For brokers, the trick to avoiding an errors and omissions (E&O) claim is asking the right questions. Any broker or insurer who blames fault on unforeseeability has not asked the right questions, according to Neil Colville-Reeves, lawyer at Samis + Company.
Duty of care is based on the idea of foreseeability. A loss that is completely unforeseeable is less likely to lead to a liability finding against the broker than a loss that is foreseeable.
“A broker must do appropriate due diligence to tease out from the client what the foreseeable risks are in any particular business,” said Colville-Reeves. “Coupled with asking the right questions to understand foreseeable risks, a broker needs to properly document the information they gather from their client to ensure there is a record of the communication.
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“You have got to know what questions to ask your client. If you don’t know the industry, you run the risk of not knowing the right questions to ask in order to understand the risk. A broker that doesn’t know the right questions may consider that a given loss was unforeseeable when the reality is that had the right questions been asked it would have been apparent that the event was foreseeable.”
The landscape is always changing in terms of different risks that policyholders want insured. Staying on top of developments in the industry is a great place for brokers to start, according to Andrew
Mercer, lawyer at Samis + Company.
“It’s incumbent for a broker to stay on top of what risks are being insured in certain industries and to make sure they discuss that with their client,” said Mercer. “Brokers must also ensure that everything is documented.
“If the insured is saying they don’t want to change coverages because they want to keep their premiums lower, the broker is certainly going to want to make a note of that and keep it filed so that if there is an issue later on, they have a clear record that the insured instructed them in a certain way and waived certain coverages in order to save money.”
Once again, a successful broker will ask the right questions and be able to communicate the risks of waiving coverage. The most important thing is “research,” said Colville-Reeves.
“If a broker wants to write a risk in an industry they don’t know much about, then they must do some research into the types of risks prevalent in that industry and be aware of any developments, otherwise there’s probably a greater risk of an E&O claim,” he said.
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