On September 13th, 2008, Hurricane Ike made landfall over Galveston, Texas. Ike became the third most destructive hurricane in the history of the United States with over 100 deaths and an estimated $24 billion in damages.
Almost two years after the disaster, Farmers agents continue to report E&O claims to Lancer Claims Services. As expected, the larger portion of claims stemming from this catastrophic event involved personal lines; however there have been a fair number of commercial claims as well. As Lancer has investigated the hundreds of claims reported, a few trends were uncovered.
Wind, Flood and FAIR Plan issues
One of the most prevalent issues we have seen following Hurricane Ike involves the number of E&O claims that stemmed from the placement of coverage with the Texas Windstorm Insurance Association (TWIA). While it is not unusual to expect claims to be concentrated in Wind Pools, NFIP or FAIR Plans following a catastrophe, there seems to be a common theme underlying these claims. Agent Appointments with alternative markets such as NFIP or FAIR Plans, etc. do not typically grant the agent binding authority and TWIA is certainly no exception. Farmers Agents do not have binding authority with TWIA and further, coverage is not effective until the application and premium payment is received by TWIA. Numerous claims have been reported where the agent or his staff failed to advise their clients that coverage was not bound or further the Agent issued a binder evidencing coverage when no coverage was in force. Additionally, many claims reported to Lancer concerning Ike and catastrophe related E&O claims in general, involved the failure to timely forward the application and premiums to the alternative market and verify with the carrier that coverage had indeed been bound. In some cases the agent’s staff had documented that the premium was mailed but the association did not receive it. There were several instances where the documents and payment were received by the market after a moratorium had been put into effect. In other cases, the agent’s agency’s business operations were interrupted by the storm and as a result the application and premium payment were never forwarded. When the discovery is made after the storm has hit, it’s too late.
To reduce your exposure to claims similar to those described above, you must be aware of the guidelines for placing coverage with an alternative market. If a particular alternative market requires that the application and premium payment must be received for coverage to be in force then this stipulation must be communicated to the client in writing and no binder of coverage should be issued until confirmation that coverage is bound has been received from the alternative market. Unless specified otherwise, clients tend to assume that coverage is bound the moment they request the coverage from the agent. Standard office procedures should be in place to minimize the occurrence of processing errors which could cause a delay or prevent appropriate documents from reaching the carrier. Use of certified mail or another formal method of confirmation should also be utilized to verify that the application and premium have been received by the alternative market to ensure coverage is in force.
With a little extra E&O preparedness, agents can avoid a catastrophe of their own.
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