by Mary Salerno, National Accounts Manager
An insurance agent E&O claim that is becoming more common, relates to a an accounting error where the agent collected a deposit or premium and inadvertently failed to send it to the insurance carrier. Most insurance agent's E&O policies contain an exclusion for claims relating to such an error. Exclusions may include remitting premiums, return premiums, commissions, brokerage fees or tax monies. Accounting mistakes happen. The wrong policy could leave you unprotected.
Unfortunately many insurance agents do not read their own policies. They may spend hours negotiating coverage features for their own clients and yet leave themselves and their agency with significant gaps in coverage. We find insurance agents and brokers often expect that their insurance agents E&O policy will cover them for any negligent act. However, this is not always true. If they collect a premium and their bookkeeper fails to remit it to the insurer on time, this is one negligent act often overlooked in an insurance agents E&O policy.
A common exclusion found in insurance agent's E&O policy is as follows:
"This policy will not pay for any claims based upon, arising out of, attributable to, or directly or indirectly resulting from the failure to collect, pay or return premium."
We believe that an exclusion such as this can be detrimental to an insurance agency even though it is completely unrelated to their competence in placing proper coverage. Bookkeeping errors happen. Don't let yourself be unprotected.
Example:
An insurance agent sells an extended reporting endorsement which must be paid to the carrier within 30 days. The client doesn't pay the premium for two weeks and the bookkeeper is out on vacation for two weeks. No one thought to follow up to make sure that the premium was paid. In this case the client lost the right to purchase the extended reporting endorsement because the premium was not paid on time. If the insurance agency does not have the proper coverage it could be left completely unprotected.
What can I do?
We believe that insurance agents should not be their own insurance agents. Similar to plaintiffs should not be their own attorneys. We have been very successful in enhancing our client's policies to provide coverage for this type of exposure. Wording Not Recommended One of our licensed professionals would be happy to review your policy and offer suggestions on how to improve your coverage. We have a few pointers below:
Wording Not Recomended
Exclusion:
"for any claims based upon, arising out of, attributable to, or directly or indirectly resulting from the failure to collect, pay or return premium."
Wording Recommended if claims relating to premium monies are excluded:
Exclusion:
"for any to any Claim for premiums, return premiums, commissions, brokerage fees or tax monies. However, this Exclusion shall not apply to the failure of the Insured to remit premiums that the Insured has collected."