To prevent errors and omissions claims, an insurance agency needs well-trained employees. From the standpoint of a customer, every employee who answers the phone is the agency, and that employee must know the right questions to ask. To fight E&O claims, the agency needs an application signed by the insured. People bear some responsibility for what they sign. An agency in New York State found out just how important both of these things are.
A married couple lost their home in a fire. Their homeowners insurer paid the claim and non-renewed the policy at the next opportunity. They rebuilt the house but had trouble finding a new insurance company to offer coverage. After months of unsuccessfully looking for insurance, the husband called Kenney, a woman with whom he had done business earlier, to see if she could help.
Kenney was a licensed independent real estate agent. She had an arrangement with a real estate office, under which she got office space in return for performing clerical tasks for the owners. The real estate company also was a licensed insurance producer. While its main business was real estate, it would occasionally help clients get insurance by taking their information and sending it to other area agencies. The owner showed Kenney how to take down basic information if she took a call from someone looking for insurance.
Kenney took the husband’s call and made notes on the information he gave her. She then faxed the notes to the office manager at Sils, another insurance agency. The manager later called her with a Homeowners insurance quote, ironically from the same carrier that had non-renewed the couple’s prior policy. The husband agreed to buy the policy, Kenney gave the other agency “basic information” about the home and the insureds, and the agency sent an application to the carrier. The carrier issued the policy.
Three years later, the unlucky couple’s home burned down again. The public record did not disclose the amount of the loss, but it was likely more than $200,000. After months of investigation, the carrier denied their claim entirely. It said that the Homeowners policy was void from the start because the insured did not report on his application that he had suffered a prior fire loss at his home.
The couple sued Kenney and Sils, charging that they had been negligent in completing the insurance application. Kenney and Sils asked the court to dismiss the case, saying that the statute of limitations period had expired; Sils was not responsible for Kenney’s actions because she was not their employee at the time; Sils had no direct relationship with the couple; and Kenney was acting as an employee of the first agency and therefore not responsible. The trial court disagreed, and Sils and Kenney appealed.
The appellate court said that the couple’s injury occurred when the carrier denied their claim, not when the policy was first issued. Had the injury occurred on the date the policy was issued, the lawsuit would have been outside the statute of limitations.
The court also found that it was unclear as to whether Kenney was Sils’ employee at the time the policy was sold, or, if she wasn’t, whether she was acting as Sils’ agent. If she was in either role, then Sils would be liable for her actions.
Finally, the court said that Kenney could not be held personally liable, as she was acting either in the scope of her employment with the first agency or with Sils. If there was liability, it belonged to one of the agencies, not to her.
It appears that Kenney was not adequately trained to take information for insurance quotes. She did not obtain all of the relevant information from the applicants. Also, though the court’s opinion does not state so, it implies that the couple was never asked to review and sign the applications. Had Sils required them to do so, it would have had a defense in court against the suit.
Inadequate employee training and failure to get applications signed by insureds are two major causes of agency E&O claims. As this agency found out, the short-term savings in time and expense can be very costly in the long run.