Let's Make Lemonade out of Lemons
Updated: Aug 25, 2020
The COVID-19 pandemic is certainly a huge lemon thrown into our lives, the economy, and most likely E&O claims. I do not believe the common line I am hearing that "no coverage exists" is the right response, especially for agents, to give clients. In fact, agents should not tell clients they do not have coverage, ever, and especially now. Let's assume there is no coverage and discuss the likely E&O claims anyway. We can make lemonade out of these lemons.
One of the top errors agents commit is trying to help clients get claims paid and/or telling them coverage for a claim does or does not exist, etc. Don't! Stop! Don't let anyone in your organization pretend to be a claims adjuster. This is not your job. You are, in fact, prohibited for all practical purposes from performing this job! The insurance contract is between the insured and the carrier. The agent is not a party to the insurance contract, so you have no right to interfere.
That said, following up on claims, making sure the adjusters remain timely and maybe even helping some of the adjusters read the policies correctly (behind the scenes) are all good actions. You can be proactive within a narrow scope as an agent.
Major, top of the list allegations that insureds typically make against agents, and I can see this really being the case relative to COVID-19, are of failure to procure appropriate coverage or limits and failure to advise the client of policy exclusions or limitations.
For a fact, almost all businesses, non-profits, and even governmental entities are realizing they do not have adequate business interruption insurance. The question is whether the agent should have procured appropriate coverage. Hindsight is definitely, to me, a different view from foresight. Additionally, finding business interruption coverage specific to COVID-19 for regular insureds was most likely nearly impossible. It may have been impossible, but I'll use the conditional word, "nearly" in case it was available in some corners of the industry and also excluding potential case law that discovers an opening. (The potential for case law to develop whereby coverage is discovered is another reason agents should not tell clients there is no coverage, because in the event coverage is identified but the client did not file a claim, the agent might incur a serious future E&O claim.)
The issue of failing to procure adequate limits is potentially a different situation relative to general liability and D&O. Failure to procure adequate coverage might also be an issue with workers' compensation. The broad exclusions applicable to business income and property insurance might not be so broad relative to these forms and limits.
However, let's say that the coverage was not available and therefore, the agent's failure to procure adequate coverages and limits was the equivalent of a failure to procure the impossible and is therefore a moot point. That leaves the question of whether the agent failed to advise the client of material policy exclusions.
This brings me to that critical, ever-present fork in the road and maybe to that old proverb dating back to Tudor times regarding not being able to have your cake and eat it too.
One of the leading allegations and most common errors defense attorneys witness is agents who hold themselves out to be experts, specialists, and I'd say risk managers when they are just common agents. Without going into standards of care by state and those details, I believe it is safe to say, generally, that an agent who is acting just as an agent and who emphasizes the warning, "You must read your policies and advise if the coverage is correct and adequate and so forth and so on..." is not holding himself/herself out to be much of anything other than an order taking agent. The fork in the road is whether one wants to just be an agent or if one likes the sexier and often more lucrative "risk manager," "expert" or "specialist" titles. The latter titles mean the standard of care is much, much higher. While an agent may not have any responsibility to advise their clients that they don't have this or that coverage, that same bottom of the barrel standard of care most likely does not apply to risk managers, experts, and specialists.
You can't have your cake and eat it too. I have witnessed a lot of sales consultants telling their clients to advertise themselves, the producer, as a risk manager. However, 100% of the time they failed to explain the far higher standards of care to which they are likely to be held. Offering far superior advice to clients is awesome but having the ability and knowledge to offer that advice comes first. What the sales consultants have backward, because they know selling business insurance correctly is so difficult, is that the title of "risk manager," "expert" or "specialist" does not come first. The knowledge comes first. Giving people this title as soon as they get a license is putting the cart before the horse, and I am thinking those agencies that have done this may have significant E&O exposures.
I don't think people claiming to be risk managers, experts, and specialists can hide behind the disclaimer, "You have to read your policy..." There is a fork in the road. Both directions have advantages. One is not inherently better than the other for everyone, but you can't have it both ways.
This brings me to some sweet lemonade. I haven't seen a better opportunity in the last ten years for true risk managers to excel. True risk managers know their coverages, procedures and risk management techniques (to be a true risk manager vs. a fake one, one has to have deep knowledge of coverages and risk management). I am personally having a blast working with people willing to put in the hard work to learn their coverages and risk management approaches. It is fun, and they are typically outselling their competitors by three to one. Their E&O risk is much lower too because they are truly covering all the bases, not just pretending to cover the bases.
It is funny how, when a person knows their coverages extremely well, risk management comes so much more naturally, and E&O exposures decrease while sales increase. This is the way to make lemonade out of the lemons with which we've been dealt. If you are willing to put in the hard work to be a true risk manager and massively increase sales, contact me. It's a lot of fun.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.