Ask any agent who has suffered through an errors and omissions (E&O) suit and they will provide sage-like insight into the professional and even personal trials created by such an ordeal. I recently met an agent whose agency just four months ago closed the last of 16 E&O suits related to Hurricane Katrina; his new-found experience is priceless (although he hopes to never have to call on that experience).
Proper actions and reactions when threatened or served with an E&O suit are of utmost importance. Once a threat is made or a suit filed, the allegedly improper act or omission has already occurred - don't worsen the situation by making bad decisions.
The do's and don'ts of an E&O claim are often discussed in errors and omissions courses sponsored by the agency's professional liability insurance carriers, state associations or agency consultants. Many agency consultants can perform agency audits to help prevent, as much as possible, E&O situations and prepare an agency for responding when one comes. Following are just some general "do" and "don't" tips that may need to be customized to fit a particular agency.
First - DON'T
The first big don't is, do not overreact to the claim. Understand that there is NO shame in being pulled into an E&O situation. Even the best agents and agencies are open to an E&O claim, regardless of the procedures and protections in place to avoid them. Take the experience, learn from it and make the necessary changes to make sure no such situation arises again. Anger at yourself or others is counterproductive and can increase the weight of the situation.
Do not, under any circumstances, alter the client's file as it relates to the charges. Do not add details, delete details or change details. Such changes are easily found in electronic files, and even if paper files are used, any changes can be evident. Making any changes creates the appearance that there is something to hide.
Do not discuss the claim with anyone other than the claims representative, defense attorney or any other member of the office DIRECTLY involved in the claim. Comments made under duress or when angry can be misconstrued and be potentially damaging in court if such comments are recounted on the stand. The only individuals that need to be involved in any discussion of the case are those in the office directly related to the care of the plaintiff's account and those defending the agency.
Do not make any admission of liability or wrongdoing; and do not offer or make payment. This is the same advice agents give their clients when involved in an auto accident. Allow the legal process and those hired to debate and decide questions of law make the determination of legal liability and amount of damages.
Do not provide any written or recorded statement to the plaintiff without your carrier's claims representative present. Since this will be admissible, the agent will want guidance on how to truthfully give an account of the story using facts without unnecessary opinion or emotion.
Do not allow inspection, copying or removal of client files and records without consulting with the claims representative managing the claim. This is the agency's information about the client, not necessarily the client's information. The claims representative needs to know what information is being requested and what is not.
Do not try to manage the claim on your own. The E&O carrier has more experience and is better able to manage the process. Remember, other clients must be cared for, new business must be written and the agency must be managed; allow those with more experience, time and resources to take care of the agency.
What to DO
The list of "do's" seem almost like common sense; but they still require mention. Following are a few of the immediate and ongoing "do's" of E&O:
Notify the E&O carrier of a "claim" at once. Provisions in errors and omissions policy require the insured to notify the insurance carrier as soon as practicable upon the receipt of a "claim." A "claim" is a defined term that can mean something as innocent as a threat, or a letter from the insured or the actual suit papers. It's incumbent upon the agent to know the definition of a "claims" in its policy and notify the carrier in compliance with that definition.
Gather and organize all pertinent records related to the insured and the situation. But in so doing, remember the "don't" number "2;" don't alter them. The claims representative will need all the information to conduct an investigation and prepare and provide a proper defense.
Write down all the information known about the incident surrounding the claim. Each member of the team directly related to the client and the incident giving rise to the E&O claim should record all they can remember about the incident or incidents on which the claim is based. This should be a factual narrative statement in chronological order.
Cooperate with the E&O carrier. This includes providing information and facts that look bad for the agency. Hiding or hedging certain aspects of the facts surrounding the situation on which the claim is based creates distrust between you and your insurer; it also makes it look guilty. The insurer is on your side.
Make sure you comply with all policy conditions and requirements. If the agency fails to comply with all E&O policy conditions, coverage may be jeopardized.
Hopefully It Will Never Happen to You
This is but a quick recap of some of the more common "do's" and "don'ts" and is not a complete list of all that will be required at the time of a claim. Your insurance carrier will ask for information and may require some actions not contained in this list.
As stated, hopefully this information will be superfluous for your agency; however, this is still good information for you in advising your professional liability clients in the event they suffer an E&O or professional liability claim.
Comments
Keep in mind the E&O attorney is the companies attorney, and is working for them and not for you, (they will throw you under the bus, if they can). Your attorney works for you.
