When you are in the marketplace for commercial or surplus line insurance, it is critical for the insurance retail agent and the wholesale brokers involved in the placement to review and deliver to you, the insured, all insurance quotations received from the market. They should also deliver actual copies of all policy forms, schedules, endorsements and all other documents that are a part of the quoted coverage.
Why is this so important?
If the correct type of coverage was not purchased and a claim is made, the insurance company will deny the claim for non-coverage.
Jim Shields and I represented a company who needed a specific type of insurance coverage. Claims made against the policy were denied for non-coverage, so we sued the insurance retail broker, Insurance Alliance, and CRC Insurance Services, Inc. for failing to procure the specific coverage requested by our client. As a result of this litigation, our client was awarded judgments in excess of $15 million.
It was a long and time-consuming process to obtain these Judgments. To protect your company’s assets and make sure that the same thing does not happen to you, there are practical steps and safeguards you can take, which are described in this article.
Step 1 – Start the Renewal Process Early
At least six weeks before your current policies expire, your insurance retail agents should start the renewal process. This allows ample time and allows the insurance agents to obtain complete and competitive quotations from the market.
Step 2 – Assemble Complete Quotes and Forward for Review
Competition can result in significantly lower premiums. When you demand that your agent or the wholesale broker deliver all quotes to you, you can determine for yourself if other insurance companies have been contacted and have prepared quotes for your business. One caveat: you must make sure that you are comparing the same types of coverages as the prior year, or a lower price will be meaningless. Coverage typically trumps cost.
When you ask that all quotes be forwarded to you, who should respond – your retail agent or the wholesale broker? It depends. The insurance retail agent has the closest, most direct relationship with the client/potential insured. As a result, the insurance retail agent may be in position to assemble and deliver to his client complete quotation documentation. The insurance retail agent should have the expertise to be able to review the insurance quotation documentation received from the wholesale brokers involved in the placement to determine if there are any material changes to the coverage from the prior year. If the insurance retail agent does not have actual copies of sample policy forms, schedules, endorsements or any other documents (e.g. documents on file with the insurer) that are a part of the coverage quoted or ordered then it should request in writing that the wholesale broker provide copies of any “missing” policy-related documents.
Another caveat: If your retail agent is accessing different markets than the wholesale broker, your retail agent should be the one to assemble complete copies of all quotations received.
If the current coverage is being renewed in the surplus lines market or being placed through a new insurance program, the wholesale broker may be in a better position to understand coverage limitations or coverage changes to a pre-existing insurance program or to a new insurance program. Additionally, the wholesale broker, whose surplus lines license is used for the placement, is typically the expert in the surplus lines market and has the relationship with the surplus lines carriers.
The insurance retail agent and all the brokers involved in the placement are presumably insurance experts and are earning a sizeable commission for the placement. As a result, all the insurance agents involved in the placement share in the responsibility to deliver complete quotation documentation down the broking chain and ultimately into your hands.
A complete quote includes the following information:
- It should be in writing;
- Indicate the best rating of insurer;
- What additional information is needed to bind the policy;
- The steps involved in the binding procedure;
- Actual copies of all policy forms, endorsements, schedules and all other documents (e.g. documents on file with insurer) that are a part of coverage quoted; and
- The premium price terms.
Your retail agent and the wholesale brokers involved in the placement should also review all quotation information received to make sure that it is complete and that it is consistent with the coverage requested by you. If the quotation is not consistent with the requested coverage, then your insurance retail agent and/or wholesale broker(s) should inform you how the insurance coverage is different from the requested coverage. This is typically done in a cover letter, email or written marketing summary.
In summary, your insurance retail agent and the wholesale brokers involved in the placement (all of whom are insurance agents of the insured in the State of Texas) should obtain copies of sample policy forms, endorsements, schedules and all other documents that are a part of the coverage. The insurance agents have the responsibility and a duty to inform you, the insured, if there are any discrepancies in the coverage quoted or actually purchased.1 The sample forms, endorsements, schedules and all other documents that are a part of the coverage are necessary for your insurance agents to comply with their duty.
You are probably not an insurance expert, especially in the surplus lines market. That is why it is so important that you insist that your retail agent and wholesale broker communicate with you as they engage in the quotation and procurement process. Either in a letter, email or marketing summery analysis, they should notify you of the following:
- Any suggested change in coverage;
- All material changes to coverage from the prior year;
- Identification of all material coverage issues to be discussed and explained to the client; and
- Address discrepancies in coverage by offering alternatives, especially if the discrepancy could be resolved with additional endorsements or by accessing other markets.
Incomplete quotation and/or policy-related documents make it difficult for you to decide if your assets and potential risks are going to be adequately protected. Incomplete written quotation documents create the potential for a gap in coverage or a non-procurement issue later down the road, when an occurrence or event necessitates a claim being filed. Better for all the insurance agents in the broking chain to insist on complete quotation and policy-related documents up front and in a timely manner, so an informed decision can be made before the renewal date.
Lesson 3 – Analyze and Compare all Quotes
The final piece of advice to reduce the number of future coverage issues is for all of the insurance agents in the broking chain to carefully read and analyze all quotation and policy-related documents carefully. Your retail agent should communicate with the wholesale broker if they have any questions or issues and the wholesale should communicate with the insurer’s broker and/or insurer if they have any questions or issues. They should also keep you in the loop and let you know if there are any potential coverage issues.
As the insured, you cannot blindly rely on insurance agents to protect your interests. You have a duty to review the insurance policy to determine if the coverage obtained is consistent with or matches the insurance coverage ordered. 2 By following the tips and techniques that have been discussed above, you will proactively protect your company’s assets.
1 See May v. United Services Assoc. of America, 844 S.W. 2d 666 (Tex. 1992(“Every insurance agent involved in the placement of an insurance policy owes a duty to make reasonable efforts to place the insurance coverage requested by the client and to promptly notify the client promptly if unable to do so.”). As a result, every insurance agent in the broking chain should as a customary practice deliver a cover letter, email or marketing summary to the insurance agent directly below it in the broking chain that discloses ultimately to the client if and how the coverage set forth in a quotation or in the insurance actually procured is not consistent with the coverage requested or required by the client.
 See Howard v. Burlington Ins. Co., 347 S.W. 3d 783, 792 (Tex. App. Dallas 2011(Texas law is clear that policy language controls and the insured has a duty to read and be familiar with the terms of his own policy); Compare with Hidalgo v. Surety Sav. and Loan Assoc., 502 S.W. 2d 220, 204 (Tex. Civ. App – El Paso, no writ)(rule that party has to read and will be bound by terms of contract is distinguishable in cases where party had no opportunity to obtain knowledge of a contract’s essential terms).
When litigation embroils your company or business, contact Shields Legal Group to learn more about how we may help you navigate those waters. Please visit ShieldsLegalGroup for more information.
Please note: This article is for general information purposes only and should not be considered legal advice. You should not act on any information contained in this article without first seeking advice from your legal counsel.