As you know, our mantra to avoid E&O claims and lawsuits starts with you understanding that the greater responsibilities that an insurance broker or agent takes on, the greater the chance for a court to potentially find an assumed, or higher duty of care; something more than just procuring the coverage requested. That being said, a recent scenario that we handled is a good illustration of when an agency went beyond its usual duty actually helped prevent an E&O claim against the agency.
To set the stage, think about the TV show, Law & Order. It's marketing phrase has always been “Ripped from the Headlines." A reference to the fact that its storylines are often loosely based on recent Headline News events. So too is this E&O report. Continuing the TV-law show theme, the names of the each of the parties involved have been changed “to protect the innocent."
The Insured owned and operated an in-door sports facility with an artificial turf field covered by an inflatable dome. The field was installed by laying it down in segments. The weight of the artificial turf kept it in place.
The broker obtained a property insurance policy for the sports facility. The policy had limits as follows: $1M for building, $500,000 for BPP and $700,000 for BI. The BPP limit was based upon the submitted value of the field-turf, $400,000 and $100,000 for other business personal property, like the sports equipment, gym, etc.
The facility was hit by a severe wind event; a covered peril under the policy. As a result of the severe wind, the dome collapsed, damaging the building and destroying the field. While the insured did reach out to the broker immediately following the claim, it was for the limited purpose of notifying the insurance carrier of the loss. It did not consult with the broker for any suggestion as to the hiring of a public adjuster or coverage counsel.
The insurance company clearly wanted to avoid paying the full limits of its policy, which it was obligated to do. So, during the claim adjustment, it decided to treat the field-turf NOT as BPP, as it was insured, but as part of the building. Thus, the $400,000 for the damage to the field reduced the building limit accordingly. That had the planned effect, (from the insurance company's standpoint), of leaving an additional $400,000 in building damage that would otherwise have been covered, uninsured. The lack of this payment had a ripple effect in increasing the insured's loss of income claim, since it lacked the money, early on, to rebuild quickly.
Aghast at this unsupportable, (both legally and as per the policy wording), position by the insurance company, the broker retained us to write a comprehensive coverage letter to counsel for the insurance company in support of its insured. The insured was so appreciative of the support provided by the broker in offering assistance with this claim that the Insured agreed to waive and release the broker from any potential claims against the broker that it may potentially have as a requirement of our retention. (Not that the Broker did anything wrong. It was the insurance company's position that was untenable.) Unfortunately, the insurance company would not budge from this position, which resulted in litigation. We recently settled the case without the need for costly and protracted litigation.
The point of that recitation is that, especially when it comes to first-party property claims, an agent or broker can be of invaluable assistance in helping the insured, especially the less sophisticated ones, to navigate the claims / adjustment process. However, remember that by venturing into this area, an insurance agent or broker is taking on a duty that it ordinarily would not have and may be opening itself up to potential liability if an issue or problem should occur in connection with the claim. If an insurance agent or broker is considering being involved in assisting an insured in the claims process (beyond just the reporting of the claim), the best approach is for the broker to do so with caution, and also possibly with the assistance of an attorney involved in the process. Proceeding in this manner will help protect the agent or broker from a potential E&O claim or lawsuit. Furthermore, when a public adjuster is involved with a claim, an agent or broker should always proceed with caution. While a public adjuster is sometimes important and may be needed in the claims adjustment process, their position in handling the claim may sometimes be adverse to that of the agent or broker who handled the procurement of the coverage. Once the insured has hired a public adjuster, it is often best for the agent or broker to take a back-seat and let the adjuster handle the claim. We make this recommendation because we have seen many situations arise over the years where public adjusters handling claims have advised the insured that the agency or brokerage made a mistake in handling the subject insurance and an E&O claim or lawsuit should be asserted.
In conclusion, a broker or agent assisting an insured in the navigation of a claim can often greatly inure to the benefit of both the insured and the broker. It can help an insured obtain coverage, which can reduce the potential for an E&O claim or lawsuit. However, the prudent insurance agent or broker should always remember that if they do get involved with a claim, beyond simply reporting it, their actions can create a higher duty of care to the insured and increase the chances of an E&O claim or lawsuit. Furthermore, if a public adjuster becomes involved in the claim process, the agent or broker should be sure to proceed with caution in how, and to what extent, they may be involved with that claim.