Claims Examples

Failure to Advise Promptly of Rejection or Lack of Coverage

  • Lesson 1:
    Commercial Liability
  • Lesson 1:
    Commercial Liability

    Lesson 1: Commercial Liability

     In this claim, the agency moved a policy covering the bottling operations of their client from one carrier to another. The replacement policy contained a Designated Premises endorsement limiting General Liability exposure to the insured premises; this endorsement was not on the previous policy. During an outing sponsored by the client, an employee was severely injured by another employee on a jet ski. The new carrier denied the claim based on the Designated Premises endorsement. The injured employee then sued the agency's client, securing a verdict for $622,000. The client then sued the agent for the amount of the judgment, plus interest and defense costs, claiming they were not informed of the change in coverage. The agent admits he did not inform his client of the change. In the defense of the insured, counsel argued that a statutory Stop-Gap Employer's Liability endorsement would have applied to the loss and provided coverage and after the trial court disagreed, the matter was appealed to the State Court of Appeals. The Court of Appeals affirmed the lower Court's decision, stating that the designated premises endorsement also applied to the Stop-Gap endorsement, meaning there was no coverage available for the loss. The matter was settled for $1,000,000 against the agent.

    Lesson: An appropriate lesson to learn from this E&O claim is that when switching coverage from one carrier to another, evaluate the differences and bring these differences to the attention of the client, asking them to acknowledge that the differences were explained.

Failure to Give Proper Advice

  • Lesson 1:
    Commercial Auto
  • Lesson 2:
    Commercial Auto
  • Lesson 3:
    Commercial Liability
  • Lesson 4:
    Commercial Liability
  • Lesson 5:
    Commercial Property
  • Lesson 6:
    Life Insurance
  • Lesson 7:
    Life Insurance
  • Lesson 8:
    Workers Compensation
  • Lesson 1:
    Commercial Auto

    Lesson 1: Commercial Auto

    In this claim, the agency's client was a new customer of the agency for commercial auto coverage. The policy was written with $1,000,000 limits for BI and UIM. The client company was owned by two partners, one being Mr. X. When the policy was written, neither of the owners were listed as additional insureds on the policy. Following the policy inception, Mr. X was killed while jogging. His estate made a claim against the UIM portion of the Commercial Auto policy. The carrier disclaimed based on the fact he did not qualify as an insured, as he was not in the course of his employment and he was not operating nor was he in a covered auto. Suit was filed against both the carrier and the agent. The Estate produced a witness, the deceased's daughter, who said she overheard her father discuss the need to be added to the policy. This was denied by the agent. Although counsel filed for a dismissal based on the fact the agent owed no duty to advise the partners of the need to be added as additional insured's, the Court denied the motion, stating there was a question of fact as to the duty owed. The case was venued in rural county, and counsel advised there were dangers associated with trying a case in that venue, based mainly on the sympathy factor. The case was settled for $150,000.

    Lesson: When offering Commercial Auto coverage to an entity that is owned by one or more individuals, offer the option to have those individuals listed as additional insureds on the policy.

  • Lesson 2:
    Commercial Auto

    Lesson 2: Commercial Auto

    This E&O claims involves an agency who wrote a CGL and a Commercial Auto for a client. The CGL had a $1,000,000 limit, and the Commercial Auto had a $300,000 limit. One of the client's vehicles struck and killed a motorcyclist, who died 30 days after the loss. The value of the underlying death claim was in the $1,500,000 to $2,500,000 range. After the client was sued by the Estate, the client alleged the agent told him that the CGL would respond in excess of the $300,000 auto limit, and further alleged the insured should have recommended higher auto limits. The insured denied ever telling the client that the CGL would be excess for an auto loss, and further stated the client had been informed numerous times in the past the increase the auto limits. Unfortunately, there was no paper back up of those discussions and due to the long term relationship with this client, the claim against the agent settled for $500,000.

    Lesson: Document in writing any time coverage limits are discussed with a client. This documentation will play a major role in the defense of the agency.

  • Lesson 3:
    Commercial Liability

    Lesson 3: Commercial Liability

    This claim deals with the issue of the agent failing to report a loss to a CGL carrier following an auto loss. The client ran a jewelry business and there was non-owned auto coverage on the client's CGL but the agent only reported the loss to the personal lines carrier. The CGL carrier disclaimed when the loss was reported much later. The claim stems from an accident in which one passenger was killed and another rendered a paraplegic while riding in a van owned by the agency's client's principal. It was alleged the van was being used for business purposes, as the parties in the van were on their way back from a trade show. The injured parties had already collected $3,500,000 from other sources, and took an assignment of the rights from the client company to sue the agent. They alleged that the agent's failure to report the loss to the CGL carrier resulted in a disclaimer. There were some defenses to the claim, but it was clear the agent did not report the loss to the CGL carrier, who was successful in maintaining their disclaimer. The claim against the agency was settled for $290,000.

    Lesson: Be aware of the coverage granted under a CGL for non-owned autos, and if the agency also writes personal lines coverage for a commercial client's principal, ask questions concerning the use of the vehicle when a loss is reported under a personal lines policy.

