do you want coverage on your shop equipment and tools that you might use on the job site? Answer: Sure, give me a quote and depending on the price, I might take that coverage.
If your shop burns down, could you lose income and have to pay extra expenses to keep going? Answer: Well, I don’t see that happening so don’t give me a quote. I just want the liability, workers’ compensation that my contracts require and I might take the tool coverage.
The producer goes back to the office, prepares a quote, provides it in writing and it is accepted. The producer has the insured fill out the application, sign and date it. A policy is requested, received and sent to the customer along with a coverage summary. The policy is cancelled three months later for non-payment of premium. The customer contacts the producer and requests a reinstatement. The insurance company was unwilling to do so and a second carrier was contacted, a quote provided and the whole process is performed again in exactly the same manner. This time the payments are made on time. Six months later, the shop burns to the ground.
Result: The direct writer denied the claim for the shop due to business use and an exclusion in the homeowner’s policy. The customer claimed that he had requested that coverage, but nothing in writing. The customer then filed an E & O claim against the commercial coverage agency, claiming that he thought his coverage included business income and extra expense coverage, even though nothing in the proposal or coverage summary indicated that coverage had been purchased nor anything to indicate the coverage request on either of the two applications the insured completed.
Did the agent do anything wrong? No. Could the agent have taken the step of advising the customer of the lack of coverage for the building and or business income coverage? Yes. However, in no way had the producer indicated any special knowledge or established any special circumstances that would indicate a higher degree of care other than the ordinary duty of an insurance agent required to place what had been requested.
This case is still in litigation, thus the final result is not yet known. However, as you might imagine, this case has taken time from other agency business and has thus impacted the overall earnings of the agency. This really is one of those cases that the reason for E & O coverage exists.
No matter how hard you try – sometimes it is just not enough. It can get discouraging, but don’t give up. You really can reduce your exposure and still keep a viable business moving forward.