Signing Insurance Applications
Virtually all specialty insurance applications, such as Professional liability (including D&O and EPL) insurance applications, are designed to be signed by the insured because the information in an application is a representation about the risk and the information is material to the underwriter. Every once in a while we come across a situation where an agent or broker has signed an application as the insured. This is surprising because this is completely inappropriate - it is neither legal nor ethical.
We have all been subject to the pressures of binding coverage at the last minute, and this is the opportune time for a costly error in judgment. There are many reasons for communications breakdowns, and unfortunately the pressure is usually on the agent or broker. Whether an impending effective date or binder expiration date, underwriters will often not finalize an order without specific information, such as a completed and signed application. If the insured has been difficult to pin down, it is easy to take care of the problem with a signature. Unfortunately, we have seen the most wily clients put pressure on their insurance reps to resolve the situation themselves, with the result that the agent or broker signs the app. This can prove very costly for the agent.
In a recent situation a producer could not reach the client, and the insurer would not extend the binder date without the signed and dated application. The agent signed the app without instructions from the client, and, you guessed it, a claim ensued shortly thereafter. The insurer discovered that a series of prior claims that had not been disclosed on the application, but the insured pointed out that he had not made any false representations since he did not sign the application. While the case is still pending, the agent has both an insurance agents E&O claim and regulatory issues to deal with.
A recent Amercian Agent & Broker article (see here) points out the importance of proper application documentation, and notes two cases relating to this issue.
Agents and brokers should attempt, as a matter of self-preservation, to have each insured sign the application or authorize the agent or broker—in writing—to sign the application on the insured’s behalf, with a statement by the proposed insured that the application has been reviewed and the facts stated in the application are true and correct.
Good advice.
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