  • Lesson 4:
    Commercial Liability

    Lesson 4: Commercial Liability

    In this E&O claim, the agency's client alleged a special relationship with the insured. The insured had secured coverage for a number of operations for the client, but did not obtain coverage for the operation of a small airport owned by the client. The insured informed the client on numerous occasions that there was a gap in coverage as regards liability coverage for the airport. The agency file was well documented to that effect. When an underlying loss occurred (injury to a plane passenger who is now a quadriplegic as a result of injuries sustained in a plane crash at the airport), the client claimed because of a longstanding special relationship the agent had a duty to secure the coverage. While the agent had advised the client of the need to secure coverage, the client claimed confusion. The client and the injured party agreed to a $10,000,000 consent judgment, and the client filed suit against the agent. Other insurance had already paid the injured party $2,000,000 on behalf of the plane owner. The case against the agent was settled for $200,000.

    Lesson: When a long time insured repeatedly ignores advice concerning coverage, have the client sign a rejection of coverage letter. A much greater duty is owed to a client when there is a special relationship between agent and client. 

  • Lesson 5:
    Commercial Property

    Lesson 5: Commercial Property

    In this claim, the agent wrote property coverage for their client who was in the business of refurbishing railroad cars. A hurricane destroyed one of the client's locations, and a claim for Business Interruption was made with carrier. The policy was placed through an MGA and had a 90% co -insurance clause for Business Interruption. The agent was confused as to how to calculate the proper limit of coverage for Business Interruption and assumed the proper limit for Business Interruption was merely profits. In actuality, the proper method to calculate limits for that coverage is profits plus continuing expenses. Following the loss, it was determined the agency client was drastically underinsured, resulting in an 82% coinsurance penalty. The loss to the client due the coinsurance penalty was around $160,000 and the case was settled for $135,000.

    Lesson: When in doubt concerning how to calculate the proper amount of coverage, don't guess - consult various resources, including the carrier.

  • Lesson 6:
    Life Insurance

    Lesson 6: Life Insurance 

    In this case, the agent sold a life policy (annuity) to a client and told him that after making premium payments of $90,000/year for 5 years he would have no further premium obligations. There were serious questions if the agent understood what he was selling. When the predicted level of investment income for the Life carrier did not pan out, after 5 years, the client was told he would have to continue with annual premium payments of $27,000 to keep the policy in force. The client then cashed in the policy at a loss, and claimed he would not have retired from his business (he owned an agency) had he known he would have to continue with payments. The client also received 50% of the commission for the sale of the annuity. He testified he did not understand annuities, and he had no life license. Counsel believed the provable damages were around $100,000 range. The client was unreasonable, and never lowered his demand of $750,000. Utica offered $80,000 but in view of the impasse in negotiations, Utica entered into a binding arbitration agreement. The arbitrator awarded $384,000.

    Lesson: Know what you are selling. When selling an annuity, do not make representations concerning future premium obligations unless you are positive no future premium payments are due under any circumstances.

  • Lesson 7:
    Life Insurance

    Lesson 7: Life Insurance

    The details behind this claim involve a sub-agent, using the named insured agency's list of P&C customers with the insured's permission, to "churn" life policies for a number of customers by replacing existing policies with policies that were on less favorable terms. The total alleged damages were $1.8 million and it was also determined that the sub-agent did not have a license to sell insurance. Some of the wronged customers were not on the list the agent had provided to the sub-agent, and the damages related to customers of the agency were in the range of $800,000. While Utica believed the life carrier bore a considerable portion of the exposure, the carrier settled out, leaving the insured agency and the sub-agent exposed. While the insured agent had no dealings in so far as the life policies sold, he did receive part of the commission for the sales. The case against the agent was settled for $200,000.

    Lesson: Whenever an agency enters into an agreement with a sub-producer, make sure that person has a license. Also, make sure that you know what your producers aren doing and saying.

  • Lesson 8:
    Workers Compensation

    Lesson 8: Workers Compensation

    In this claim, the agent was an exclusive agent to market and sell WC coverage to overseas employees of companies under Federal Contract. A foreign national was working for a subcontractor to a company under U.S. contract to restore electricity to Iraq, and was killed by a vehicular bomb in Iraq. He was determined to be eligible for the benefits, and his family has been receiving the maximum of $1,047 per week (this amount is determined by the provisions of the Longshoremen's Act). The widow made a claim that the brochure prepared by the agent stated survivor's benefits were to be 66 2/3% of the average weekly wage with no maximum. This statement in the brochure was clearly misleading. The brochure was given to the employer, who in turn gave a copy to the deceased. Since the deceased made around $3,380 per week, the widow claims she is entitled to $2,253 per week (2/3) instead of $1,047 per week. Over a 25-year period (her estimated future life span), this amounts to a difference of $2,868,203 between what she will get and what she believes she is entitled to. This matter is still ongoing with attempts to settle underway.

    Lesson: A good lesson to learn from this claim is: Do not publish brochures that explain coverage unless all necessary parties (carriers, managing agents) have thoroughly gone through the brochure and have signed off as to the content.

