Almost every agent who has ever taken an E&O class has been told to include a disclaimer on of all the policies they deliver along the lines of, "It is your duty to read your policy and understand your coverage terms..." To any person thinking this caveat through, except for many attorneys and judges, the obvious assumption that statement implies is that normal people who have never, ever taken an insurance class will understand their coverages after reading the policy. This assumption is patently ludicrous. I have been teaching insurance coverages to agents for 30 years and many licensed agents with decades of insurance experience often do not understand the coverages they are selling or buying for themselves. The assumption that clients with no insurance industry education will understand their insurance contracts is a faulty assumption.
The insurance industry takes advantage of insureds by using this faulty premise. I was alerted to a story about pet health insurance. I am totally ignorant about pet health insurance, so I have no basis for my conclusion that it is a bad investment and often a scam, but that is my personal belief for the most part based on how it is marketed. The way certain carriers market their products and certain insurance products are marketed in general are often particularly good clues as to the quality of the insurance policy.
The exclusion in the pet health policy that was discussed in the news report was a bilateral exclusion. I have never heard of a bilateral exclusion. Evidently a bilateral exclusion in pet insurance is that once the left leg is repaired, the right leg is excluded. To what extent this exclusion applies, whether it must be the same joint and so forth, depends on the exact form. But that is beside the point. Why is it reasonable to assume a regular consumer will know what a bilateral exclusion means?
This exclusion is especially important if the insured does not receive the policy until after payment has been made. It reminds me of the Speaker of the House saying that Obamacare needed to be signed so everyone could figure out what was actually in the bill, which would at that point be law. A consumer cannot have a duty to read a policy if they do not receive the policy prior to the effective date. For E&O purposes then, if you are late in delivering a policy, I am not sure this caveat will be upheld if contested.
I read a cyber policy that excluded all coverage for Ransomware if the ransom payment was required to be made in anything other than a national currency such as U.S. dollars. How much Ransomware money is paid in actual dollars today? Not a lot compared to the number of demands that payments be made in cryptocurrency. Small businesses have no clue as to the significance of this de facto exclusion. However, according to the caveat in the policy they are supposed to read it and understand it? They would need a white paper on cyber claims and a cyber insurance background to understand it. An agent who specializes in cyber will still need the white paper.
Agents like to depend on this caveat to protect themselves from E&O claims. I personally dislike it because this caveat protects sloppy agents, agents who cheat their clients, and direct writers more than it helps quality agents.
However this caveat does cut both ways. I recently had a discussion with an agency owner who had signed an outsourcing agreement with a firm to manage some processing work. The owner did not read the contract they signed. It has a damage limit of $50,000 for the processing firm's mistakes, including E&O mistakes. When I pointed this out, they exclaimed that it was unfair! It was a clause that was simple to understand. It was not close to being as complicated as an uneducated consumer trying read an insurance policy.
I see buyers of agencies taking advantage of sellers all the time where the sellers do not really understand what the contracts mean. This is one reason alone to hire high-quality assistance BEFORE you enter into discussions to sell your agency.
Just as agents need help to learn coverages, read forms, and read the contracts they are signing such as outsourcing agreements, carrier contracts, sales contracts, and so forth, your clients desperately need your help to understand their policies so they can buy the coverage they really need. No one who buys pet insurance wants to learn that only one side of their precious pet is covered! Imagine if this was a human or even a car!
The most important service independent agents can provide to their clients is professional advice about their coverage needs. This service includes helping their clients to understand their policies and the difference between their policies so that not only do they not have to read their policies, but they are also assured that they have not been shortchanged by an unscrupulous agent or carrier.
Take care of your clients and do what is right for them rather than always running for cover.
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.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.