Author: VU Faculty
Warning: This article is NOT about "agency contracts," but rather about the practice (or lack thereof) of the agency reviewing the coverage implications of contracts entered into by insureds. We're categorizing this as an agency management, rather than a coverage, issue since procedures need to be in place for carrying out this often requested task.
You're an agent and an important client (architectural, engineering and general contractor firm) sends you a batch of contracts (leases, vendor agreements, hold harmless provisions, etc.). He tells you he'd like to know if his current insurance program protects him from any liability assumed in these contracts. If not, he wants to know what you recommend.
As the agent, how do you respond?
Tell him you're not an attorney and not qualified to analyze the insurable exposures in a contract. (If so, how do you respond when he asks how he can be confident that you understand all his exposures and have counseled him on what he needs?)
Do the best you can to identify the exposures and determine if they are insurable, in whole or in part. (If so, do you notify your E&O carrier now or later?)
Refer him to his attorney and maybe offer to assist in the analysis.
Something else.
This is a dilemma faced by many agents on at least a weekly, if not more often, basis. As a trusted advisor, you want to assist your client in reasonably identifying and treating all known loss exposures. On the other hand, few agents are qualified to do a detailed contract analysis...some attorneys specialize in contract law and have spent years in study and experience to be able to construct (and deconstruct) complex documents.
While our living revolves around contracts of a sort (i.e., insurance policies), a comprehensive analysis of contractual exposures faced by an insured might possibly be a task few agents are suited to conduct. So, we posed this question to our faculty to get their suggestions.
You review the contracts and point out all the deficiencies in the insurance coverage. Some can be added and some can not be covered. You tell him that this is just an insurance analysis, that you are not a lawyer.
There is an old precedent E&O case where the judge told the agent he was liable for not reviewing the insured's contracts and advising him of required insurance to be added.
This is a part of our business whether or not we are willing to admit it. Sometimes it's damned if we do, damned if we don't. That's why we buy E&O insurance.
Option number three, with you translating insurance for the attorney, is the safest and most intelligent. Your other options are fraught with danger.
The only other option is to refer the client to two or more insurance coverage attorneys with construction experience. If you don't know one, ask a local claims manager.
I like all four of the suggestions. Sometimes it is very difficult for an agent to respond in these situations since the agent has an ulterior motive: to keep the customer happy and retain the business.
In these situations, honesty is always the best policy and, when legal opinions are necessary, the agent should always defer unless the agent has a law degree. I would suggest consulting with the company involved beginning with underwriting and, if necessary, underwriting managers and even legal advisers if the company has them on staff. Submit the documents and get the company's position and go from there.
Above all, remember you are not an attorney and should never give or even suggest legal advice.
Review the contracts in terms of insurance related issues. Then send your remarks to the insured with a letter outlining your observations as to the application of coverage. In the letter, tell the insured to send your remarks to their attorney.
It's hard to say without knowing at least something about the personalities involved (is the client extremely lawyer-phobic and/or cheap, does the client's lawyer belong to the same country club as the agent, etc.) but I would say of course not #1 unless you want to take a vow of poverty at the same time. I would say a combination of #2 and #3, maybe something like this:
Assemble all the contracts and ask the client to point out the provisions or at least the kind of provisions that they want checked (hold-harmless, add'l insured, waiver of subro, etc., etc.). If that is asking too much, then do it yourself, but in each case make a list of the provisions (Item #15, Lease dated xx/yy/zz, page 22, Par. 16B, that kind of thing). If anything is obviously incomplete, illegible, etc. you have to ask for more.
Maybe send a letter to the client before you start doing the analysis, saying that these are the provisions you have been asked to review for insurance purposes and that your review will be limited to them unless the client requests otherwise. Maybe also say at this point that they will probably need a legal review of your report.
Then, in your report, you really have to disclaim and/or redirect liability in some way, such as:
a. Tell the client you can't express an opinion or give advice to the extent that there are essentially legal issues which can only be addressed by an attorney, and the client should consult one. (At the moment I can't think of a good way to say this without inviting the obvious question: Which issues are they? Maybe the answer is that only a lawyer can determine that.)
b. (probably better, in addition to a.) Recommend that the client provide a copy of your report to his/her attorney, or the attorney(s) who drafted/negotiated the contracts/leases in question, and invite the attorney's comments, and offer to discuss, etc. with them. Then document your meeting/discussions with the attorney(s) and the results, at least in a memo-to-the-file kind of thing.
This is a touchy situation. An agent has no legal responsibility to review a client's contracts. If an agent undertakes to do so, he or she might create a "special relationship" with the client and raise the standard of care. Professional agents often hold themselves out as insurance consultants and this could imply that a special relationship exists.
Statements made on letterhead or business cards, insurance designations, agency brochures, etc. might create this situation. Insureds have the right to ask agents to review their contracts. Most contracts have insurance requirements that should be addressed. However, most attorneys will not give advice on insurance matters any more than an agent will give legal advice.
You might want to get a disclaimer signed by the insured stating that you are reviewing the contracts for insurance requirements and that this is not a legal review. Also state that insurance doesn't cover all contractual obligations agreed to by the insured (for example there is no warranty of workmanship). Whatever you decide to do, you will probably want to advise the insured in writing about your services.
Tell him you're not an attorney and cannot provide legal advice (probably ought to put that in writing), but do give him your best advice with regard to risk management and insurance issues. Then recommend qualified attorneys to review the legal aspects.
Things you can address from a risk management standpoint include: (1) the interrelationship of indemnification requirements vs. coverage provided, and (2) whether or not the client's insurance program meets the contractual requirements and, if not, where/why not and your recommended course of action.
Additional Reading: "Hold Harmless" Agreements Aren't Harmless"