Insurance Agency E&O Claims Continue to Rise Relating to Acquisitions

By: Mike W. Smith

This week it was announced that Hub International, among others, has been sued for $42M relating to an insurance agency E&O claim resulting from activities which occurred both before and after the acquisition of Knauff Insurance Agency (Knauff). The alleged issue began in 2001 at Knauff and continued for three years after their acquisition by HUB in 2012. This highlights an issue we continue to see relating to the significant acquisition activity in the insurance agent and broker market. Hub International is caught up in a $42M Lawsuit. Although many controls are in place, acquisition companies can take on the risks of the companies they acquire even in asset acquisitions. The reason is that in most cases policies put in place prior the acquisition continue to stay in place and be serviced by the new company that acquired them.

According to Mike Smith, President and CEO of Axis Insurance Services, LLC “This rush of M&A activity in the insurance agent and broker market creates opportunities for oversight of details in the handoff from one company to another. Our firm insures hundreds of companies nationwide for their E&O. In the last two years we have seen a significant increase in claims activity and the most activity in $1 million plus settlements in the company’s 20 year history.”

In an insurance agency acquisition, it is important to understand the nature of the book of business being acquired as well as the insurance issues associated with the acquisition. A better understanding of the liability being acquired should be an integral part of the due diligence process of an insurance agency acquisition. According to Smith “We have assisted dozens of companies in hundreds of insurance agency acquisitions. We are always surprised when the insurance risk is the last part of due diligence in these multi million dollar deals.”