Case Studies-Renewals

Renewals Case Study #1

The Scenario

The agent provided a summary of coverage to the insured at renewal. On the summary, the agent indicated that pollution coverage was available, but did not specifically offer the coverage to the insured. The renewal policy limited pollution clean up coverage to $10,000. The insured suffered a loss and the pollution clean up costs amounted to $100,000.

The Issues

  • Failure to disclose a limitation contained in a policy.
  • Failure to properly represent the provisions of a policy in a summary of coverage

The Outcome

Since the limit for pollution clean up was clearly stated in the policy, the E&O carrier was able to successfully defend the insured. The insured is responsible to read his or her policy.
Settled in favor of the agent prior to litigation.
$8,883.95 in defense costs

Prevention Tips

Summaries of coverage may create an E&O exposure if they misstate the coverage actually provided by the policies. They are not necessary, since the policy speaks for itself.

  • Since the policy speaks for itself, it is not necessary to prepare coverage summaries
  • When preparing summaries of coverage, include a disclaimer indicating that the document neither creates nor deletes coverage and is only intended as a brief summary of coverage.
  • Advise the policyholder to consult the policy for details about coverage.

 

Renewals Case Study #2

The Scenario

The agency wrote coverage on a bar. The insured had purchased the bar just prior to the renewal of his policy. At renewal, the carrier ordered a loss control inspection of the new location and required repair to the building’s wiring. The carrier was to be notified when the repairs were made. The producer who originally wrote the account had left the agency and there was no further follow up with the insured to see if the repairs were completed. A fire loss occurred and the carrier denied coverage for failure to comply with reasonable loss control recommendations.

The Issues

  • Failure to follow up on company loss control requirements.
  • Failure to suspense for completion of loss control recommendations.

The Outcome

Since the agency had failed to follow through with the loss control recommendations, resulting in an uncovered loss, the E&O carrier defended the agency but settled the claim for economic reasons.
$30,000 paid to insured in excess of retention
$50,316.10 in defense costs

Prevention Tips

The agency’s file was well documented, showing several conversations with the insured in which he reported progress toward completing the repairs. Unfortunately, the producer had left the agency and the follow up did not continue.

  • Advise the insured in writing that loss control recommendations made by the carrier must be complied with or risk suspension of coverage.
  • Make sure all conversations with the insured regarding loss control recommendations are documented in the client’s file.
  • Maintain an adequate diary or suspense system to ensure completion and compliance with loss control recommendations.
  • Develop a written procedure for reviewing all suspense items (paper and automated), particularly for people who are no longer with the firm or who are absent due to illness, vacation, etc.

Renewal Case Study #3

The Scenario

The insured had a boiler and machinery insurance policy. A boiler exploded when the water pressure got too low. The carrier denied the claim due to the fact that the “object” was not insured under the policy. The agent said the insured had agreed that the boiler was not worth insuring. The client sued the carrier for breach of contract and sued the agent for misrepresentation of the coverage provided by the policy.

The Issues

  • Misrepresentation of the provisions of a policy to the insured
  • Failure to provide specific insurance

The Outcome

The court found that coverage was provided under the boiler policy and the claim was paid by the carrier. Therefore, the insured was not held responsible.
Summary judgment in favor of the agency.
$9.604.11 in defense costs

Prevention Tips

Although the agent was exonerated in this case, it was only due to the fact that it was determined that coverage did apply under the carrier’s policy. The agent did nothing good or bad.

  • Document all conversations with the insured when they decline coverage for any reason
  • Point out policy limitations to the insured in writing

 

Renewal Case Study #4

The Scenario

The agent provided coverage for a real estate company that owned certain properties. The policies issued to the company contained an endorsement restricting liability coverage to only the described premises. A fire occurred at a property owned by the company and rented to others. Five people were killed in the fire. At the time of the loss, there was no coverage in place for the location involved and there was no coverage provided under any other policy due to the limiting endorsements. The agent had written the account for many years and had reviewed coverage with the insured just prior to the loss.

The Issues

  • Failure to identify loss exposures.
  • Failure to perform a thorough renewal process.

The Outcome

During trial, the insured was able to produce expert witnesses who testified that an agent has the responsibility to review coverages and determine loss exposures. The insured had relied on the agent to take care of his insurance needs.
$990,000 paid to insured in excess of agency’s retention.
$ 38,752.20 in defense costs

Prevention Tips

Although the agent had discussed coverages with the client prior to the last renewal, there were no notes in the file to indicate specifically which exposures were discussed. This was the only rental property owned by the insured.

  • Conduct a review of all accounts at least annually.
  • Use a checklist or survey to identify loss exposures.
  • Document all conversations and account reviews in the customer’s file.