Top Seven Mistakes That Lead To Client Lawsuits (excerpt)

Typical agent mistakes

…there are blunders that agents often make that can be easily avoided and could ultimately save you from a messy lawsuit. Here are seven common insurance agent mistakes you should try to avoid:

1. Claiming an insurance policy has a feature it lacks
2. Not disclosing material information about a product to a prospect or client (for example, failing to mention life insurance or annuity surrender penalties)
3. Not securing the coverage a client explicitly requested
4. Holding yourself out as an agent with special expertise in a product or client-risk type, becoming, in effect, a fiduciary agent
5. Reducing a policy’s limits of liability without a client’s permission
6. Not sending a client’s premium payment to the insurer, resulting in a policy lapse
7. Selling an insurance policy that doesn’t fully indemnify a client’s loss

To stay out of court, make sure your business is legally compliant and ethically sound. By consistently striving to do the right thing for your clients, you will largely inoculate yourself against expensive litigation. Here are some pointers that will get you started down the right path:

• Always serve your clients’ best interests, even if it doesn’t make you more money
• Strive to be transparent in how you explain your credentials, business model and compensation
• Always disclose the key features of your products and services, including the risks that affect future performance
• Be realistic about the future returns or policy values clients can expect
• Thoroughly probe your clients’ current and future needs so you can make suitable product recommendations
• Respect client confidentiality even when third parties seek information
• Always use advertising and presentation materials that are 100% accurate and legally compliant
• Provide clients with copies of required documents relating to their purchased product or service
• When you encounter a client need outside your skillset or license authority, refer the person to a third party who can respond effectively
• Stay up to date on industry best practices and regulatory constraints
• Always document your client interactions, especially the critical decisions about what insurance to buy or not to buy

Insurance agent errors and omissions (E&O) insurance

How does E&O insurance work? It will cover you if you make a mistake or forget to do something important that financially harms a client. Based on the policy’s insuring clause, the insurer will:

• Provide you with an approved defense attorney at no cost to you
• Assign a claims adjuster to investigate your case and manage the process of resolving the claim
• Pay for your legal fees and court expenses related to your case
• Provide an expert witness to bolster your legal defense
• Cover arbitration, mediation or other alternative dispute resolution services