Failure to Notify an Insured of a Cancellation

  • Lesson 1:
    Commercial General Liability
  • Lesson 2:
    Commercial Property
  • Lesson 3:
    Homeowners
  • Lesson 4:
    Homeowners
  • Lesson 5:
    Homeowners
  • Lesson 6:
    Life Insurance
  • Lesson 7:
    Personal Auto
  • Lesson 8:
    Workers Compensation
  • Lesson 1:
    Commercial General Liability

    Lesson 1: Commercial General Liability

    The details on this E&O claim involved the agency procuring a CGL policy for a client that owned a motel through an MGA. Six months after policy inception, the policy was cancelled for non-payment of premium with the notice of cancellation being sent by the MGA to the agency. The agency intended to find another policy for the risk, but failed to either notify the client of the cancellation or replace the policy. In fact, months after the cancellation date, the agency produced certificates of insurance for the client indicating coverage was in force. A person fell at the motel, and the client expended $25,000 defending itself. Suit was filed against the agency and since the agent had no excuse for failing to notify its client of the cancellation, and had no excuse as to why he issued a certificate of insurance well after the policy had been cancelled, the loss was settled for $20,000.

    Lesson: When offering Commercial Auto coverage to an entity that is owned by one or more individuals, offer the option to have those individuals listed as additional insureds on the policy.When a customer has a policy cancelled, keep the matter on a very short diary until replacement coverage is offered to the client. Never issue a certificate of insurance when there is no coverage in force.

  • Lesson 2:
    Commercial Property

    Lesson 2: Commercial Property

     In this E&O claim, the loss occurred as a result of the insured sending a certificate of insurance to a bank for a policy that had been cancelled for non-payment of premium prior to the insured sending the certificate. The client owed some premium, and there was some confusion as to whether the amount already paid would keep the policy in force. A fire ensued, and a total of $3,000,000 -$4,000,000 in damages had been claimed. Both the client and the bank made claims. The bank claimed it would not have loaned money for a mortgage ($400,000) but for their reliance on the certificate. The client claimed that they thought the premium was paid, and relied on the certificate as evidence they had a policy in force. Utica felt that the bank's claim was owed, but not the total amount of the client's claim, as they had not paid the full premium. The claim was settled for $1,000,000.

    Lesson: When a difficult client has a history of late premium payments, check with the carrier before any certificates of insurance are issued.

  • Lesson 3:
    Homeowners

    Lesson 3: Homeowners

    This E&O claim involves a client's seasonal home on the Ocean that was insured by a surplus lines carrier, which did not automatically renew coverage from year to year. Near the end of each policy term, the carrier would send an offer to renewal with a premium quote to the agent, who in turn would contact the client. As the second term expiring date approached, the carrier sent its offer to renew and a premium quote to the agent. The agent alleges a CSR forwarded the premium quote on to the client, who was a long time customer of the agency. The client denies receiving any correspondence. Sometime after the cancellation date, pipes froze and burst causing extensive water damage to the house. The CSR who allegedly sent the premium notice to the client had been fired and since there was no documentation in the agency's file to indicate the premium notice was sent to the client, the case was settled for $52,500.

    Lesson: Copies of all correspondence sent to a client should be kept in the agency's file.

  • Lesson 4:
    Homeowners

    Lesson 4: Homeowners

    In this E&O claim, a client had paid his renewal premium in full to the agent. The agent placed the money in the agency's account and was waiting for an accounting notice from the carrier. The carrier had recently changed its billing procedure, and the agent assumed the carrier would take the money out of the account. The money was never taken and the policy was cancelled. Shortly thereafter, a fire ensued and damaged the client's home. A request was made for the carrier to provide coverage, and the carrier refused. The loss for additional living expense, contents and repairs totaling approximately $117,000 was paid and suit was filed by the agency against the carrier for recovery. The carrier eventually paid 50% of the claim.

    Lesson: Keep an accurate accounting of all premiums deposited and withdrawn to ensure premiums are properly credited by a carrier. 

  • Lesson 5:
    Homeowners

    Lesson 5: Homeowners

    In this claim, the agent wrote property coverage for their client who was in the business of refurbishing railroad cars. A hurricane destroyed one of the client's locations, and a claim for Business Interruption was made with carrier. The policy was placed through an MGA and had a 90% co -insurance clause for Business Interruption. The agent was confused as to how to calculate the proper limit of coverage for Business Interruption and assumed the proper limit for Business Interruption was merely profits. In actuality, the proper method to calculate limits for that coverage is profits plus continuing expenses. Following the loss, it was determined the agency client was drastically underinsured, resulting in an 82% coinsurance penalty. The loss to the client due the coinsurance penalty was around $160,000 and the case was settled for $135,000.

    Lesson: When switching policyholders from one carrier to another, be sure to check the list of clients that need to have policies replaced, and let no client slip through the cracks.

