When Ignorance Meets Reality
I was working on an agency’s E&O claim when the following happened: The agency’s attorney read the contractual clause to the agency owner and producer. The clause was direct, with no grey area. The attorney explained the facts as he knew them regarding the clause and asked whether his understanding was correct. The producer and agency owner agreed the facts were correct. The attorney then suggested they settle because the agency was clearly wrong.
The producer declared that in all his years, he’d never heard of any such contractual requirement and that he would never abide by that clause because it would make his job impossible, and therefore, he needed to quit, or some reasonable jurist needed to delete that clause in all contracts.
The attorney asked me how long I thought that clause had been in common use. I advised that it’s in almost every contract I’ve reviewed over nearly 40 years, and it happens to be a very logical clause. Ignorance met reality.
The producer’s ignorance had no negative impact for years. But that does not mean the other party did not enforce the contract, and therefore, his ignorance does not change the contract. Ignorance of the law is not a valid defense against being subject to the law. Contract law does not differ that much from criminal law on this point, especially when the clauses are straightforward and simple to understand, as this one was. The producer was ignorant because he had never attended a quality E&O class, or he hadn’t listened and learned in one.
And moreover, case law on this point hasn’t changed in at least 40 years, in my experience. It is a simple and long-standing clause common in most similar contracts. This is what makes it a perfect example of ignorance because legitimate alternative interpretations do not exist. He was just ignorant, and when reality hit him hard with an E&O claim, he became irrational.
I see other versions of this daily, though not usually so cut-and-dried. I have seen it multiple times when agency owners violated trust law. They had been spending money that wasn’t theirs for years, and when caught, they acted like they were the victim. They declared no one had ever told them they couldn’t spend their clients’ money.
I see it when producers must face the fact that they have no idea what the policy wording they’ve been selling for years says. I see it when producers don’t tell insureds the implications of workers’ compensation for employees working out of state and then claiming, “Why didn’t someone teach me this?” My retort: "Why didn't you learn it?"
I see this regularly when I point out a law and my clients, and often their professional advisors (accountants and sometimes their attorneys), ask if they can ignore the law without repercussions or risk. I’ve had clients deny that laws apply to them because they thought the laws were stupid. They decided to pretend they didn’t know those laws existed (particularly tax laws and sometimes labor laws).
I see this often with producer contracts that almost certainly violate tax law. So far, I haven’t had an attorney say, “Thank you for pointing this out.” I also haven’t had one offer to refund my clients their fee for writing a contract that violated the law, and these are truly black-and-white, serious errors.
Psychologically, people are not well-designed to be confronted with anything that requires them to change their behavior or practices. The clause the producer viscerally hated meant he had to tell his clients to change their behavior, and he was scared to death he’d lose them if he advised them correctly. He truly preferred to take his chances that nothing bad would happen if he allowed them to remain ignorant. It is an understandable reaction.
The agency owners who misappropriate clients’ money do not want to admit they committed a criminal act, which prevents some from returning the money before being discovered.
The producers who blame others for not educating them don’t want to take responsibility for their own education. They prefer a helicopter-parenting or nanny-state environment to avoid personal accountability. It’s less work.
The attorney who writes contracts for which they’re completely unqualified wants money and the prestige of having clients think they can handle any kind of contract. It’s easier.
Being educated and doing things the right way is hard work. It is tiring. It is frustrating. It presents all kinds of other difficulties, particularly from a producer’s perspective of educating clients who really don’t want to be educated. Producers feel vulnerable because they know competitors will be pitching easy street, hiding reality from the customer, and knowing the customer may fall for the con.
I’d like to say that it’s just time to grow up in many cases, and it is, but that never results in anyone growing up. Maybe I should direct them to Kübler-Ross's Five Stages of Grief and suggest counseling. They did not suffer a tragedy or death, but it is the death of a long-held ignorance. It may seem flippant, but reality is not what they thought it was, and they liked the fantasy world better.
Everyone must figure out how to best deal with these situations themselves. Sometimes I’ve been so frustrated when confronted with a new personal reality that I’ve researched the subject extensively to learn if there are alternatives and to understand how I could have misunderstood it in the first place. But I try not to merely reject what I am being confronted with.
If you are a manager and you have these situations, I wish I had better advice for you other than to become a counselor and carve out hours from your already busy schedule to let your employee talk themselves straight. They have to work it out for themselves, and reflecting back on Kiebler’s Five Stages of Grief is a decent outline for those discussions. I just don’t know where most people would find the time and patience.
A more proactive solution is education. The state of education in the insurance industry is miserable, which only creates more and more of these situations. A good manager, though, will insist and pay for constant high-quality education because the only way to minimize ignorance is through life’s mistakes and education.
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.
