Questions - Chapter 6, Section 2 - The Errors & Omissions Exposure - An Analysis Flashcards
There have been a number of Canadian court decisions that have imposed upon brokers a standard of duty of care to clients approaching perfection. Briefly outline the facts and decisions of the “Fine Flowers” case.
The court held that the broker has been negligent in his failure to warn his client of exposures for which no coverage was available. The broker’s reassurance of everything being “fully covered” had misled his client into a false sense of security.
Identify six common causes of broker errors and omissions claims.
1) Inadequate Coverage
2) Misrepresentation and Description Errors
3) Cancellation/Renewal Errors
4) Policy Change Errors
5) Processing Delays
6) Agency Agreement Violations
Which of the six is by far the largest cause of E&O claims?
Inadequate Coverage
Explain three examples of the largest cause of E&O claims.
a) Failure to provide proper coverage.
b) Failure to advise clients of policy exclusions, exemptions, and other disadvantageous terms.
c) Failure to place coverage.
Almost 1/4 of all E&O claims are the result of misrepresentation and errors in description. Outline the facts and decision in the “Hornberg”case.
The court ruled that the broker ought to have known that his client would use their property only on a seasonal or casual basis therefore. Failure to disclose such information to the insurer resulted in the insurer voiding the policy and the broker being held financially liable.
Approximately 10% of all E&O claims involve the improper handling of policy renewals and cancellations. Give three examples where improper handling of renewals can cause problems.
1) Not renewing at all.
2) Not renewing adequate coverage.
3) Not warning of pending expiry.
Provide an example of E&O claim for each of the following:
I) Policy Change Errors
II) Processing Delays
III Agency Agreement Violations
I) An automobile policy may insure several vehicles. During the policy term, there may be several additions or deletions of vehicles. If care is not taken its possible the wrong vehicle may be deleted.
II) Broker agreeing to increase the property TIV and the next day a property claim comes in with the incorrect TIV still noted on the policy.
III) When limits or underwriting guidelines are exceeded and a loss occurs, brokers are usually responsible for payment of the loss.
Outline and explain six measures that will help brokers to prevent E&O claims.
1) Take the time to properly determine their clients needs.
2) Be advisers rather than deciders for their clients.
3) Know coverage and insurers.
4) Time required to place coverage.
5) Keep within the bounds of their binding authority.
6) Be sure insureds are aware of any special restrictions or limitations in their insurance.
Identify eight steps a broker should follow when they have been notified of a claim by an insured.
1) Report the claim immediately to the insurer.
2) Inform the insureds they will be contacted by an adjuster and remind them of the duties imposed by the policy.
3) Do not authorize the insured to proceed with repairs or replacement nor make any statement that would commit the insurer to a particular course of action.
4) If certain the loss is not covered, inform the insured of this fact.
5) Follow up periodically with the insured to ensure settlement is progressing.
6) Maintain proper claims records.
7) Be helpful to insureds while at the same time, avoiding any interference in the adjustment of the claim.
8) Maintain their integrity and professionalism.
What is the best defence against an E&O claim? And why?
Documentation. The main problem faced by brokers against whom an E&O claim is made is that of credibility. A judge or jury is more likely to give credence to brokers who are able to produce documentation of conversations they had with the insureds.
Identify two types of documentation that may help to prevent E&O claims?
1) Confirming letters
2) Conversation/Telephone Logs
Even with the best of practices E&O claims still occur because broker do make mistakes. For this reason, brokers purchase E&O insurance. Summarize the following about most E&O policies.
I) Who is Covered?
II) What is Covered?
III) What is Excluded?
IV) Why is there a deductible?
I) Coverage is purchased by the principal of the brokerage firm and all brokers working for the firm are insured.
II) The insurance pays the amount for which the broker is legally liable because of an E&O subject to the policy limit.
III) Any dishonest, fraudulent, criminal, or malicious acts, failure to collect, pay, or return premiums.
IV) To ensure brokers are encouraged to develop measures aimed at preventing and controlling E&O losses a large deductible is charged.
