Top Ten Ways an Insurance Broker Can Avoid Liability

How does an Insurance Broker avoid liability? My husband, who is a broker, would say it is having an attorney for a wife, but all brokers cannot be that lucky. Seriously, here are a few tips that can keep a broker out of hot water:

1. Document Conversations. Brokers, like many professionals, speak to multiple clients a day, and certainly as time passes, memories fade. Even if you have a mind like a steel trap, it is better to have contemporaneous documentation that memorializes a transaction, including what insurance was offered and declined. Brokers should make it a practice to document conversations with clients, whether it is through an agency database or even something as simple as an email or letter.

2. Do Not Interpret Coverage. Brokers should resist interpreting whether an insurance policy covers a particular claim. It is better to encourage a client to promptly report a claim to the insurance company and let them interpret the policy provisions. A broker should not be giving advice on whether a particular or anticipated claim is or would be covered.
3. Do Not Advocate for Coverage. Of course, brokers want the best for their clients, but advocating for coverage is simply outside of the job duties. It is commonly argued that such advocating can blur the lines of a broker’s duties and responsibilities to the client. Brokers should stay in their lane.

4. Check Your Website. Most professionals like to brag that they have expertise in a certain area or that they specialize in a particular line of business. Brokers should check their website, their social media content and marketing materials to ensure they are not holding themselves out as experts or specialists. These statements are commonly used against a broker in litigation.

5. Direct Billing Preferred. If possible, the best practice is to have the insurance company bill the client directly versus agency billing. If the broker is taken out as the middle man, there can be no argument that the broker failed to properly or timely process such payment or premium.

6. Require Clients to Complete Insurance Application. Brokers should have their clients review and complete all insurance applications. The client should sign the application on their own behalf as they are in the best situation to provide a proper history. Further, the broker should counsel their client to be honest and to disclose all information requested in any such application. The broker should refrain from completing the application or making any changes or additions.
7. Responding to Insurance Company’s Request for Additional Information. If the insurance company requests additional information for an application or in response to a claim, the broker is encouraged to secure that information from the client in writing so there are no miscommunications.
8. Notice of Cancellation Practice. Brokers should advise their clients that if a policy is cancelled, such notice will come directly from the insurance company. In Pennsylvania, the insurance company (not broker) has the responsibility to advise of a cancellation or refusal to renew. In a perfect world, a client would acknowledge that the broker has no responsibility or duty to give them notice of cancellation before any cancellation occurs. If a broker sends a courtesy copy of the notice of cancellation on one occasion but then fails to do so thereafter, the client may improperly think that the broker had some duty to provide such notice.
9. Renewal Practice. Brokers should confirm current coverages are accurate with their client and should also carefully check renewal policies for any differences, including new exclusions or restrictions. The broker should also inform the client of the changes in writing and confirm the client’s approval.

10. Inform Client of All Available Products. Brokers should inform their clients of all available products, including cyber, pandemic and employment coverage to maximize their protection. A best practice is to include a checklist of all available products offered to the client and document what products were rejected.

A broker should advise their Errors & Omissions carrier immediately when it is made aware of a claim or a potential claim. It is better to err on the side of caution and let the insurance company determine when a defense is triggered under the policy. The earlier the broker secures legal counsel, the better chances it has to reach an early, amicable resolution of such a claim.

Estelle Kokales McGrath is a shareholder in the Professional Liability Department in the Pittsburgh office of Marshall Dennehey. She primarily concentrates her practice in the areas of employment law, public entity/civil rights, real estate, and insurance agent errors & omissions litigation in both the state and federal courts of Pennsylvania and West Virginia. She may be reached ekmcgrath@mdwcg.com.

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