I have not had the experience that the attorney hired by the E & O carrier does not act in the interest of the insured.
Most defense lawyers today also know that while hired by the Insurer, their total allegiance is to their Client - i.e., the Insured. Thus- the threat that they may "throw them under the bus" is a naive statement given the State Bar Penalties and their own E&O Exposure.
Never the less, in instances where a true confilct may arise due to allegations in a claim that could conflict with coverage obligations, many States now follow the "CUMIS" doctrine allowing for the Insured to pick their own counsel at the Insurers expense. In Calif this was codified many years ago. This right is not without limitation. There must be a true conflict, the Lawyer chosen cannot charge an hourly rate that exceeds what Panel Counsel of like experience would charge, and they must have a minimum of 5 years experience in defending similar cases.
While it is easy to decry Insurer malfeasance in in trying to keep costs and obligations to a minimum, recent history has shown the lessons learned from the Past remain in effect today. Those who haven't;t learned- well- they aren't in this market place any longer now, are they ?
DO expect the insurance company to use up ALL of your deductible before doing anything toward settling the claim
DO NOT expect your culpability in an E&O incident to have anything to do with the outcome of the claim settlement. The insurance company's lawyer and claim adjustor, working hand in hand, are trying to settle the claim as cheaply as possible with no regard for your negligence.
DO NOT expect a defense from your E&O carrier.
DO expect an out of court settlement regardless of your negligence
DO expect your premiums to go up at renewal even if you were not at fault in an E&O incident
Our agency has several past incidents where EVERYONE got sued. We were one of as many as 15 defendants and named only because we insured one of the other defendants for some short period of time. All that happened was that all the lawyers got together and decided who would pay what, regardless of their contribution to the alleged loss.
If it wasn't for standard industry requirements, I would spend my money on quality control and drop my E&O. I would never have paid anything more than minor defense costs in previous instances had I been uninsured. However, if there is an insurance company involved, you can bet the plaintiff attorney will get much more for his efforts.
R.J.
As a result, $750K was spent defending the case with a Defense verdict - well spent-
Spending money solely on quality control is a sound investment in any event- but will never stop a plaintiff attorney from naming everyone.
Answered by Patrick Wraight, Director of Insurance Journal's Academy of Insurance -
The short answer is that there are several reasons why I would say that there is no coverage for whatever happened here. This is (of course) based only on what I’ve read.
Long answer: Real Estate Agent’s Errors and Omissions (E&O) coverage is there to pay for the claims and cost of defense against a real estate agent’s ‘wrongful acts’. Wrongful acts will be defined by the specific policy, but in general, it will cover any of the potential mistakes that a real estate agent may make.
This individual is going to run into a couple of potential problems.
1. The writer mentions fraud. If the allegation is fraud, that is a serious problem. I am looking at an ISO Real Estate Agents and Brokers Professional Liability Policy (RE 00 01), Exclusion 6: Criminal, Fraudulent, Malicious, Dishonest or Intentional Acts which reads in part, “Any claim arising out of, in whole or in part, criminal, fraudulent, malicious, dishonest or intentional acts, errors or omissions by an insured. If the claimant claims that the writer committed fraud, it’s likely that there is no coverage.” The writer mentioned that the suit seemed to be centered around alleged fraud. That tells us that we are likely going to apply an exclusion similar to this one.
2. This person mentions that the case has already been lost and is in appeal now. Then the next question comes up, “so now my current E&O insurance with my current broker should cover right?” Well, no. Since this person is asking about E&O with the current broker, that tells me that they have not reported this claim under any other E&O policy. The insuring agreement of the current broker’s E&O policy will read something like this, “This insurance applies to wrongful acts only if:… A claim against any insured for damages because of the wrongful act is first made during the policy period.” This case has been pending since 2021. If there was an E&O policy in place back then, that is the policy that should have responded. Since that policy period has passed, this person cannot make a claim against it. Additionally, there are other exclusions that could apply, including a prior notice exclusion or prior or pending litigation exclusion.
The time to ask for coverage from an E&O carrier would have been when this person was served notice that a suit was filed, not now that there has been a judgment entered against them and there is an open appeal going. By the way, here’s some more potentially bad news. California allows for 10% post judgment interest. That means that the court can add interest at 10% annually from the date that the judgement was entered. So there’s that, too.
Hope this helps.
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