  • Lesson 6:
    Life Insurance

    Lesson 6: Life Insurance 

    In this E&O claim, the agency had insured this client for many years for all of their insurance needs. The client requested the insured place "Key-Man" life policies for the benefit of the client for several key employees. The policy would pay the company if one of the client's key people died. The insured secured the coverage through a carrier and gave the carrier an initial premium payment. The address given to the carrier by the agent was the street address for the client company. All previous policies and dealings with this client listed the P.O. Box address of the client, and all correspondence in the past had gone to the P.O. Box. The premium check forwarded to the carrier had the P.O. Box listed as the address. In addition, the application listed the phone # for the client. The carrier started sending bills to the street address, and they were sent back as undeliverable. The life policy was cancelled without the agent or the client knowing - the cancellation was sent to the street address. A key employee died after the cancellation, and the policy would have paid $2,000,0000. Suit was filed against the agent and the carrier. Counsel, following discovery, opined the settlement value as to the agency was $250,000. While there were some arguments in favor of the agency, the main problem was the incorrect address given to the carrier by the agent. The carrier settled for $750,000 and the agency settled for $150,000.

    Lesson: Be extremely careful when listing addresses on an application.

  • Lesson 7:
    Personal Auto

    Lesson 7: Life Insurance

    In this E&O claim, the personal lines carrier for the agency's client found out the client's car was being used for commercial purposes and decided to non-renew the policy and thus non-renewal notices were sent, including a copy to the agency. The client later claimed he never received the notice. Sometime after the notice was sent, the agent sent certificates of insurance to the client indicating coverage was in force. The client stated that he felt he had coverage because the certificates indicated he did. The client had an accident, and damaged another car. The carrier disclaimed, and the client sued the agency. The case settled for $3,500.

    Lesson: Never issue a certificate of insurance unless there is an in force policy in effect.

  • Lesson 8:
    Workers Compensation

    Lesson 8: Workers Compensation

    In this claim, the agency procured worker's compensation for a small contractor. After the policy had been in force for a month, the carrier decided to cancel the policy for underwriting reasons. Both the client and the agent denied seeing a cancellation notice and thus no replacement policy was procured. It was not until a worker was injured several months after the cancellation that it was discovered the WC policy had been cancelled. The client was forced to pay the benefits and sued the agent. A review of the agency's records revealed a fax the agent had received one month prior to the cancellation date from the carrier clearly indicating the policy was to be cancelled. Because the agency failed to act on the fax, the case was settled for $11,000.

    Lesson: React to all communication from the carrier relating to the status of coverage for a client.

Failure to Obtain Proper Coverage

  • Lesson 1:
    Commercial Auto
  • Lesson 2:
    Commercial Auto
  • Lesson 3:
    Commercial Auto
  • Lesson 4:
    Commercial Liability
  • Lesson 5:
    Commercial Liability
  • Lesson 6:
    Commercial Liability 
  • Lesson 7:
    Commercial Property
  • Lesson 8:
    Commercial Property
  • Lesson 1:
    Commercial Auto

    Lesson 1: Commercial Auto

    In this claim, the carrier alleged that the insured misrepresented the gross weight of a dump truck when it was added to the policy. The carrier's underwriting guidelines stated that they would not insure any truck with a gross weight in excess of 45,000lbs. When the agency attempted to add a truck that weighed (according to the agent) 50,000 lbs., the carrier initially hesitated but after some further dialogue, the carrier added the truck. The truck was involved in a loss where the operator ran a light and injured a man and a woman in a car. Injuries were severe enough to warrant a total settlement of $225,000 and in addition, the carrier spent $38,000 defending the loss. After the loss, an inspection of the truck revealed the gross weight was 74,000 lbs. and this was substantiated by the statement on the door of the vehicle declaring the weight. When pressed, the agent stated that he was familiar with makes/models of trucks and guessed at the weight. The total claim is for $253,000 and it appears that the agent is primarily liable.

    Lesson: This claim could have been avoided if the agent would have asked the owner the weight of the truck. Don't guess at the weight when the correct answer is easy to obtain. 

  • Lesson 2:
    Commercial Auto

    Lesson 2: Commercial Auto

    This E&O claim was based on a claim by an owner of a business who had a bad accident as a pedestrian and sought Underinsured Motorists (UIM) coverage under a Commercial Auto policy. The policy did not list the owner as an additional insured. Several policies were involved but it appeared that when the coverage was moved to another carrier, the UIM coverage listing the owner as an additional insured was not duplicated. When there was an indication that the agent was asked to duplicate cover, Utica realized that its chance for success was less and decided to take the case to verdict. The verdict against the agency was $193,700, considerably lower than the amount demanded.

    Lesson: When moving coverage from one carrier, be sure the coverages are at least equal and if they are not, communicate the differences and document your discussions with the client.

  • Lesson 3:
    Commercial Auto

    Lesson 3: Commercial Auto

    This E&O claim involves a principal of a business who was not named as an additional insured under a replacement commercial auto policy. The prior policy listed the principal as an additional insured. The client's son was severely injured (brain injury) in an auto loss while a passenger in a friend's car, and made a claim under the Commercial Auto policy for Underinsured Motorists benefits. The policy had a $500,000 UIM limit, but the son did not qualify as an insured as he was not occupying one of the covered autos. Had the mother's name (she is the client's principal) been added, he would have been entitled to UIM coverage. There was a question of residency at the time of the loss, as the son would have had to have been a resident relative of the mother in order to qualify for UIM coverage under the Commercial Auto UIM coverage. The case against the agency was settled for $200,000.

