Insurance Agents Should Not Make Claims Decisions

Insurance agents & brokers could put their insurance agents E&O (professional liability or errors & omissions) at risk by making a coverage determination in a claims situation.  Making coverage decisions is the insurers job, and agents can get into trouble by representing coverage to insureds as they try to provide the best service to their clients.  This risk became clear to an insurance agent defendant in a recent claim that ended up costing millions.

 

In an article in American Agent & Broker (see here), the agent/broker role is clearly defined:

Insurance agents and brokers should never make a claims decision. Claims handling is the duty of the insurer’s claims staff. When a claim is reported to an insurance agent or broker, their duty is to immediately report that claim to the insurer to investigate the facts and the policy wording to determine if the loss is compensable under the policy. Failure to do so can lead to discipline from the Department of Insurance and damages incurred by the insured for the error.

In this particular case (Richey v. Philipp, see here), the agent misrepresented to an insured that their homeowners policy did not provide certain coverage.  A third party was subsequently seriously injured as a result of this misrepresentation, and sued the insurer and the agent.  The resulting judgment in favor of the plaintiff, affirmed on appeal, was $12.6 million.

 

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Comments

[John]

Agents should never make a promise when it's really the decision of the insurance company. Go to bat for your clients but never promise what the outcome will be

[Piper]

Wow! I'm sure the lawyer told the homeowner about the E&O. Most insured's rely on the "agents" being the first person of contact, to reveal coverage perils and such.

As an agent, I would broadly tell them what is covered. But, yes, your very right when it comes to handling a claim, it's just easier to tell the client to call the adjuster handling the claim.
To save your butt. Most insureds' do not understand why they have to talk to more than one person who represents them as an agent. I do understand that frustration and just do the best to help explain why it's crucial to deal with the adjuster on situations such as this.

Love your blog!

[ravi]

12.6million$ is a great deal.Faults like this can lead to several losses.
gd article to insurance agents.That they keep in mind