r Key E&O Issues by Line of Business

Transcription

1 Education ProgramS r Key E&O Issues by Line of Business sponsored by

2 Curtis M. Pearsall, CPCU, AIAF Pearsall Associates Inc. Special Consultant to Utica Mutual E&O program James T. Scamby, Esquire Heifetz Rose LLP General overview of the E&O Climate / stats / claims / trends Discussion on the top E&O issues for the following lines of business: Commercial Liability Commercial Property Workers Compensation Professional Liability / D&O Commercial Auto Personal Auto Homeowners Inland Marine Wet Marine Umbrella 1

3 Review of the following issues: 175 L New Law on Certificates of Insurance The impact of how you promote your agency on an E&O claim The value of account reviews Frequency nationally 5.5 claims per 100 policies 1 out of every 18 agencies (2015 ytd) In Mass, frequency is 5.2% (2015 ytd), down from 6.2% in 2014 Severity- Average (national) is $60,000 + plus $12K for defense costs 2

4 50% by producers 50% by the rest of the staff (CSR s, receptionist, claims staff, etc.) Is anyone in your agency immune from causing an E&O claim? 3

5 E&O loss control What is the commitment / culture of your agency? Is it stronger today than it was last year at this time? What is your personal commitment to E&O prevention? Is it stronger today than it was last year at this time? 4

6 Commercial Liability Commercial Liability Issues: The Additional Insured Issue More limited coverage when placed in the E&S market / endorsements that exclude BI / PD for contractors If Liability is on claims made basis, retro date implications Does the policy provide contractual liability coverage? Potential for lack of understanding by contractor of coverage provided 5

7 Commercial Liability The Additional Insured Issue Important for agents to understand that there are numerous Additional Insured endorsements that provide different degrees of coverage Differences can be significant, such as, is coverage provided for the AI s own negligence, or only for claims arising out of the Named Insured s negligence (vicarious liability), etc.? Does the AI endorsement provide the coverage that the customer has requested? Commercial Liability The Additional Insured Issue What are the contractual requirements that agents should be aware of? Example: limits is an endorsement required to satisfy the limit requirement? What is the language of the specific AI form regarding the requirement that there be a contract in place? (this is usually a requirement on Blanket Additional Insured forms) Just because one of your clients has blanket additional insured coverage on their policy does not mean that ALL additional insureds are automatically covered. 6

8 Additional Insureds Common language: Who is an insured is amended to include as an insured any person or organization (called additional insured) but only: a. To the extent that such additional insured is held liable for your acts or omissions arising out of and in the course of ongoing operations performed by you or your subcontractors for such additional insured and b. Arising out of a written contract with such additional insured which was executed prior to.. Commercial Liability The Additional Insured Issue Certificates of Insurance does the certificate match the coverage provided? 7

9 Commercial Liability Potential for coverage differences among carriers (especially when coverage is placed in the E&S market) - Classification Limitation Endorsement - Insurers no longer providing contractual liability giveback for insured contract exposures - endorsements that exclude BI / PD for contractors - Lack of understanding of coverage provided contractors believing that Faulty Workmanship is provided Commercial Liability Policy on a claims made basis? If Liability is on claims made basis, there can be retro date implications, especially when coverage is being switched at renewal time. If coverage is being switched from an occurrence form to a claims made form, important to ensure that the customer understands the issues and the proper claims retro date is provided. If coverage is being switched from a claims made form to an occurrence form, there is a tremendous potential for a gap in liability coverage. Does the client need to purchase a tail? 8

10 Commercial Liability Importance of Education of the staff, especially the producers - Need to understand and to identify any differences among coverages and to then educate the client on the necessary issues - Important to understand that not all GL / AI forms are the same - If agency is going to be reviewing contracts, the individuals performing the review need the proper education and training Commercial Property 9

11 Commercial Property Issues: Inadequate Limits key question is whose duty is it to advise regarding appropriate limits? Client s lack of understanding of the need for ITV and the consequences (co-insurance penalty) when limits are not proper at the time of loss Commercial Rental Exposures / implications of vacancy exclusion and the differences between various DP forms Commercial Property Issues: When the job goes from a construction site (builders risk) to a completed job when is the conversion / change in policies made? Moving coverage to a different carrier are you matching the coverages of the expiring policy? Placing coverage in the E&S marketplace is the coverage what was requested? Who has the duty to note the differences? 10

