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The Agency Proposal: A Potentially Key Piece of Evidence

Posted By Curt Pearsall, CPCU, AIAF, CPIA, Friday, December 29, 2017

The agency proposal has played a key role in many errors and omissions (E&O) claims. If the proposal is clear about the proposed coverage and includes definitions and claim examples, it can be valuable for educating the client. If it also includes the necessary disclaimers, the proposal could tip the scales heavily in the agency’s favor in an E&O claim.
 
However, without this information, the proposal can hurt, if not destroy, the agent’s chance of prevailing in an E&O matter. The following is an actual E&O claim.
 
This E&O claim was asserted against the agency for providing inaccurate information about coverage when a dwelling fire policy was procured for the client’s rental property. The producer detailed policy coverages for a Dwelling Property 3 – Special Form (DP-3) in the agency proposal. Unfortunately, the agent only requested a proposal for a Dwelling Property 1 – Basic Form (DP-1) from the carrier. The client purchased the coverage, believing that he was securing broader coverage. As is the typical scenario, the client retained all documentation provided from the producer. The underlying claim involved an upstairs toilet waterline leak, which caused water damage to the dwelling’s second and first floors. The misstatement on the proposal of the coverages clearly put liability on the agency. The E&O carrier paid the claim, with offsets taken for the underlying deductible and premium difference.

How could this issue have been avoided? 

There are several ways this could have been avoided. One way is to make sure the proposal matches what the carrier proposed. In the scenario above, it is possible that the agency asked the carrier for a quote for a DP-3 but the carrier only provided the DP-1 coverage. Carriers make mistakes, too. Agencies should have a process to compare the carrier quote against the application. There might have been something in the risk that precluded the carrier from offering a DP-3, or maybe the application only asked for a DP-1 quote when the intention was to secure broader coverage.

Another method is to have the agency proposal reviewed by at least another set of eyes, with one set of eyes belonging to the producer. In the claim above, there is a good chance that further review would have identified the error. 

Another way is to use the carrier proposal. The advantage of this approach is that if there is a misstatement of coverages or a mistake on the carrier proposal, the carrier would probably bear liability for the error. If the agency is going to use the carrier proposal, it is suggested that a wrap-around document or disclaimer be included. Typically, carrier proposals do not contain the key disclaimers. A disclaimer similar to the following should be added.

Information contained in this proposal is intended to provide you with a brief overview of the coverages provided for reference purposes only. It is not intended to provide you with all policy exclusions, limitations and conditions. The precise coverage afforded is subject to the terms, conditions, and exclusions, of the policies issued.

Accuracy 

Based on your agency’s current procedures, could this type of incident happen to you?  

In the event of an E&O matter, the agency proposal is an admissible document that both lawyers can access. Since the legal standard in virtually all states will hold the agent responsible for what he or she says and what is put in writing, it is vital that the proposal be accurate.

The material contained in this article is for informational purposes only and is not for purposes of providing legal advice.You should contact your attorney to obtain advice with respect to any particular issue or problem.

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