E&O and the Personal Auto Insurance Agent

1. E&O and the Personal Auto Insurance Agent Presented by: Joni R. Fairbrother, CIC, RPLU Assist. Vice President – Independent Ins. Agents & Brokers of AZ

2. Some goals for our time together • I am not here to talk doom and gloom • I am not here to talk about making your life more complicated • We work in a great industry with awesome possibilities • Working smart to make you more profitable by avoiding E&O Claims

3. There is some good news! • The number of E&O claims is going down. • Not just in Arizona but across the country

4. The bad news is….. • The severity is through the roof • Average claims settling for more than double what they did in 1996

5. What’s going on with Personal Auto E&O in Arizona

6. Personal Auto E&O • Arizona - Prior to changes in law regarding UM/UIM in early 90’s almost 30% of our E&O claims were from Personal Auto • We now have about 14% of our claims (here in Arizona) come from personal auto

7. So what changed? • Prior to about 1992, UM/UIM challenged claims were almost always a loser for agent (if not in loss of the lawsuit – then loss in time and expense in defending) • The rejection forms were just not working very well

8. The standardized UM/UIM form • The Big I worked very hard to change the law to require a standardized rejection (or acceptance of lower limit) form that would have to be approved by the Arizona Department of Insurance.

9. Then the hard part came • ADOI told us – “You worked to change the law, you come up with the form” • Researched nearly every state and contacted almost every personal auto insurance company for samples. • Draft was passed around to E&O defense attorney + many, many stakeholders to edit

10. ADOI approves the form • Arizona Department of Insurance approved the form as the “standard”. • Companies free to come up with their own form BUT had to meet the standard and whatever form used MUST BE FILED with the state. (even if it is the sample from ADOI) • Agents can not use their own form, MUST be the form that the insurance company that you are using filed form.

11. We saw an immediate positive response • With the implementation – the standardized form had an immediate positive effect for agents and companies. • A couple of recent stumbling blocks…..

12. Ballesteros v. American Standard • See handout for written details. • Arizona Supreme Court Decision made in 2011 • Ballesteros - UM/UIM Form was completed • Question before the court is if the form meets the requirements of the law for all – even non-English speaking/reading customers

13. Ballesteros v. American Standard • The Appellate Court Decision was the VERY frightening issue that we had to deal with • Appellant court sided with Mr. Ballesteros and said agents were required to do “something more” • Say what!!! They didn’t say what “something more” involved – this could have been monumental disaster for agents

14. Ballesteros v. American Standard • Some details….. • Bilingual agent explained coverage and rejection form was signed. • Mr. Ballesteros claimed that he did not know what he signed. • Argument from Ballesteros was that form should have been in Spanish. (remember – the policy is not in Spanish)

15. Our arguments…… • Big I filed an Amicus Brief (Friend of the Court) to challenge the Appellant Court decision • Many languages spoken in this state – if you had to have a form for each language – impossible situation. • What about illiterate? (functional literate)

16. Watch Out – or simple rules • Must use the form the insurance company has filed (they may have filed the ACORD UM/UIM) • Don’t come up with your own form for substitution (if you want to supplement, your choice – but don’t substitute) • Form MUST be correctly and completely filled out AND signed copy given to applicant

17. Blevins vs. GEICO • Different situation • This decision left a lot of people wondering • Mr. Blevins purchased auto insurance through the 800 number of direct carrier. Recording of Mr. Blevins rejecting coverage but either Mr. Blevins didn’t sign the UM/UIM form or it was lost.

18. Blevins vs. GEICO • Superior court found in favor of Blevins because the written rejection form could not be produced. • GEICO appealed and Court of Appeals reversed and found in favor of GEICO using the reasoning that Mr. Blevins rejected the coverage himself for himself and the recording proved it.

19. BE VERY CAREFUL • The decision on this is actually very VERY narrow in scope • Only applied to the person arranging the coverage and no one else that was an “insured” • The court was clear that had there been other “insured’s” the UM/UIM would still have applied

20. Be very careful…. • ABSOLUTELY still need to get rejection for every time someone wants reduced or reject UM/UIM coverages. • DO NOT RELY ON PHONE RECORDING • See Blevins bulletin in the back of the handout.

21. Personal Auto Applications

22. E&O Claims tied to Applications • Correct named insured to match registered owner of the vehicle. • Adding a car of a “MVR challenged” relative or friend to auto policy of a “clean” driver. • Not all companies have definition of “Insured” that match • Correct Driver List • The kids • The boyfriend/girlfriend that is a regular driver • Application accuracy

23. Excluded drivers

24. Driver Exclusions – ARS 20-1631F • F. The company shall not cancel or fail to renew the insurance when a person other than the named insured has violated subsection D, paragraph 3 of this section, or fail to renew the insurance pursuant to subsection E of this section due to the driving record of an individual other than the named insured, if the named insured in writing agrees to exclude as insured the person by name when operating a motor vehicle and further agrees to exclude coverage to the named insured for any negligence that may be imputed by law to the named insured arising out of the maintenance, operation or use of a motor vehicle by the excluded person. The written agreement that excludes coverage under a policy for a named individual is effective for each renewal of the policy by the insurer and remains in effect until the insurer agrees in writing to provide coverage for the named individual who was previously excluded from coverage.

