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E&O: How Do You Handle Rejections?

Posted By Administration, Tuesday, March 24, 2015
 Curtis M. Pearsall

by Curtis M. Pearsall, CPCU, AIAF, CPIA, President Pearsall Associates, Inc. & Special Consultant to the Utica National Agents E&O Program

 Every day, agencies provide prospects and customers with proposals on coverages addressing a multitude of exposures. Some proposals are provided at the anniversary of the customers insurance program, while others occur during the policy year, more of a mid-term situation. While it would be nice if the customer bought coverages that were proposed, unfortunately, that is not the norm. Quite possibly, the customer does not see the need for the coverage or the premium could be an issue. Since customers will probably reject certain elements of a proposal, the degree to which the agency has documentation of the rejection is a key element in the event of an uncovered claim.

Good, but not enough

Most agencies have an expectation for handling the issue of rejected coverages. Yet, this could mean that one producer at your agency handles it one way and another producer at your agency handles it differently. This potential lack of consistency can lead to problems. It is important that the agency staff recognizes that if there is an uncovered claim, it is possible that the customer will take a strong position that it was his or her understanding a specific coverage was requested, not rejected. It will now be up to the agency producer to provide some element of proof that the coverage was, in fact, rejected.

It might not be enough if your proof solely involves the documentation you have in your agency management system detailing the discussion between the agency producer and the client. While its better than nothing, the potential inadequacy of this approach is that the documentation in the file is your agencys recollection of the conversation. The customer may allege that he or she had an entirely different understanding of the conversation.

One often-applied approach is for the customer to sign the proposal acknowledging which coverages he or she desired and which coverages he or she rejected. If that is your agencys procedure, how confident are you it is being applied consistently? If there is not a notation next to a specific type of coverage (cyber insurance, for example), will the courts construe this lack of a signature as an indication that the coverage was requested, not rejected? Moreover, what about those situations where the proposal was not personally delivered and the rejection of coverage was provided verbally? What proof will you be able to provide? While the agency can ask the customer to send them an e-mail detailing the conversation, many agencies have become increasingly frustrated by customers delays in honoring these requests.

Written confirmation

The suggested approach for those situations where a customer does not purchase all of the proposed or suggested coverages is to provide that customer with some element of written confirmation of his or her decision. A variety of approaches can be undertaken. A vital element is that the written confirmation should be sent electronically or delivered without delay. Losses have occurred shortly after the binding of coverage and prior to actual policies being delivered, so it is not suggested to wait until policy delivery to review what coverages were bound and which were rejected.

The essence of this approach is for the agency to confirm its understanding of the customers final decision, essentially requiring the customer to advise if this information was not correct. This will help heighten the agencys desire for the customer to be accountable for his or her buying decision.

 A solid defense

Agents will often provide a copy of the proposal (manually or electronically) noting what was purchased and what was not. If the customer wants to think about it, the documentation on the proposal should note no coverage bound at this time. A common and effective approach is for the agency to send a thank-you letter to the customer that includes the necessary detail/decision on each coverage proposed. This serves two purposes: the agency is thanking the customer for the business and it memorializes the various details. Imagine if an uncovered loss occurred and the customer alleged that he or she thought coverage had been ordered. A detailed written document would provide solid defense for the agency.

While the previously mentioned scenarios involved a new business or renewal meeting, the same approach can be used when the customer makes a mid-term request for different limits or additional coverages. When the agency provides the proposal, the proposal should state that no coverage is bound at this time or include clear instructions detailing what is needed to put coverage into effect. If and when the customer rejects the proposed coverage, the agency should provide detailed documentation of the discussion, the decision and the date.

A duty

Since it is not possible to pinpoint exactly which agency file will be the next one to have a loss, it is paramount for the agency to have standards and expectations on how the declination/rejection of coverages will be handled. Ensuring that these standards and expectations are consistently applied is equally important. This is where the auditing of files can bear tremendous benefit. While producers have a responsibility to sell, they also have a duty to ensure that the agency has a solid defense if something happens that results in errors-and-omissions litigation.

Tags:  E&O  E&O: How Do You Handle Rejections?  Errors and Ommissions  Insurance Content  Insurance Industry  Insurance News  Weekly Industry News 

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