Coverage Corner

HOW SMART IS TOO SMART? RELIANCE ON E&O IS RISKY

By Kevin C. Amrhein, CIC

I recently celebrated my 20th insurance birthday. When I started as a commercial producer in 2001, I was fresh out of college and possessed limited understanding not just of insurance but of business in general. I learned a lot in those early years in large part because I felt obligated to answer every question asked of me. I couldn’t stomach the thought of not having an answer for my insured and would exhaust every conceivable resource to find one. These were my insureds after all, and I thought it was my obligation to possess expertise on any issue vital to the success of their business.

I was wrong.

Reality check: I was a Property & Casualty insurance licensee providing answers to questions based in realty law, tax law, criminal law, employment law, legal liability (statutory and contractual), and financial advisory, just to name a few. Looking back, I’m shocked I made it this far without getting an insured, my employer, or myself into serious trouble.

It leads me to a question I often ask my students: How smart is too smart? Here’s an example of a scenario I’ll put to them in class:

Your contractor insured contacts you to ask if he can fly his drone at a jobsite to take aeriel photos of the property. How do you respond?

Many will reply with a question of their own – e.g. “Are you appropriately licensed?” Some will share intricate details of aviation law. Others will simply say “no” or “sure.”

On occasion, I’ll get the answer I’m hoping for, one to the effect of “Questions regarding the lawful use of drones are of a legal nature and should be directed to an appropriate authority. Should your use result in a claim against you, I’m happy to discuss how your insurance coverage may respond.”

Most agree that inquiries of a legal nature should only be addressed from an insurance perspective as illustrated above. Others see gray (“Exactly what is considered to be of a ‘legal nature’?”) and feel it’s their responsibility to provide insureds with any information available. The line between what’s legal and what’s insurance can be thin, and I know many successful folks who see things differently than I.

(But I’m not writing this article just to opine; there’s an insurance angle here. I’m getting there, I promise!)

I’ll then ask the class what they think would happen should the agent improperly respond to an inquiry of a legal nature. For example, say the agent advised the contractor that his flying the drone was a violation of federal law, the contractor says “okay” and misses out on the job. The contractor learns later that due to exceptions/changes in the law, his flying it on that jobsite would not have been a problem. He’s now furious with the agent and threatening to sue for damages.

When posed the question “Now what?”, students inevitably break into a chorus of vowels. “E&O!” seems to be the universal reaction to any scenario in which an agent is accused of wrongdoing. It begs the question: In this example, would the agent’s E&O insurance policy offer defense and coverage? How many agents have actually read the E&O insurance policy designed specifically for their role as an insurance professional?

An E&O insurance policy is not intended to serve as a funding mechanism for any and all accusations of wrongdoing. Should the agent’s E&O insurer feel the agent acted outside the scope of his/ her profession or within the scope of another profession (for example – acts which require the possession of another professional license), the policy could take a pass. Far too many agents in my classes freely admit they’ve never reviewed the agency’s E&O policy nor have a clue of its limitations.

TAKEAWAYS FOR THE AGENT

Ask to review the agency’s E&O insurance policy.

Ask agency staff to list common inquiries which may be of a legal nature. Formalize a response strategy which includes focus on the insurance component of the inquiry.

Review any disclaimers currently provided or displayed to insureds regarding the extent of agent expertise and authority. Review disclaimer language with your E&O insurer for guidance.

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B's education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com