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It may not necessarily be anyone’s obvious fault, but simple misinterpretation can nevertheless lead to E&O claims against brokers, wholesalers, and MGAs.
That’s why communication, education, and note-taking are so critical between customers, brokers, and MGAs. And then, as an added protection, there’s insurance E&O coverage.
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Mark Lann, EVP and underwriter at Rockwood Programs, spoke to Insurance Business about his company’s MGA and Wholesaler E&O product, how it works, and what brokers should be doing to try and avoid having to make claims.
“It’s a professional liability product for MGAs, wholesalers, and Lloyd’s coverholders,” Lann said. “Everybody has to have this coverage – it’s required for virtually all MGA contracts between the MGA and the carrier.”
So what does the coverage provide, and what might cause it to kick into gear?
“Defense cost is definitely a part of it – and in our policy there is a separate limit for defense and expenses – but the indemnity part, where we actually pay damages, is the most important part,” he explained.
“You’re usually getting a claim because somebody has had a loss, and that loss was uncovered for whatever reason. So you may have a situation where an insured suffers a flood loss but didn’t carry flood insurance or didn’t carry enough flood insurance, and they blame the retail agent, who in turn says, ‘Well, wait a minute, I got this from an MGA, it’s his fault too’.
“Typically you’ll get sued when someone thinks they should’ve been covered for a loss but they weren’t – that somebody failed to provide the proper coverage to the insured. As insurance professionals, we’re supposed to be the experts and when someone comes to you and says, ‘I want to insure my property’, then we’re supposed to provide the proper insurance.”
Lann said the best advice he can offer to brokers to avoid having to call upon this important coverage is: communication and documentation.
“A lot of times there’s a miscommunication or a gap of knowledge between the end-buyer and the insurance professional. Sometimes there’s a disconnect – if your house burns down and you think your house is worth $250,000 and you had $200,000 worth of coverage, you’re not going to be very happy with your agent when you get that check. I don’t think it’s anyone’s fault necessarily in those cases, it’s just a failure to provide the complete coverage that the insured was expecting,” he said.
“It’s all about communication with your client. And what is so important for retail agents is to document every time you speak to your client. Make sure you have great documentation, because it will come down to a ‘he said-she said’ if you don’t. And for wholesalers and MGAs, it’s the same situation – you have to document everything when you’re having conversations with your retail producers.”
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