Agent to Agent: Your Insurance Proposals — Will They Help You or Hurt You in E&O Litigation

Curtis Pearsall Photo 160x200.jpgBy Curtis M. Pearsall, CPCU, AIAF, CPIA

Most agencies and their respective producers look at insurance proposals as one of the key tools that will determine whether they land the account. However, in addition to the sales benefit, a quality insurance proposal can also provide solid E&O benefits. The key word is “quality” because there is certainly the possibility that your proposals can cause you some E&O nightmares if a problem were ever to develop. How do the proposals in your agency measure up?

Typically, insurance proposals are broken down by line of business and list the coverages offered/proposed and the corresponding premium. They probably use abbreviations or phrases such as ACV or RC, co-insurance, or time element or business interruption coverage. As a producer, you know what these abbreviations and phrases mean. How about imagining that you are the prospect? Does the proposal help you understand the insurance program? If not, while you may sell the account, you have not really achieved the E&O benefits of the proposal. In actuality, you may have hurt your E&O defense.

If an E&O claim developed, both the defense attorney and the plaintiff’s attorney will review the agency file as well as all of the specific documents involved in the procurement of the coverage. There is a very good chance that the proposal you provided will be reviewed in depth. The goal is to ensure that when this occurs, the proposal helps your case, not hurts it.

Educate Customers and Prospects

If your proposals are structured strictly to provide an overview, you may be missing an important element — one that may actually play a role in landing the account while also providing some quality errors and omissions protection. Look for your proposals to educate your prospects and help them understand their insurance program. They know their business but do they really know the finer points of the insurance business? Educating customers and prospects has been shown to be a key issue in minimizing E&O claims activity.

Since customers and prospects heavily rely on proposals to make informed purchasing decisions, the best proposals clearly lay out the coverages offered, with documentation ultimately being made to detail what was — and was not — purchased. Oftentimes, these discussions are verbal. Without something in writing, any problems could involve “he said, she said” scenarios. Who wins these is anyone’s guess. To ensure there is no misunderstanding, it is highly suggested to secure the insured’s signature / acknowledgement detailing his or her ultimate buying decision.

To ensure thoroughness and consistency, a standard template detailing what the proposal should include and how it should be communicated should be used. This will ensure that the proposals contain the necessary detail and explanation.

Key Ingredients of a Proposal

  • Detailed explanations and definitions of key terms. Just because the agency understands the terms does not mean the client does. As you present the proposal, look for opportunities to ensure that the prospect understands the material. Avoid abbreviations if there is any chance the customer will not understand what they mean.
  • Easy-to-understand information. Provide the material in a language that is not above the ability of the prospect to understand it.
  • Reference any mortgagee or loss payee you know of. It is amazing how this level of detail is taken for granted. Failure to provide this has surfaced in a host of E&O claims.
  • Be as detailed as necessary. For example, if you are providing a proposal including Time Element / Business Interruption coverage, spell out exactly what coverage is provided or maybe include a “specimen policy” for reference. Many of the Exposure Analysis Checklists provide this level of detail for the various coverage forms. When dealing with Workers Compensation, based on the corporate structure of the entity, reference should be made to whether the policy affords coverage for sole proprietors/partners. On General Liability, it should be clearly stated if the policy is “subject to audit.” For a Professional Liability/ D&O policy, provide clarification on issues such as “retro date” and whether the defense is within or outside of the limit of liability.
  • Where applicable, include a statement that clearly denotes that higher limits are available. This would certainly be applicable in references to an umbrella or excess limits policy.
  • Include the financial rating for each of the carriers, with an explanation of what the rating means. It is recommended to use the exact definition as provided by that rating organization.
  • Include a disclaimer. There is no way the proposal can include every single aspect of the insurance program. A disclaimer, such as the following, will provide a degree of E&O protection:

Information contained in this proposal is intended to provide you with a brief overview of the coverages provided for reference purposes only. It is not intended to provide you with all policy exclusions, limitations and conditions. The precise coverage afforded is subject to the terms, conditions, and exclusions of the policies issued.

In addition, if your agency has relied upon information provided directly by the prospect, consider including a statement such as, “This proposal is based on information provided and we cannot attest to the accuracy of this information.”

  • If any of the carriers referenced are non-admitted, provide an explanation of what this means.

A Clearer Understanding

Obviously the goal of your proposal is to sell the account. Enhancing your proposal with some quality E&O prevention tools may actually result in a more educated prospect and could very well be the difference that helps you land the account. If a problem develops down the road, the detail provided in your proposal could be key in the defense of your agency.

Curtis Pearsall is president and founder of Pearsall Associates Inc., a risk management consulting firm specializing in helping agents protect themselves. He is the former SVP of Utica National’s Agents E&O program where he oversaw their Underwriting, Marketing Services and Claims divisions from 1987 to 2009. Mr. Pearsall holds the following designations: CPCU, AIAF, ARM, AU and CPIA. He is the immediate past president of the American Insurance and Marketing Sales Society, a board member of the Stanley Center for the Arts and a member of the Pastoral Council for his church. Curt regularly provides free E&O tips for agents on his blog

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