    Lesson: When replacing coverage, be sure the coverage obtained is at least as favorable as the policy replaced.

  • Lesson 4:
    Commercial Liability

    Lesson 4: Commercial Liability

    This is a former "subpoena only" claim where the insured put us on notice of a potential claim involving a rescission action by Co. X against a commercial client of the agency. The carrier claims they were not able to go forward with the rescission because the insured failed to secure the client's signature on the application. The client claims the signature is not his and also stated that the information on the application was not correct. The agent had claimed he did know for sure whose signature it was, as he said he mailed it and got it back with a signature. The client was involved in the maintenance of equipment at an airport (not planes) and a worker was severely injured when he caught his arm in some equipment. The carrier claimed they would not have written the risk, and claims the agent violated his agency contract by not witnessing the signature. The agent claims the information on the application was the information given to him by the risk. The carrier dropped the rescission action and contributed $1,000,000 to settle the case, plus they expended $500,000 in legal. They pursued the insured in a lawsuit. We recently learned from counsel that the agent has now admitted to him that it was his signature on the application. Since he had testified before it was not his signature, his credibility in front of a jury will be zero. The case was settled for $700,000.

    Lesson: Always obtain the client's signature on applications.

  • Lesson 5:
    Commercial Liability

    Lesson 5: Commercial Liability

    In this E&O claim, the agency failed to add a sister company of their client to a products liability policy. Both the client and its sister company were involved in the manufacturing and distribution of rock crushing equipment. An employee of a recycling firm was seriously injured by the conveyor belt apparatus of rock crushing equipment sold by the client, resulting in the loss of both legs. When the sister company was sued by the injured party, both the primary carrier ($1mil limit) and the umbrella carrier ($5mil limit) disclaimed coverage, stating the sister company was not an insured under their respective policies. The underlying damages were in the $10mil - $15mil range. Following discussions with the primary carrier, they agreed to honor the claim on behalf of the sister company in exchange for a payment of around $300,000 by Utica.

    Lesson: When servicing a large commercial account, be aware of the relationship of all related entities associated with the account, and inquire as to the coverage protection needed for each entity. All discussions with the clients concerning coverage should be documented.

  • Lesson 6:
    Commercial Liability 

    Lesson 6: Commercial Liability 

    In this E&O claim, a customer had coverage on a previous policy for direct suits by employees, which was allowed under certain circumstances in the state. The law changed, and the agent believed that there was no exposure for direct actions as a result of the change in the law. The endorsement covering direct actions by employees was removed at the agent's request on renewal although the premium savings was minimal. The client was subsequently sued in a direct action by an employee, and the court allowed the claim to stand. A judgment was rendered against the client for over $400,000, and the client in turn sued the agency. The claim was settled for $250,000.

    Lesson: When a law is changed that may affect coverage, seek legal advice before deciding to remove coverage for clients.

  • Lesson 7:
    Commercial Property

    Lesson 7: Commercial Property

    The client owned a horse farm and built a home on the property himself. His previous carrier decided they no longer wanted to cover the risk. The client then approached our insured for coverage. The insured did a cost estimator, and came up with a value. The policy was in place for a number of years, with regular inflationary increases in the limit, with no complaints from the customer. A fire occurred in 2006 destroying the home. The carrier paid over $1,000,000 for the dwelling and contents, exhausting their limit. A claim was presented against the agent, alleging a $1.8 million shortfall. Unfortunately, this is an example of the agent coming up with a value as opposed to the client requesting a particular limit. While we felt there was comparative negligence on the client for not knowing what his home was worth, we had a problem with liability also, because the agent came up with the replacement cost. Reserves prior to trial were $700,000. The case did not settle prior to trial. Trial commenced, and on the second day of trial the case settled for $1,000,000.

    Lesson: On any house that is more than the usual tract type house, ask the client to have the home appraised for replacement cost values. Avoid putting a replacement cost value on higher valued property, absent an appraisal.

  • Lesson 8:
    Commercial Property

    Lesson 8: Commercial Property

    In this E&O claim, the agent procured a property policy for a new customer. The building was destroyed by fire, and because of the size of the loss, a large coinsurance penalty was applied because the amount of coverage requested was nowhere near enough to cover the exposure if the building was destroyed. The difference in what the client could have collected (he did not rebuild) if there was no coinsurance penalty was between $400K - $600K. The case hinged on whether the agent had a duty to suggest higher limits. The agent had actually quoted higher limits several years before to the client in an attempt to get the client's business, but the client decided to stay with his prior agent at that time. The claim eventually settled for $215,000.

    Lesson: Ask sufficient questions of clients to know if the amount of coverage being requested is enough to cover a building. If a quote had been given to a prospective customer, and the prospective customer eventually becomes a client, keep all records together.