12 Commercial Property Moving Coverage to another Carrier: Claim example: Client had Ordinance & Law upgrade coverage on expiring policy. When the agent proceeded to move the coverage to a new carrier, the agent did not check the box for this coverage on the application. Total fire loss occurs elevator had to be installed in the rebuild to meet the code. Due to lack of Ordinance & Law coverage, the cost for the installation of the elevator was not covered. Commercial Property Placing Coverage in the E&S market: Claim example: Agent requests Special Form coverage on the application to the Wholesaler they were using. Wholesaler issues a quote / policy only provides Named Peril coverage (Wind only). The agent does not identify the lack of requested coverage and the client does not recognize the error in requested coverage. 11

13 Commercial Property Placing Coverage in the E&S market: Claim example (cont d) Fire loss occurs damages in excess of $500K. Claim is denied. E&O Claim investigation is ongoing but it is doubtful that agent can escape liability. Potential comparative negligence on the part of the wholesaler? Wholesaler will contend that they included disclaimer language on the proposal and it is the agent s job to identify differences between coverage requested and coverage proposed. Workers Compensation 12

14 Workers Compensation Issues Failure to procure Providing workers comp for clients who work in multiple states Sole proprietor / partnership accounts Is WC policy subject to audit? If WC coverage is being placed in the residual market (Assigned Risk / State Fund), when is coverage bound? Workers Compensation Failure to procure There were court cases (key one was Rae vs AirSpeed Massachusetts early 80 s) that seemed to impose a higher duty on agents to secure workers compensation for their clients when that coverage is considered mandatory. 13

15 Workers Compensation Failure to procure Not only does the client need workers comp but it is important that the client know that any sub contractors they hire have workers comp as well. If an employee of the sub is injured on the job and the sub does not have any workers comp, the contractor that retained the sub could be deemed to be the employer and have to provide the workers comp benefits. Workers Compensation Failure to procure Actual claim: The contractor that retained the subcontractor became the statutory employer for an injured worker (catastrophic injury) of the subcontractor since the sub did not have any workers comp coverage. The problem was that the contractor did not have any workers comp coverage due to the agents failure to procure coverage (there were representations made that coverage was secured and Certificates of Insurance were issued reflecting the coverage). 14

16 Workers Compensation Sole proprietor / partnership accounts Key issue when the client has work comp coverage, is the sole proprietor / partners under the impression that they are covered by this policy? Some states exclude this class of employees and they have to opt in if they want coverage other states include these employees and they have to opt out. (also premium implications as payroll would be included) Workers Compensation Sole proprietor / partnership accounts The main issue that is causing E&O claims is that there are individuals who are under the impression that they are covered and thus eligible for WC benefits in the event of an injury. Do they know if they are covered? Do they know what the policy states? Have they completed the necessary paperwork in the necessary time periods? 15

17 Workers Compensation Providing workers comp for clients that do work in multiple states For those states in which an employer is actively conducting business operations at the effective or renewal date of the policy they must be listed in Item 3A. The other remaining states, those where the employer may, at sometime in the future conduct business operations, must be listed in Item 3C. If an employer begins operations in a 3C listed state, the standard policy requires the employer to notify the insurance company as soon as work begins. 16

18 Workers Compensation Providing workers comp for clients that do work in multiple states Monopolistic fund states require that workers compensation coverage be purchased from the state fund. Monopolistic fund states, with the exception of North Dakota, do not have a provision for providing an "all states" provision. Monopolistic states are: North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the US Virgin Islands Workers Compensation Subject to Audit There have been situations where the customer buys a WC policy and receives a significant additional premium upon audit. The customer sues the agent (E&O claim) claiming that they were not aware of the audit provision. Agents should ensure that proposals / offerings of coverage include statements detailing any audit provisions. Also any discussions regarding this issue should be well documented. 17

19 Workers Compensation WC policies written thru the state Assigned Risk market As with any residual markets, agents need to be aware of what provisions / requirements need to be met for coverage to be quoted / bound. Agents should be aware of what rights they have to issue certificates of insurance or other evidences of coverage on business written through a residual market. Professional Liability / D&O 18

20 Professional Liability Issues: Switching carriers (to save $$) issues include the importance of not advancing any retro date and the reporting of known circumstances Switching from claims made to occurrence or vice versa Relying on GL coverage to provide coverage for all services rendered does your client have a professional liability exposure? How well does the professional liability policy cover the various services performed by the client? Professional Liability Retro Date This date is extremely important with professional liability policies. For an error or omission to be potentially covered, the act that is alleged to have caused the injury / damage must be after any applicable retro date. The best coverage is full prior acts. If the carrier requires a retro date, it is important to maintain that date (failure to do so would essentially eliminate coverage for any incidents that occurred prior to the retro date). When switching claims made coverage from one carrier to another, DO NOT advance the retro date. 19