25. Train employees to check for excluded drivers: • E&O Claim : Mom & Dad have an auto policy and 16 son is in a serious at-fault accident while intoxicated and he is driving. Mom & Dad are sent a non-renewal notice of the auto policy • Mom & Dad request a driver exclusion (junior is not going to get a driver license until he is 18 – so no big deal – right?)

26. Excluded driver - continued • Junior turns 18 and gets his driver license back and Mom & Dad are proud of the progressive that he has made, so reward him with a car. • Mom calls agent and says that they bought a car for Junior and the car is added. • CSR did not check to see if Junior was on the policy/excluded from the policy • Junior is in an accident

27. Excluded Driver - continued • Carrier denied coverage for Junior AND they excluded coverage for Mom and Dad’s exposure as well. • E&O claim was brought against the agent for failing to remind them of the exclusion when the insured brought up specifically that the car was for Junior (but in Mom & Dad’s name)

28. Don’t forget – still some coverage for excluded driver • With an excluded driver endorsement, the excluded driver has no coverage (and Named Insured has no coverage if excluded driver is driving) BUT……. • Excluded driver is STILL an “insured”.

29. Coverage that still follows excluded driver….. • UM/UIM when riding (not driving) a car of the named insured (i.e. parents) • UM/UIM when passenger of some other vehicle • UM/UIM when pedestrian / bike riding • Medical payment (if not driving) • Giving permission to someone else to drive an insured vehicle.

30. Newly Acquired Auto

31. Newly Acquired Auto • ISO – standard auto policy allows liability on the broadest terms until the end of the policy period. • ISO - 14 days physical damage as long as physical damage coverage is already on the policy. • ISO – 4 days of physical damage coverage for newly acquired that no physical damage is on the current policy ($500 dedapplies)

32. Not all companies follow ISO • Each company files their own forms – it is critical that you / your staff chart newly acquired automatic coverage (or lack of) for each company. • Mercury policy says……. • Easy target area for bad information going out to customers.

33. Suggestion…… • Tell your customers to report newly acquired vehicles immediately. • Tell your customers to report new drivers immediately

34. Cancellations

35. Cancellations • To follow-up or not follow-up – that is the question. • Non-pay customer – should an agent follow-up with customers when a notice of cancellation is sent out? • BEING CONSISTENT IS THE KEY

36. Cancellation continued…. • All staff needs to work under the same rule/procedure regarding cancellations and reinstatements. • Don’t promise reinstatements unless verified by company first --- the company may have a general practice of reinstatement, but final decision is always theirs.

37. Cancellation continued…. • Don’t accept money from a client who comes in to pay on a cancelled policy until you first verify with company. • “Reasonable expectation” could attach if they walk out of your office after paying you.

39. Claims – not the E&O type

40. Claims – not the E&O type • Most personal lines companies request that the insured report the claim directly to them. • If you do take claim information – remember to let the insurance company claims department do their job.

41. Claims • Insured calls you… “What if……..” or “I wanted to tell you about this thing, but I don’t want you to report it to the insurance company” • BE CAREFUL --- information reported to you is information reported to the insurance company (most every time)

42. Third Party Report of claim • Third party calls you and tells you that your customer caused an accident? • What can you tell them? • What can’t you tell them? • Don’t let third party pressure you into giving out more information than you should. • TRAIN STAFF ABOUT 3RD PARTY CALLS

43. Standard of Care

44. Standard Of Care • E&O claims are generally based on negligence. (sometime contractual) • In a claim of negligence – you look to the definition of negligence ……

45. Definition of Negligence • To do or the failure to do what a reasonable and prudent person would do under similar circumstances. • In an E&O claim – the reasonable and prudent person is a reasonable and prudent “agent”

46. Who do we owe a Standard of Care? • State laws • Duties owed to insurance companies • Duties owed to the agent’s or broker’s customers • Duties owed to third parties

47. Duties to the State • Unfair Trade Practices • Misrepresenting terms of a policy • Making false or misleading statements • Misrepresenting the financial condition of an insurer • Using the title of a policy to misrepresent its true nature • Inducing a policyholder to forfeit or surrender a policy based on misrepresentations • Using false advertising

48. State laws • Unfair Trade Practices (cont’d) • Defaming an insurance company • Falsifying records or documents • Selling or offering securities as an inducement to buy insurance • Discriminating against individuals in policy terms or based on geographic location or age of property • Making a rebate or giving something as an inducement to buy insurance

49. Agent duties to a company • Comply with terms of the agency agreement • Follow all underwriting guidelines provided to the agency • Accurately disclose all known risks and material information

50. Duties to your customers • Obtain the coverage requested by the customer • Carry out customer’s instructions • Advise the customer when you can’t