Does your insured have a duty to read their policy?

By Ken Kukral

Much like the argument that ignorance of the law does not excuse you for breaking the law, a recent court decision in NY eroded that defense a bit recently.

I read an article on this and the hairs on the back of my neck stood at attention.  A full copy of the article can be found at:

In the days of doing business with just a handshake, to the days of having to document your files completely, it is getting tougher to operate in the insurance business.  You can only cover your backside so much before your client thinks you are trying to protect yourself more than you are trying to help protect their assets.   So what is an agent to do?  How can you protect yourself and also at the same time look out for the best interests of your client?  A few tips:

–         Get the policy in the hands of the client as soon as possible.  This may mean e-mailing them the policy as soon as it comes in and you have checked it over.  Many carriers will even send them directly to the client.  The sooner they have the policy in hand the quicker they can theoretically read it.

–         If you are the one sending out the policy, highlight important coverages, pertinent exclusions and anything else of note.  Make sure to ASK them to read the policy and let them know they can call you with any questions or concerns.

–         When you originally meet with a client take notes on their expectations and then make sure you ask them if you have met those expectations after writing the policy.  This may sound simplistic but it is important to know if the client feels you met their expectations.  Many times if you don’t ask, you will never know.

–         Make sure your proposals are detailed enough so they know a significant amount about their insurance coverage and program.  It gives you one more document to show that you went over the policy terms with the client and one more defense in court to help sway things in your favor.

–         One of the items discussed in the article is the suggestion that you provide the client with a copy of their application for their record.  By doing that you are making them aware of the information that the policy was based on and underwritten from.  If a material misrepresentation exists the client can correct it when they get the application and not plead ignorance as to what was on the application.

–         Read the last paragraph of the article.  It stresses two things, consistency in dealing with your clients (going over the coverage and exclusions with them) and documentation.  Those two internal procedures will eliminate 90% of all the potential problems and prepare you to control your E&O exposure.

–         Finally, on any exclusion that are major issues, get a specimen copy of the form, go over it with the client and have them sign that you went over the exclusion.  This is a must for certain types of risks such as writing a bar and having the client take the insurance program excluding assault & battery.  Since a large number of liquor claims involve assault and battery situations, they are left with a major hole in their insurance program.  This drives the point that you highly recommend the coverage and eliminates the expectation of coverage in the event of this type of loss.

Keep in mind that you do not have to do anything wrong in order to be served with an E&O lawsuit, so do whatever you can within your power to best protect yourself as you go along trying to do the best job for your client.  The clients who want the absolute bottom dollar quote and the most limited coverage may be the clients you want to send elsewhere.  The clients who want to be properly covered are the true “keepers”.

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