Recently, reports say that insurance carriers are directing their agencies to deny certain claims related to the coronavirus, specifically business income claims. Reports also indicate that some carriers have even put this directive in writing.
Big “I" Professional Liability's risk management department strongly advises that agencies do not make a coverage determination on behalf of any insurance carrier or deny any claims for these key reasons:
- The agency is not a party to the insurance contract. The insurance policy is between the named insured and the insurance carrier. Only the carrier has the right to deny coverage.
- We are not aware of any agency contract that allows the insurance carrier to place claim investigation and ultimately the duty to deny a claim on the agent.
- Loss determination and claim denials can only be made by licensed adjusters. No single person can hold both an agent and an adjuster license. Don't operate outside your licensure.
- Unfair claims practices statutes require that claim denials be in writing specifying the reasons for the denial specific to that insured's situation and that insured's policy language. A blanket denial does not consider the individual insured's situation and applicable policy language violates statute.
- Claims management is the carrier's responsibility, not the agents.
For these reasons, the agency should not issue a claim denial to any insured on behalf of the carrier.
However, if the carrier desires to create a blanket denial letter, agencies should share that letter with the insured, clarifying it comes from the carrier. The agent should still submit the claim to the carrier if the insured reports a claim to the agency.
Do not talk the insured out of filing a claim. Explain to the carrier that you shared its letter, but that as a licensed agent you are not licensed to deny a claim. Furthermore, refer the carrier to your state's unfair claims practices regulation.
Feel free to use this sample letter to communicate with your commercial clients.
We recognize that these are unprecedented times. None of us has ever seen a situation like this. Regardless, don't undertake duties that do not belong to the agency. Don't create an errors & omissions or regulatory issue for you or your agency. Stay within your licensure.
Also, remember that the Big “I" is here to answer any questions and help in any way. For more agency risk management information and resources, visit the E&O Happens website.