Insurance Markets for Your Clients


The E&O Connection Between Civil Unrest, Catastrophes and Property Coverage

Jun 30, 2020

Widespread property damage from civil unrest and catastrophes uncover weaknesses in property insurance programs like nothing else. As we know too well, disgruntled and unhappy insurance clients often lead to E&O claims. The following description of a true-life E&O claim demonstrates the importance of Documentation and regular review with renewing clients:

Andrew placed Commercial Property coverage for his client who was a real estate developer. Among the properties he owned, the real estate developer owned a shopping center.

The agent and the property developer had verbal discussions when the policy was initially placed regarding the value of the property. According to the agent, the value of the building was ultimately determined by the real estate developer, but nothing was put in writing by the agent to reflect how the value was determined or whether the client agreed with the valuation. The agent procured a replacement cost property policy with $2.5 million in replacement cost for the building.

The policy was then renewed each year for five years. During this time, neither the agent nor the client re-visited the issue of the valuation of the property or considered or discussed possible increases in the value of the property.

The shopping center then burned to the ground. When the client submitted the claim, the carrier paid the limit of the policy. However, the property owner claimed that the replacement cost of the property was actually $7 million and claimed that the property was undervalued. The real estate developer admitted receiving the renewals each year but not reading them. He further claimed that he completely relied on his agent to determine the appropriate insurance coverages, that it was the agent that set the initial value of the property and that the agent never recommended an appraisal at any point. The real estate developer proceeded to file suit against Andrew and his agency.

Lately, we see images of widespread property damage on every news station, which serve as a warning to examine your accounts and identify potential coverage weaknesses.

A few fundamental questions to consider include:

  • Are the property values correct and are they correctly documented?
  • Are the Named Insureds correct?
  • Has the Business Income coverage been calculated correctly and is it documented correctly?
  • Have coverage exclusions, restrictions, and sub-limits been communicated with the client and documented correctly?

The complete narrative of the claim described above, can be found here. (You must be logged into the IIABA website to view.)

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