WOULD HAVE... COULD HAVE... SHOULD HAVE...

Rough Notes, Jun 2005 by Fairbrother, Joni

What is the standard of care for agencies?

Business people/contestants on the popular reality TV show "The Apprentice" are assigned projects and compete to position themselves in the board room where they criticize each other as to what they would have done in the other player's place, what could have been done better, and what they should have done-would have, could have, should have. Eventually someone is fired.

As insurance agents we live the same scenario with E&O claims. An allegation of wrongdoing is made against an agency and to support the claimant's contention, the team players are brought in-otherwise known as "expert witnesses." It is the expert witness who will testify as to the standard of care that the agency should have met. The "standard of care" consists of the actions that should be expected from a professional in a given situation. Just as in "The Apprentice" boardroom, arguments involve should have, would have, could have.

The difficulty with standard of care as it relates to E&O and the professional expectations of an insurance agent is that it is tricky to determine exactly how to measure it. In many professions, the standard of care is set by professional organizations on a national basis. For instance, accounting standards are set by the American Institute of Certified Public Accountants (AICPA). Those guidelines are used to determine if a CPA has met the standard of care in a given situation.

Several state legislative bodies are rushing to statutorily set the standard of care for insurance agents. Some states' departments of insurance also are considering establishing a standard through regulation. Many of the standards being proposed would set rules that would at best be very difficult to meet and, in other cases, impossible to meet. An unintended consequence of some of the standards being proposed is that competition, something that is a healthy element in our economy and good for the consumer, would actually be stifled.

What do we do for now? Many staff people in an insurance agency may look at the above statements and think, "What can I do?" or "This is a problem only for the agency principal." This is where the agency staff plays a critical role-not only in the success of the agency, but in the overall effect of the independent insurance agency business.

The agency way

We work in a profession that begs for ambitious people, people who are creative in marketing, people who like to get "ahead" of the game. Too many times agency staff people try to come up with a better way to attract business or save time and will short cut a process when making a change to or renewing a policy. Some staff members take extra time to communicate with clients, while others in the same agency will try to just "get it done" and cut back on communication. When we think of standard of care, the first thing to think about is the "Agency Way."

The Agency Way is the set of procedures and processes that everyone must follow, regardless of position in the agency. You must have continuity and consistency within the agency in areas such as advertising, marketing, soliciting new clients, soliciting renewals, applications, checklists of coverages, and reviewing coverages with the clients. Other areas of continuity within the agency relate to proposals of coverages, communications of mid-term changes, cancellations, nonrenewals, and claim handling. All of the procedures and processes should reflect the duties and responsibilities that agents have to clients, as well as to the insurance companies they represent.

It is the responsibility of agency management to set the procedures that become the Agency Way, in order to establish the standard of care within the agency. It is the responsibility of the agency staff to follow those procedures. Failure to do so may make the agency vulnerable to an E&O claim.

When defending an agency in an E&O claim, many times it is the procedures that will become the defense of the agency. For example, consider the scenario of an agency accused of not making a change of automobile on a personal auto policy on a mid-term basis. The client alleges having telephoned the agency to request the change. The agency denies that the contact was made and further states that if the call had been made by the client, the following would have happened (example of procedure):

* Telephone documentation of who called and when

* Review of current policy (paper file or electronic file)

* Checklist of coverages needed completed by the agency during the conversation with client that is documented

* Auto ID forwarded to client and verification communicated of what changes have been made on the policy

* Change request forwarded to the insurance company

* Diary for necessary follow-up for completion

If there were no notes in the file and the client received no confirmation of coverage by way of an auto ID card, then the agency can say with confidence that the call did not take place and could present the written procedures which would serve as the agency's strongest defense mechanism. The agency could also verify this by offering a review of other client files to prove that the agency always follows the same procedure.