Certainly in the majority of these situations, this occurs where the agency has bound the carrier to a risk that is outside of the carrier’s underwriting guidelines. Using homeowners to illustrate the issue, this lack of adherence to the guidelines could involve a multitude of areas such as age of the home, type of construction or maximum limits. Before the carrier can address the issue, the house suffers a major loss. The carrier could come back and allege that they would not have written the risk based on various circumstances.
In many of these claims, during the discovery process, the agent emphatically stated that they had spoken to the carrier underwriter on this risk and received permission to bind even though the risk was outside of the guidelines. Unfortunately, in most situations, there was no documentation in the agency file or a note back to the carrier underwriter.
How could these claims have been prevented? Obviously, it is important to know your carrier guidelines. There is no doubt that they can vary from carrier to carrier so don’t presume that they are the same. Also, since these guidelines can change, especially as a market hardens, ensure that you have a procedure in your office to keep the staff up to date on the changes.
In addition, where you have a risk that is outside of the carrier guidelines and you receive permission, the okay from the carrier, to bind the risk, send them a note (e-mail is suggested due to the speed of the delivery) detailing the discussion and what was agreed upon. Include a statement that if your understanding of the conversation is not correct, that the underwriter should advise you promptly. This puts the responsibility on their shoulders and will serve as solid protection of your agency.
It is highly recommended that anytime that you interact with your carriers (or wholesalers as well) on risk characteristic or coverage issues, be sure that your file reflects the essence of the conversation. There is no doubt that documenting the conversation back to the carrier takes time but it is time well spent. With this type of documentation in the file, there is a good chance that the E&O claim will not even develop. If it still does, that the odds of a successful resolution in favor of the agency have been substantially increased.