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Personal Lines Endorsement Checklists: Protection Against E&O Claims

Checklist

In this first part of a two-article series, learn why you need to protect your agency against potential errors & omissions suits and get the scoop on insurance endorsements and how they can help you and your clients. Don’t leave things to chance! 

Anytime there’s a catastrophic weather event or a natural disaster, errors and omissions (E&O) claims follow, alleging things that you or your staff did or didn’t do to protect your clients. In a think-piece entitled Are Brokers in for a Tsunami of Pandemic-Related E&O Claims in 2021?, specialty insurance distributor AmWins says that, “… there is generally a 12- to 24-month lag time from when the exposure occurred to when E&O claims are filed, and that it is not uncommon for the industry to experience a surge in E&O allegations against brokers several months or even a year or more after a catastrophic event.”

We can expect a similar pattern to occur post-pandemic, with some key differences. First, weather-related events are usually geographically confined, while the pandemic hit the entire nation to a greater or lesser extent;  second, personal lines such as home and auto insurance may be less of a target than commercial insurance, which is inundated with business interruption disputes, among other claims.

While it’s expected that most E&O claims will happen on the commercial side, there will no doubt be some activity in personal lines. Think about failure to renew coverage or to process claims in a timely fashion. Or someone conducting business from home during the pandemic may fault you for not having suggested a business endorsement to their home insurance policy for a loss that exceeds their homeowners coverage limits. And although most E&O claims are filed by clients, insurance companies can also allege wrongdoing and sue your agency.  Insurance carrier E&O suits generally represent 5 to 10 percent of all E&O claims against agents.

Regardless of the particulars surrounding the pandemic, the important lesson is this: Every day holds the potential for an E&O claim against your agency, and every catastrophe holds the potential for an E&O claim spike in the year that follows. How do you mitigate that exposure?

A MyNewMarkets.com article Will Agency E&O Claims Be The ‘Next Wave’ of COVID-19? notes:

“When you look at trying to protect yourself and your agency, we always talk about document, document, document,” [Dave] Hulcher [executive director of the Kansas Association of Independent Insurance Agents (KAIA)] says. “There’s no way of talking about E&O and risk management without saying that.” And that also includes documentation with the underwriter as well.

We couldn’t agree more with that observation, and in thinking of documentation, endorsement checklists can be one of your best friends. Let’s dig a little deeper on your personal lines E&O exposures and what you can do to manage and reduce your risks.

Why E&O Lawsuits Occur

The first step in protecting yourself against E&O claims is having  proper E&O insurance coverage. This coverage is  essentially a type of professional liability that protects you, your agency, and your staff members against actual or alleged failures, negligence, and actions that you did or didn’t take.  It helps you cover legal costs and cover settlements up to the coverage limits of your policy. E&O coverage policies are written on a “claims made” basis so there is no retroactive coverage, your policy must be in force when the event happened and the claim occurred. Unsurprisingly, illegal and intentional events are excluded, as is coverage for any independent contractors. 

According to the National Association of Professional Agents (NAPA) and member research conducted by the Independent Insurance Agents & Brokers of America (IIABA), failure to procure coverage accounted for 24 percent of all E&O claims filed against independent property & casualty agents.

Other common reasons why claims were filed against property-casualty agents include: 

  • Failing to adequately explain policy provisions
  • Failing to adequately identify exposures
  • Failing to recommend appropriate or adequate coverage
  • Sending faulty, inaccurate, or incomplete client information to an insurer
  • Failing to provide timely notice of a claim to the insurer

In our experience working with hundreds of agencies across the nation, we have seen that the failure to offer, explain, and document endorsements represents one of the biggest exposures in personal lines insurance. As well as the inherent risk in this failure, it’s also a missed opportunity for your agency to grow and your client to boost protection. 

The Scoop on Insurance Endorsements

According to the National Association of Insurance Commissioners (NAIC):

“An insurance endorsement /rider is an amendment to an existing insurance contract that changes the terms of the original policy. An endorsement/rider can be issued at the time of purchase, mid-term, or at renewal time. Insurance premiums may be affected and adjusted as a result.”

Endorsements can be added to make changes in homeowners and renters policies, auto insurance coverage, and life insurance. An endorsement/rider alters the policy and becomes part of your legal insurance agreement, and it remains in force until the contract expires. While many endorsements are commonly available, variations can occur by state, by type of insurance, and by insurer.

While the terms “rider” and “endorsement” are synonymous, there is a common misconception that a “floater” is also a synonym. Not so. A floater is a more specific policy add-on that increases or extends coverage to a specified item, such as an expensive piece of jewelry, a fur, or a musical instrument.  

Here are some of the reasons why a policy might be amended with an endorsement:

  • To increase standard limits of coverage.
  • To add or delete people and locations to your current insurance policy.
  • To exclude coverage for certain types of claims.
  • To cover perils not originally listed as covered in the policy.
  • To tailor coverage to a client’s specific circumstances.

Common Home Insurance Endorsements

State coverage laws vary. These coverages are frequently offered via endorsement, but in some cases, may be packaged in your basic coverage or required as standalone policies depending on your location and insurance company. These are some of the more common endorsements, but the list is not exhaustive – some carriers will offer others.

  • Water backup, sewer backup and sump discharge or overflow
  • Earthquake, landslides, and sinkholes
  • Flood
  • Costly personal items, such as Jewelry, antiques, and collections. A policy will cover items up to the policy limits, but expensive jewelry and collections should be covered with an endorsement, a floater, or in some cases, a separate policy.
  • Identity theft
  • Cyber security
  • Home businesses
  • Inflation guard
  • Personal injury – covering slander, defamation, and non-body injuries
  • Extended replacement cost coverage
  • Food spoilage
  • Service line coverage
  • Equipment breakdown coverage
  • Secondary residence premises

Common Auto Insurance Endorsements

Again, state coverage laws vary. These coverages are frequently offered via endorsement, but in some cases, may be packaged in your basic coverage or required as standalone policies depending on your location and insurance company. These are some of the more common endorsements, but the list is not exhaustive – some carriers will offer others.

  • GAP insurance – when an auto loan on a new car is greater than the depreciated value, this covers the gap if the car is stolen or totaled.
  • Rideshare – personal auto insurance typically doesn’t cover “business use” of a vehicle.
  • Rental coverage or reimbursement
  • Classic or collector car
  • Roadside assistance and towing
  • Accident forgiveness

Be sure to follow up on AgencyNation.com soon for part two of this article, where we will discuss best practices for reducing your E&O exposure and the value of personal lines endorsement checklists in protecting yourself and your agency.

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