Part 4 of a 6 Part Series – When You’ve Really Done Nothing Wrong, E&O Steps Up

E&O insurerOne of the most important aspects of having Errors & Omissions Insurance is the defense that it provides to you as an insured.  There are many claims made against insurance agents that are groundless; however, without having an E&O coverage policy, you, as the agent/defendant, would be left to secure your own attorney in order to be defended.  Your E&O Insurer has a network of attorneys that are experienced in handling matters that arise from your profession.


The agent sold the client a $500,000 life insurance policy, which named his wife as beneficiary.  The client and his wife subsequently divorced.  The divorce decree required the client to maintain his ex-wife as the beneficiary of his policy, until she obtained “gainful employment.” The client remarried, and died six years later. The administrator of his estate found a beneficiary change form among his papers, which designated his new wife as the person to receive the death benefit of his policy.

When confronted with competing claims by the client’s wives, the insurer started an interpleader action, and paid the policy’s death benefit into court.  The client’s new wife commenced a third-party action against the agent, alleging that he failed to process the client’s beneficiary change form.  The agent maintained that he never received the form, nor other instructions regarding a beneficiary change.  His office did not maintain records of correspondence received from customers.  The agent testified during a deposition that he was aware of the client’s divorce and re-marriage.

The court determined that the client’s ex-wife should receive the policy’s death benefit.  The court based this determination on a lack of evidence that the client had intended to change the policy’s beneficiary, despite the discovery of the form.  The client’s new wife appealed the decision.  Evidence gathered during discovery did not establish whether the agent actually received the beneficiary change form from the client.  The court denied a motion for summary judgment filed on behalf of the agent, holding that there were issues of fact as to his receipt of the form and other dealings with the client.  The wives eventually reached a settlement. The client’s ex-wife received $300,000 from the policy, and the new wife $100,000.  The agent settled by paying $50,000 to the client’s new wife.


As an insurance agent, if you become aware of a life-changing event with one of your clients, you need to be proactive.  If that event might have any impact on the insurance that you handle for your client, make a good effort to contact your client to see if they need to make any changes to their insurance.

Always document these conversations by following up with a letter that states what was discussed and the action or inaction that will follow.

Report potential claims to your E&O insurer as soon as you become aware of them.  The best defense is an early defense!

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