Failure to Place Coverage After Agreeing to Get It

  • Lesson 1:
    Businessowners Coverage
  • Lesson 2:
    Commercial General Liability
  • Lesson 3:
    Commercial Auto
  • Lesson 4:
    Commercial General Liability
  • Lesson 5:
    Commercial Liability
  • Lesson 6:
    Commercial Property 
  • Lesson 7:
    Commercial Property
  • Lesson 8:
    Commercial Property
  • Lesson 1:
    Businessowners Coverage

    Lesson 1: Businessowners Coverage

     In this case, the agency owner apparently suffered from dementia while still performing as an agent. It appears that the agent's total disorganization caused this loss. The agency's client had come to the insured for BOP coverage for a parts store and although the agent took an application and a premium check, nothing was done with either. Of significance was the fact that the agent had no binding authority with the carrier for this type of risk. Over the course of several months, the client called several times inquiring about the whereabouts of his policy, and was told that the carrier was behind in issuing policies, but not to worry. The premium check apparently was cashed by the agent and never forwarded to carrier. The client's premises suffered heavy storm damage but was then informed they had no policy. After inspection of the loss, damages for the building, contents and business interruption totaled approximately $250,000. A settlement with the client's attorney concluded the matter.

    Lesson: After a binder issued, follow for a copy of the policy to ensure one was issued.

  • Lesson 2:
    Commercial General Liability

    Lesson 2: Commercial General Liability

    In this E&O claim, a manufacturer of lifts approached the agency for products liability coverage. The agency went thru a broker, who in turn went thru an MGA for coverage. The MGA was a fraud; he pocketed the premium and never procured coverage. The agent did not follow up, and assumed coverage was in place. A worker was injured when he fell off the lift manufactured by the client and the client. The underlying loss was settled for $333,000 and Utica is pursuing the broker for recovery.

    Lesson: Know the parties you are dealing with when coverage is being procured though those parties, and be sure they are legitimate entities. In addition, always follow for a copy of a policy.

  • Lesson 3:
    Commercial Auto

    Lesson 3: Commercial Auto

    In this E&O claim, the agent procured a commercial auto binder, through an MGA, for their client, a delivery service. The agent collected a premium, which was forwarded to the MGA, who in turn forwarded the premium to the carrier. Following several losses, the carrier denied there was a policy, and said that the MGA did not have authority to bind coverage outside of the state, and no policy was issued .The agent in this instance failed to timely follow up for a policy prior to the underlying loss occurring. Several losses occurred that were not covered. The loss that has the most exposure involved a gentleman, who was struck by a truck owned by the client. His injuries were serious and after working with the Uninsured Motorists carrier, the case was settled with Utica paying $185,000 on behalf of the agent.

    Lesson: After a binder issued, follow for a copy of the policy to ensure one was issued.

  • Lesson 4:
    Commercial General Liability

    Lesson 4: Commercial General Liability

    In this E&O claim, the agency's client, a bar owner, alleges he asked specifically for assault and battery coverage under a CGL and an Umbrella policy. A loss occurred where a bar patron was assaulted and the CGL carrier denied coverage based on the client allegedly lying on his signed application, and the umbrella carrier denied coverage due to an assault exclusion. When suit papers were served (after disclaimers were issued), the insured told the client he would take care of the matter, hoping he could convince the carrier(s) to rescind the disclaimers. The agent did not take care of the matter, no answer was filed to the suit, and a default judgment was taken against the client for $200,000. The client had to expend money in an attempt to get the default lifted, to no avail. He then filed for bankruptcy, and needed a lawyer to try and get the judgment discharged by the bankruptcy court. The underlying injury was not worth anything near the $200,000 judgment, and we hoped to settle the matter on behalf of the client for much less. Unfortunately, when the bankruptcy court ruled that the debt could not be discharged, and ordered the client to pay the entire amount, that option was lost. Utica settled the matter with the client for $320,000.

    Lesson: Report losses to your E&O carrier the moment you realize a client has been sued and the carrier(s) has disclaimed, and never give assurances you will take care of a lawsuit when there is no coverage for your client. 

  • Lesson 5:
    Commercial Liability

    Lesson 5: Commercial Liability

    This E&O claim involves a loss where there is a sharp question of fact between the agent and the carrier as to whether or not the agency had been given the green light to bind Technology coverage for a client computer software company. The client had prior Technology coverage with a different carrier which had expired, and had asked the insured to replace the coverage. The insured agent states he was given the green light to quote the coverage from the carrier's underwriter, and did so. The underwriter went on an extended vacation, and another underwriter decided to decline the coverage, but never told the agent. The agent thought the coverage was in place. After a loss by the client's customer, the carrier denied coverage. With damages of $1mil, the client sued both the carrier and the agent, claiming damages that will flow from a settlement of the underlying action, plus attorney fees in defending that suit, and attorney fees for prosecuting the claim against the carrier and agent. Due to poor testimony by the carrier's underwriters, and questions as to what, if any, of the underlying case damages would have been covered under the carrier's Technology coverage had it been in place, the case was settled with Utica paying $150,000 and the carrier $850,000.

    Lesson: Do not assume coverage is in place without verifying with the carrier a policy is in place. 