21 Professional Liability Actual E&O Claim Agency client was a nurse staffing agency. Agency changed carriers for the coverage. When they did so, the replacement coverage was written with a retro date equal to the inception date of the replacement policy. No ERP ( tail ) coverage was purchased. Nurse (and the staffing agency) were sued when the nurse dropped a patient while moving them from a chair. This incident occurred before the inception date of the replacement coverage, but the claim was made after the replacement coverage was in effect. When the claim was denied, the agency was sued. Professional Liability Actual E&O Claim Client was a non-profit entity (staff of 85). In Dec 2009, an employee filed a complaint with the DOL for unpaid wages and retaliation. Little had been heard from the DOL and feeling that they had done nothing wrong, client assumed issue had been resolved client met with agent and asked agent to shop coverage for a lower premium (which agent did). Client completed the application (considered a warranty) but did not divulge DOL complaint. 20

22 Professional Liability Actual E&O Claim (cont d) Late 2010 client reports another EPL claim involving the same issues of the prior complaint. Carrier denies claim for prior notice, misrepresentation on the application and an exclusion for wage / hour violations. Claim was then tendered to prior carrier who denied for late reporting. If client had stayed with same carrier, there would have been coverage for the claim and the $150,000 in defense costs. Agent had advised client that coverage was the same. Professional Liability Lessons Learned - Emphasize to the client the importance of reporting all known circumstances, which could develop into claims, to expiring carrier. - Confirm that claims subsequently made will relate back to the potential claims reported to expiring carrier. - Do a thorough comparison of expiring and new policies, ensuring no deficiencies (if there are, can deficiencies be corrected)? - Advise client of deficiencies in writing. - Review for need of ERP (a/k/a tail coverage). 21

23 Professional Liability Issues: While the majority of professional liability coverage is written on a claims made form, there certainly is the potential for certain classes of professional liability to be written on an occurrence form. Switching coverage from claims made to occurrence or vice versa is a matter that needs careful review and understanding. Professional Liability Issues: When switching coverage from occurrence to claims made, agents should look to secure a retro date to cover the earliest potential wrongful act (with products liability, this can be a significant issue due to negligent design or manufacture of a product). It is important for the agent to provide full and open disclosure to the customer to make sure they are aware of any potential issues (all conversations should be documented in the system and in writing back to the customer). 22

24 Professional Liability When switching coverage from claims made to occurrence, this presents some significant risks. Agents need to fully understand how coverage responds under both policy forms. This will help to determine the need for your client to secure tail coverage. Occurrence form the policy in effect when the injury or damage occurs will respond to the claim. Provided the injury / damage occurred during the policy period, an occurrence form will respond regardless of when the claim is brought. Claims made the policy in effect when the claim is brought is responsible for responding to the claim. For coverage to apply, the injury must occur (E&O) after any applicable retro date. Professional Liability Don t rely on the GL coverage There are many risks that have a professional liability exposure where the customer may believe that their GL policy will respond to those types of claims. The best place to analyze whether a professional liability exposure exists is through the use of an industry exposure analysis checklist. Another effective approach is to ask your carrier underwriters whether they will be including a professional liability exclusion on the GL policy. This provides a good indication that there is a professional liability exposure and that the GL does not intend to cover that exposure. 23

25 Professional Liability Professional Services No two E&O / professional liability policies are the same. One of the common areas of difference is the list of professional services. Just because the professional service was listed on the application does not mean that the carrier will provide coverage for that exposure. Agents should always secure specimen policies for their review. These forms should also be provided to the prospect and they should be required to review them to determine if they are covered for all of the services they provide. Commercial Auto 24

26 Commercial Auto Issues Need to understand the exposure. Proper use of an exposure analysis checklist is a great place to start The EAC (exposure analysis checklist) provides detailed information by class of business what typical types of auto exposures your account has - Are ny workers comp coverage due to the agents failure to procure coverage (there were representations made that coverage was secured and Certificates of Insurance were issued reflecting the coverage). Commercial Auto Are any officers, partners or employees furnished an automobile for personal use? Are owned vehicles used for towing special equipment (air compressors, concrete mixers, etc.)? Are operations periodic or seasonal, resulting in the lay-up of any vehicles for 30 consecutive days or more? Are any automobiles equipped with cellular telephones, two-way radios, citizens band radios or similar devices? How many automobiles are parked in one location overnight? Does the applicant lease/rent vehicles to others with operators? What is the maximum/average radius of operation? Is there a hired/non-owned exposure? 25

27 Commercial Auto Named Insured status/ Drive Other Car coverage. It should be standard practice to offer the owners of the business (where the business is the named insured) additional Named Insured status or "Drive Other Car" coverage. Should a businessowner be injured while as a pedestrian or as a passenger in another vehicle, this coverage would be needed to collect Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage from the Commercial Auto policy. Limits issues Adding / deleting the wrong vehicles Replacement of coverage Personal Auto 26

