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How will COVID-19 Impact Insurance Agents/ Brokers E&O; Minimizing Exposure During and After the Pandemic

April 16, 2020

Although health care workers have been the primary focus of anticipated litigation that will result from COVID-19, the tentacles of pandemic litigation are now starting to permeate tangential players and coverages. Presently, the insurance industry is seeing an onslaught of business interruption claims, as businesses slow down or shut down as a result of various permutations of “shelter-in-place” orders throughout the country and the world. There are early indications that, if and when carriers deny coverage for COVID-related claims, insurance agents and brokers will emerge as another “deep pocket” that businesses can target to attempt to recover COVID-19 losses. Industry insiders are speculating that insurance agents and brokers errors and omissions claims will be a part of the next wave of COVID-19 lawsuits to rock the industry. It is anticipated that claimants will generally allege that the agent or broker failed to procure appropriate coverage for a panoply of COVID-related losses.

Insurance carriers who underwrite high volumes of errors and omissions policies are watching closely as this situation unfolds, because legislative action may change the potential liability risks for insurance agents and brokers. As of the date of publication of this article, government officials have discussed the possibility of implementing drastic measures to remedy the massive nation-wide business losses, including mandating that carriers provide insurance coverage for COVID-related losses that would not otherwise warrant coverage pursuant to the policy language.

A broad, sweeping mandate for coverage has the unprecedented potential to disrupt the delicate fiscal balance of the insurance carrier’s business model, but could serve to absolve insurance agents and brokers of liability risk related to these claims. The business of insurance is predicated upon an underwriting process that includes assessing risk, ascribing cost to the risk at issue, drafting fine-tuned policy language outlining the parameters of the specific risk, estimating the premium necessary to fund the risk class, and dividing the estimated premium among the class of insureds for the particular risk. Insurance companies are taking the position that a governmental mandate of coverage for COVID-19 losses is not a viable solution for this issue, and could result in economic devastation for insurance companies. Specifically, a broad mandate is unviable in cases where COVID losses clearly are not covered pursuant to the plain language of the policy, and where the carrier has not underwritten for the potential losses. In such situations, the legislative action fails to account for the business model that underlies the insurance process, ie that the insureds have not paid the premium to fund the risk that the carrier never intended to cover.

Assuming that business interruption and related COVID-19 losses will not be entirely covered by insurance carriers, either pursuant to policy language or legal mandate of coverage, the next wave of litigation will likely target insurance agents and brokers for failure to procure necessary coverage. It is anticipated that there will be a brief delay in the filing of insurance agents errors and omissions lawsuits, because the tail on insurance agent and broker errors and omissions is longer than the underlying coverages (i.e. there is usually an initial denial of coverage before parties pursue their insurance agent or broker for errors and omissions). It is anticipated that plaintiffs will base claims against insurance agents and brokers on alleged failure to procure business interruption coverage for losses related to viral outbreaks and government ordered shutdowns related to viral outbreaks. Insurance agents and brokers will likely posit an array of defenses including but not limited to arguing that the insureds did not request this type of coverage; that this type of loss was neither anticipated nor foreseeable; that it was not the industry standard for insurance agents and brokers to recommend and/or procure business interruption insurance for viral outbreaks and government shutdowns related to same; and that, in any event, this type of coverage was not readily available.

With claims against insurance agents and brokers are likely imminent, insurance agents and brokers are receiving a voluminous influx of questions from insureds regarding various losses incurred in connection with the COVID-19 crisis. The current insurance environment is unpredictable, especially as it relates to legislative changes in different states regarding mandated coverage. If carriers deny coverage for some COVID-19 claims, insureds may turn to insurance agents to recoup uncovered losses. For this reason, insurance agents and brokers need to diligently follow industry best practices during this busy and stressful time, to best serve their clients and to protect themselves against potential errors and omissions claims.

During this time, it is important for insurance agents and brokers to submit all claims to the carrier (even if they suspect the claim is not covered), and they should always defer to the carrier for coverage determinations. In addition, insurance agents and brokers should maintain detailed notes, and document all communications with insureds, carriers and others in connection with COVID-19 issues. Documentation is always a necessary risk management practice, and it is especially important in the current uncertain and ever-changing environment.

Additionally, during the COVID-19 crisis, insurance agents and brokers should approach client communications with empathy. It is important to keep in mind that these are unprecedented times, and many insureds are facing extraordinary and often fiscally devastating circumstances that they could not have foreseen or prevented. Insurance agents should approach each interaction with this backdrop in mind, and take the time to listen to insureds; ask questions that will facilitate an understanding of the complexities of each insured’s unique issues; and consider an array of solutions that may be available to address the insured’s concerns.

Further, it is important for insurance agents and brokers to maintain close communications with their industry partners in order to learn information as it becomes available, to help better serve their clients. In other words, during these uncertain times, it is increasingly critical for the insurance industry to maintain connections with one another that will provide mutual support to enable all to effectively execute client service. Insurance industry partners need to stay connected to learn about different innovative developments and enhancements, including training and improved technological capabilities, that are designed to provide digital options for intermediaries to better serve their clients despite social distancing requirements.

In sum, insurance agents and brokers should stay connected to their insureds and industry partners, and continue to carefully execute risk management behaviors such as documenting communications and reporting claims to the carrier, to avoid errors and omissions lawsuits arising from the COVID-19 crisis.

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