  • Lesson 6:
    Commercial Property 

    Lesson 6: Commercial Property

    In this E&O claim, there was confusion between the insured and the MGA as to whether coverage was bound for a beer distributor. The agent thought coverage was bound, and was holding premium for the policy but they never followed up, and a $600,000 fire loss ensued. No policy was in place. There is ample correspondence to the MGA in the agency's file which would benefit the agent's position. Mediation was held, and Utica was advised that the agent would bear the majority of liability. The case was settled for $575,000 with the MGA paying approximately 43%, and Utica paying the balance, or $327,500.

    Lesson: When dealing with either a carrier or an MGA, and the agency is holding premium pending receipt of a policy, a tight diary system should be used to ensure follow-up for the policy.

  • Lesson 7:
    Commercial Property

    Lesson 7: Commercial Property

    This E&O centers involves a long time client who sold his printing business, and the insured let the policy expire. The new owner contacted the insured for quotes, and an application was obtained. The insured did not follow for quotes, as the coverage for the building was obtained elsewhere. The building was destroyed by fire several months after the sale of the business. After the fire, the agent learned that the terms of the sale included an arrangement for the business equipment, whereby the old owner (the agent's client) retained an interest in the equipment. The equipment was worth approximately $190,000. When the agent was informed of the sale of the business, he did not ask about the equipment. The claim was settled for $145,000, as it was deemed the longstanding relationship with the client was a "special relationship", and as such the agent owed the client a heightened duty.

    Lesson: When a long-standing client sells the business, ask questions to be sure there are no continuing insurance needs.

  • Lesson 8:
    Commercial Property

    Lesson 8: Commercial Property

    In this E&O claim, the agency owner had significant personal and medical problems while still performing as an agent. This caused some organizational problems. When a client came to the agency for a BOP for a parts store, the agent took an application and a premium check but did nothing with either. The agent had no binding authority with the carrier for this type of risk. Over the course of several months, the client called several times inquiring about the whereabouts of his policy, and was told that the carrier was behind in issuing policies, but not to worry. The premium check apparently was cashed by the agent (never forwarded to carrier). The client's premises suffered heavy storm damage, and the client was informed they had no policy. The claim was settled for $250,000.

    Lesson: Forward all premium checks and applications to the carrier.

Failure to Renew or Service Policies

  • Lesson 1:
    Commercial Auto
  • Lesson 2:
    Commercial Liability
  • Lesson 3:
    Commercial Liability
  • Lesson 4:
    Commercial Liability
  • Lesson 5:
    Commercial Property
  • Lesson 6:
    Commercial Property 
  • Lesson 7:
    Homeowners
  • Lesson 8:
    Homeowners
  • Lesson 1:
    Commercial Auto

    Lesson 1: Commercial Auto

    In this E&O claim, it was alleged the agent allowed a layer of excess coverage to lapse for a large trucking firm, resulting in a large gap in coverage above the primary layers. There was a dispute over premium between the carrier and the client, and the policy was cancelled. Following the cancellation, a suit was brought by the client against the carrier, which was eventually settled. A new policy was written by the carrier. The agent assumed there was continuous coverage, but in fact there was a gap between the old policy's expiration and the inception of the new policy. In the interim, a trucking loss occurred during the period when a gap in coverage existed, and a party in another vehicle was rendered a quadriplegic. Upon learning there was no excess coverage in place, the client sued the agent. The exposure because of the gap in coverage to the client was somewhere between $5,000,000 and $7,000,000. Following significant litigation (over $1mil), the case against the agent was settled for over $5,000,000.

    Lesson: Do not assume a dispute between a client and a carrier will cure a gap in coverage after a cancellation notice is issued. Communicate to your client any developments on their coverage.

  • Lesson 2:
    Commercial Liability

    Lesson 2: Commercial Liability

    In this E&O claim, Utica "dropped down" into the shoes of a GL policy that the agency failed to replace for their client, a maintenance company. The prior policy was non-renewed, and the agency failed to secure replacement coverage before a loss involving the client's rug cleaning operations occurred. A woman slipped on a tile floor after walking on carpets that were still damp from cleaning. She claimed no warnings were given, even though she was well aware of the cleaning activity. She suffered minor bruises, but 10 days following the fall, she lost a fetus. There were questions of liability as regards the client and questions as to the relationship of her minor shoulder injury and the loss of a fetus. The underlying claimant produced witnesses who said a sign was missing in the area of the fall. She also produced an expert who was to testify that his review of the placenta indicated the fetus was damaged in the fall. The case was settled for $485,000 including legal fees.

    Lesson: All non-renewals should be given the utmost priority, and a very short diary should be used to ensure replacement coverage is obtained.

