​Author: Virginia Bates

All of the potential errors and omissions (E&O) problems below have a common issue. Can you tell what that is?

1.     You mail a renewal application from your office, pre-filled with limits from your agency's automated system. Your ask in your email if your client review the application and sign it. The client emails it back with the message, “Looks good. No changes. Thanks for your help." Seven months later, the insured has a loss and learns policy limits are insufficient.

2.     None of your standard carriers will write a newly established day care center. You place it with a non-admitted carrier through a surplus broker with whom you have worked for years. Your insured completed the required application, but you had to follow up with the affidavit. The affidavit is a notice of lack of access to the state insurance guarantee fund. The carrier issued the policy contingent on returning the signed affidavit. Toward the end of the policy period, the carrier became insolvent and was unable to respond to a claim that otherwise the policy would cover. The affidavit may become crucial in defending any potential E&O claim.

3.     A satisfied client refers a prospect to one of your agency's producers. The producer hand-completed the application for new business. The “prior losses" section of the application was clearly marked “none." Seven months after policy issuance, the insured submits a claim. Although the loss would normally be covered, the carrier denies the claim because it discovers a relevant past loss that occurred prior to the policy's effective date. The carrier rescinds the policy back to its original effective date.

4.     An account manager rounds out a homeowners policy with a personal auto policy. The account manager and client discuss an umbrella, but the client will not accept the liability limits on the auto policy required for the umbrella eligibility. Later in the policy year, the insured has a serious auto accident where the current auto policy limits are insufficient.

Did you find the common element in each of those potential E&O losses? In each case, the client's signature will be crucial in the agency's defense.

In the first case, the email attached in your system to the client file will be helpful. It will be more helpful if the client signs the renewal application.

In the second case, you would feel relieved if you saved the insured's signed affidavit.

In the third case, the insured's signature on the application will protect the agency from the insured's allegation that “I told you about that prior loss and you failed to put it on the application."

In the fourth case, the signed application, along with a documented system activity, will record that the producer discussed higher limits although the insured rejected them.

E-Mail Signatures are Common, However …

It is safe to say that all agencies realize the need to save signature documents. Many of  those agencies either save the emailed application or “scan and attach" the in-person application and shred the original.

While e-signatures are common and convenient for both the agency and the client, there are still many occasions where the insured completes an application in-person or emails it to the agency upon signing.

While a key word in many industries is “paperless," reconsider how best to document and secure signature documents. When confronted with a limited or rejected claims settlement, it is not uncommon for an insured to allege that the agency “created" the evidence and that document is not the actual signature of the insured. Defending the case may require the added expense of a handwriting expert, because without that expert, the insured's testimony may convince the jury, resulting in a verdict against the agency.

Therefore, the safest option is to save the original hard copy signature or secure it instead of or in addition to the emailed copy. Brian Butcher, JD, CPCU, Vice President-Claims Corporate Solutions at SwissRe offers this perspective.

“I think it is…helpful to obtain a hard copy of the signed application in those situations where everything is done online. Part of the thought behind my recommendation to print and save documents, especially applications, was to have a hard copy showing the insured had signed the application and that the signature was his/her signature," Butcher recommended.

Defense Counsel Speaks

My informal survey of E&O defense attorney's echoes Mr. Butcher's comments. When a signature is an integral part of an agency's defense, attorneys surveyed agree that they prefer the more “bullet-proof" option of a hard copy, “blue ink" signature.

In most states, the agent is responsible for procuring the limits and coverages requested by the client. Therefore, it is wise to be able to show what the insured requested. As pointed out by Mr. Butcher, “The signed application is good proof in E&O claim, that the agency procured the coverage requested by their customer as the signature is arguably the insured's attestation as to what coverage they wanted and what limits they wanted."

Updating Limits is Crucial in Today's Claims Environment

Currently and for the near future, inflation is a huge factor in property and property damage claims. Prior policy limits are often insufficient for today's repair, building and settlements. “We often find ourselves in a situation where the carrier renews a policy, sometimes for years," Mr. Butcher continued, “ without getting a signature again on an application. This can be problematic … where the cost of construction has risen over the years and the insured is suddenly 'underinsured' for the loss sustained."

Often agencies “renew as is" and feel time pressured to talk with their clients about updating limits and documenting those conversations with substantive activity notes and updated signed applications where needed.

Attaching relevant emails, documenting conversations as date-stamped activities in the agency's management system and following up on open items diligently are all good documentation rules to keep the agency safe. In addition, one deviation from paperless – keeping hard copies of signed applications and similar documents – can be one additional precaution to keep the agency secure.

Virginia Bates is President of VMB Associates Inc. which provides consultations on agency profitability, financial reporting, human resource development, compensation plans, and E&O security. Bates conducts  E&O for-credit audits and agency valuations,  and assists in agency sales, perpetuations, and transitions. She is familiar with a wide array of agency technology and is the founder of VMBHits.com which is a testing site to determine hiring desirability and educational needs of staff. She regularly conducts classes on technical, sales and management topics.

 Last Updated: May 12, 2023

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