28 Personal Auto Failing to adequately document discussions regarding limits. After a claim, either the client will allege that they thought they secured the higher limits, or the agent had recommended that higher limits be secured. Personal Auto Failure to obtain proper waivers for UM/UIM secure al of the necessary signatures Failure to identify all drivers in a household 27

29 Personal Auto Garaging / Kids at college Excluded operators Application is it signed / accurate? Did the client review it? Authenticity of signature is it ok to sign their name (with your initials?) Limits are you recommending Teenagers becoming drivers Various customer questions / the what if s Personal Auto Car Dealer issues Out of state customers Language issues Divorce Parents taking kids off of their policy Carrier financial solvency Perceptions Valuation (customization) 28

30 Homeowners Homeowners Agent determining the HO / Dwelling property limit as opposed to asking the client what limit they want be careful unless you are an appraiser 29

31 Homeowners Agent failed to advise the carrier of issues pertaining to the risk (dogs, prior cancellations for non-pay, type of construction, wood stoves, loss history, etc.) * The timing of when to switch from a Builder s Risk to a HO policy Dogs According to I.I.I., dog bites cost the insurance Industry $530 million in 2014 avg $32,072!! Carriers are filing endorsements to: - exclude various breeds - include sub-limits 30

32 Vacancy Homeowners Difference among forms Limitations Kids away at school Change in exposures Earthquake / Flood Ordinance or Law coverage Home business Inland Marine 31

33 Coverage shortfalls Inland Marine Coverage differences between HO and IM Unknown Coverage terms 2,600 collectible clubs! Wet Marine 32

34 Wet Marine Differences in coverage between HO and stand alone policy Binding authority are all carriers the same? Survey requirements (age / length, HP, etc.) Coverage limitations Hull coverage Best Practices (regardless of the line of business) Documentation of Discussions The file should reflect the discussion. In addition, it may be necessary and appropriate for the producer to send the client some form of written communication memorializing the discussions that occurred. Without that documentation, the courts may take the position: if it s not in the file, it didn t happen 33

35 175 L New Law Re: Certificates of Insurance 175 L - COI Took effect 4/7/2015 Prohibits the use of any certificate which is unfair, misleading, or deceptive, or violates public policy or any law or regulation. While 175 L speaks to the standard disclaimer language found in most industry-form certificates, how the courts will interpret this new statute is unclear at this time Claim: Witkowski vs Richard W. Endlar Ins Agency, Inc. 34

36 175 L - COI It is illegal to knowingly issue a certificate which contains false or misleading information or to prepare a certificate which purports to alter, amend, or extend coverage. A certificate which is found to violate the statute is considered null and void. 175 L - COI Three other provisions of note: A person is entitled to notice of cancellation, nonrenewal, or any other material change in the referenced policies only if that person has a right to such notice under the terms of those policies The certificate may not warrant that the referenced policies comply with the insurance or indemnification requirements of a contract, and the inclusion of a contract number or description within a certificate of insurance may not be interpreted as doing so The Commissioner of Insurance is authorized to promulgate rules and regulations as necessary or proper to implement this new law 35

37 175 L - COI Let s look at the bill. How you promote your agency can it really make a difference? 36

38 How you promote your agency What does your promotional material / website say about your duty / commitment to insuring property at necessary limits? Actual website: Many companies refuse to write your personal property at its full replacement value. However, with our carriers, we insure your property to 100% of its value. Instead of being faced with a claim and finding out your property is inadequately covered, rest assured knowing that our team has your property sufficiently covered. How you promote your agency What words are used? Expert.Specialist.by carefully evaluating your needs..our team has the knowledge and resources to support you in all aspects of your employee benefits program The Best coverage at the Best Price 37

39 How you promote your agency Best practices: At least annually, review all marketing material, website, etc. to see how you are putting yourself out to the public Are you being true to your statements? Accounts Review why they are a win-win! 38

40 Account Reviews Allows the agency to interact with each client to get an update on the client s exposures. A client s exposures can obviously change and, unfortunately, some changes can result in exposures not being properly insured. Your agency can help educate the client by discussing the changing exposures and securing coverage before a loss occurs as opposed to after. Account Reviews Education of your customers can be a very effective loss prevention tool What insurance they have and what is / is not covered Options to upgrade their insurance program Document the discussions 39

41 Account Reviews What is the average # of policies your agency has for each personal lines customer Account reviews will help you sell more insurance Even the offer will aid in the agent s defense Account Reviews How do you do it? Face to face Phone discussion Annual mailer 40

42 Account Reviews Account Reviews 41

43 Account Reviews THANK YOU! 42