  • Lesson 3:
    Commercial Liability

    Lesson 3: Commercial Liability

    This E&O claim involves an agent who acted as a broker for a risk that installed fire suppression systems. The policy was written through a surplus lines carrier. When the policy was renewed, the surplus lines carrier had lowered the property damage limits on the CGL policy from $2mil to $1mil. Although the MGA had sent an advisory note with the renewal package advising that coverage may be changed, and to look over the proposal before renewing the policy, no specific notice was given that the property damage limits had been lowered. The renewal quote clearly listed a reduced limit in liability for property damage. Since surplus lines carriers do not have to abide by any state guidelines that mandate a specific notice be given to insured when there is a reduction of coverage, the agent missed the reduction and renewed the policy. The actual policy was not received until after the underlying loss had occurred involving a loss to a building as a result of a pressure build-up in the sprinkler system, resulting in $1,000,000 damage to the building and over $10,000,000 damage to contents owned by tenants. One tenant claimed in excess of $10,000,000 for a new computer system that had to be replaced. The agency's client was a target defendant in the suits that were filed. Utilizing the $1,000,000 that was available under the surplus lines CGL policy, the agency's client was released from the suit for $2,000,000. The agent's share was $1,000,000.

    Lesson: Be aware when dealing with a surplus lines carrier that very few regulations apply to those carriers. Carefully review all proposals submitted on renewal by a surplus lines carrier.

  • Lesson 4:
    Commercial Liability

    Lesson 4: Commercial Liability

    In this E&O claim, the agent allowed a restaurant's liquor liability coverage to lapse for a 3-day period.The prior liquor liability carrier had decided to non-renew the coverage, and the managing general agent, through which the coverage was procured, gave the insured agency 60 days notice to find another carrier. The agency secured an application for a new carrier for the client from the managing general agent, gave it to the client, and received it back from the client two weeks prior to the non-renewal date. There were conflicting stories as to whether or not the application was ever sent back to the managing general agent. The agent says it was sent, and the managing general agent said it was never received. When the agent received the cancellation notice the day after the cancellation date, the agent called the managing general agent and discovered the new application was never received. Coverage with the new carrier was then put into place, but there was a 3-day gap in coverage. During the period in question, a patron of the client became intoxicated and several hours later the patron struck and killed a pedestrian, a young mother with 3 children. The client and another bar/restaurant were sued. The other restaurant settled, as did the auto carrier, leaving the agency's client as the sole defendant. Utica provided a defense for the client restaurant and eventually settled the claim for $200,000.

    Lesson: When an application is submitted through a managing general agent, follow up to ensure coverage has been placed. 

  • Lesson 5:
    Commercial Property

    Lesson 5: Commercial Property

    This claim involves the agency sending a renewal premium for a property policy to the wrong carrier, causing the policy to lapse. Unfortunately the lapse was not discovered until a fire occurred, causing damages of $352,000. Following legal research into the issue, it was determined that the insured was primarily responsible, not the bank or the carrier.

    Lesson: This claim could have been avoided if the agency had better controls in place to ensure premium checks were sent to the correct carrier. In addition, a diary system to follow for verification that the renewal had been issued by a carrier could have possibly eliminated the claim from occurring. 

  • Lesson 6:
    Commercial Property 

    Lesson 6: Commercial Property

    In this E&O claim, the agent failed to replace business property of others coverage under a CPP when the coverage was moved from one carrier to another. The agency's client was a contract packager of beauty products, and at any given time was in custody of their client's products, which they would repackage for a fee. A theft occurred, resulting in the loss of the customer products. A claim was submitted to the current carrier, which had very limited coverage for items in the care, custody and control of the agency's client. The prior policy had full coverage for items in the client's custody. Using an offset for what was paid by the current carrier, the loss was settled for $120,000.

    Lesson: It is critical that a replacement policy be closely scrutinized to ensure the coverage provided at least matches the expiring policy.

  • Lesson 7:
    Homeowners

    Lesson 7: Homeowners

    In this E&O claim, the agency procured Homeowners coverage for the client through the Fair Plan in the amount of $240,000, the amount requested by the client. During the first policy term, the client asked the agent to increase the limits to $400,000. The agency submitted the change request to the Plan on the wrong form, and the Plan returned the form to the agent with instructions to re-submit on the correct form. The agent dropped the ball, and the change request never went through. The policy renewed several times without either the agent or the client noticing the limits had not changed. A fire occurred, causing approx. $400,000 in damages and a claim was submitted for the difference in limits for both the structure and loss of rents. Although Utica contended that there was comparative negligence on the client for failing to read his policy, the bulk of the liability rested with the agent. The loss of rents claim was settled for $14,700; the remaining portion of the claim was $160,000 for the structure. Utica argued comparative negligence, took a premium offset and settled that portion of the claim for $110,000.

    Lesson: When a client asks for increased coverage, follow through until the coverage is secured. Keep any such requests in a separate folder that should be looked at each day until the necessary work is completed.

  • Lesson 8:
    Homeowners

    Lesson 8: Homeowners

    In this E&O claim, the agency switched policies on renewal covering an expensive home for the client. The old policy had a guaranteed replacement cost provision, and the new policy had restrictions on guaranteed replacement cost. The amount of coverage sought by the agent was determined by the agent's use of outdated estimator software, and insufficient coverage was placed. Following a fire, it was determined that the shortfall between what the client can collect under the new policy compared to the old policy was in the range of $357,000 and $407,000. The loss was settled for $270,000.

    Lesson: It is critical that a replacement policy be closely scrutinized to ensure the coverage provided at least matches the expiring policy.