As an insurance agent, you face the fear of having an errors and omissions claim being made against you on a daily basis. Though, many agents will insist that they do everything by the book and have no possibility of an errors and omissions claim being made against them, the chances of being named in a lawsuit are still very much a reality. You should always conduct your business practices as a true professional and document all interactions with your clients and prospective clients.
A big part of knowing what mistakes to avoid when handling your clients insurance needs is to review errors and omissions claims that have been made against other insurance agents. We will be presenting a 6 part blog series on claims scenarios and provide some helpful information on how to avoid or mitigate such claims being made against you.
The agent helped the client with an application for a $500,000 life insurance policy. The application was submitted, and the insurer issued the policy. The client died from a heart attack four years later and his son, who was designated as the policy’s beneficiary, submitted a claim under the policy. During the insurer’s investigation, it learned that the client had been diagnosed with a pulmonary disease two years before the policy was issued. However, he answered “no” to questions in the application, which inquired as to prior medical conditions. The insurer took the position that the policy was void based on material misrepresentations contained in the application, and refused to pay the death benefit.
The beneficiary commenced litigation against the insurer. The agent was also named as a defendant because he allegedly failed to assist the client with completion of the application, and instructed him that he did not have to answer “yes” to questions contained therein regarding medical conditions. The agent denied providing such instructions to the client. There were no witnesses to the meeting between the agent and client wherein the application was taken.
The insurer was granted summary judgment on the ground that it was entitled to rely upon the representations contained in the application signed by the client. However, the court held that there were issues of fact which precluded granting of summary judgment in favor of the agent. Mediation was held in the action. Because of credibility issues and the risks of an adverse result at trial, as well as estimated additional legal fees, settlement was reached for $250,000.
Loss Prevention Tips
As a life and health agent, documentation is extremely important. Communication between your clients and yourself may be the focal point of litigation. If you have failed to document your communications properly, in most cases you will be held liable. Learn more about the importance of errors & omissions coverage for life and health agents on our website.