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What are some common insurance agents' claims?

02-14-2024

An insurance agent protects himself from insurance agents' claims

Insuring other insurance agents can be tricky. After all, aren’t they the ones that are supposed to be providing insurance to everyone else?

Well, yes, they are. But when the US insurance agent industry manages over $1 trillion of insurance premiums every year, having your own Errors and Omissions (E&O) cover in place is a necessity.

It’s also important to remember that insurance companies make mistakes too. Just like everyone else. So it’s extra important that insurance agents cover their own backs.

But what do those mistakes look like? In other industries, claims like theft, fire, flood, accidental damage, and personal injury are common. Is this the same in the insurance industry?

The best way to answer these questions is with some examples of insurance agents’ E&O claims.

(Any names and companies in these examples have been changed.)

Common claim #1 – Failing to pass on a claim to the insurer

Insurance agents work with loads of different insurers to find their clients the best deal.

When it comes to making a claim on their insurance, though, a breakdown in communication can lead to a big problem:

Brett has business insurance through his local insurance agent. After a difficult contract goes wrong with a client, he’s sued for professional negligence.

He immediately calls his agent and starts a claim. After going through all the details, his agent says that he will speak to his insurer to continue the process.

Two weeks go by and Brett hasn’t heard anything from his agent or insurer about his claim. As legal proceedings against him have started, he’s had to find his own counsel and pay out of his own pocket.

He calls his agent, who admits that a particularly busy day led to him forgetting to file the claim with the insurer.

This delay caused a lot of stress for Brett, as well as some financial difficulties.

Insurance agents are required to inform their client’s insurer of a claim as soon as possible. If they fail to do so, a claim can be brought against them.

In this case, Brett would be well within his rights to sue his agent for damages.

Common claim #2 – Failing to notify the policyholder about cancelation of their insurance

In most cases, insurers can prematurely cancel policies for a variety of reasons.

It could be as simple as non-payment. Or something more complex, like not disclosing key details, or the insurer suspecting the policyholder of fraud.

Whatever the reason, insurance agents must notify the policyholder as soon as possible:

Toby is an insurance agent. One afternoon, he receives an email from one of the insurers he works with.

It’s a notification that they’re canceling one of his client’s policies. Apparently, his client hadn’t disclosed a previous claim, making his policy void.

Toby knows he needs to inform his client of the cancelation immediately. But he’s in the middle of a tricky situation with another client.

He decides that he’ll sort this problem out and then email his client about the policy cancelation.

Unfortunately, he gets tied up for longer than expected and it takes him over a week to send the email.

In that time, a claim has been brought against his client that would have been handled by his insurance. If it were still in place.

After his client found out that his policy had been canceled the week before, he sued Toby for not informing him.

Toby’s landed himself in a lot of hot water in this example.

He took far too long to notify his client of the policy cancelation. Because of that, his client wouldn’t be covered for the claim that was brought against him in the meantime.

If Toby had notified him immediately, he may have had time to find alternative insurance before the claim was filed.

Common claim #3 – Excessive claims delays

Insurance companies face a lot of pressure to settle claims quickly. Failing to do so can leave policyholders in difficult situations.

It’s easy to understand why. As a business insurance policyholder, a slow claims process could mean the difference between your business succeeding or failing:

Katie has professional indemnity insurance through an insurance broker.

After a particularly difficult contract with a client, she receives notice that her client is suing her for negligence.

Katie immediately contacts her broker to start an insurance claim. She knows that she can’t afford to pay the legal fees to fight the claim, let alone any compensation she might owe.

Unfortunately, the claim is misfiled by her broker. This leads to a delay in the claim being handled.

After waiting for six weeks and endlessly following up with her broker, no progress has been made. She can’t delay the legal proceedings any further, so has to settle out of court to avoid piling on even more legal fees.

This costs her business dearly and leads to many stressful days and sleepless nights.

After complaining to her broker, it turns out that the claim wasn’t misfiled. Her broker had just neglected to file it with the insurer for over a month.

Katie sues her broker for an excessive delay in handling her claim.

A claim taking a long time doesn’t always mean negligence. There are times when a claim can take a while because of its complexity, or there are delays in getting the information to settle it.

There’s a reason claims like this are so common, though: because it happens a lot. For insurance agents, it’s always better to be proactive and communicate well when it comes to claims. Even if they do end up taking longer than expected. Or mistakes are made.

How insurance can help with insurance agents’ claims

Insurance agents’ claims, like the ones above, can cost you a lot of time and money. Especially if you don’t have the proper insurance agents’ coverage in place.

Errors and omissions insurance can pay for your legal fees if you’re hit by a claim, whether you’re at fault or not. So that a mistake doesn’t leave you with a massive bill.

Find out more about your E&O insurance for insurance agents options. Or give us a call at 978.344.4215 if you have any questions.

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