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Post-Loss Liability of Agents, Part 4: Mistaken Representation of Non-Coverage when Coverage is Afforded

Wed, 18 Jun 2014
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Published in Articles

On occasion, agents have mistakenly told policyholders that a loss is either not covered or excluded. Again, the agent cannot alter the terms of the policy by post-loss representations. However, if a policyholder relies upon a representation of non-coverage given to him/her by the agent to the detriment of the policyholder, the agent can still incur liability. For example, an agent tells a policyholder that a large loss is not covered. As a result, the policyholder decides not to renew a lease, terminates employees, sells his/her home, etc. Later, it is determined that the loss is covered. Under these circumstances, the policyholder would be entitled to seek reimbursement of all damages caused to him/her as a result of the agent stating that there was no coverage. This is in addition to the amounts recovered under the policy.

Ways to Serve an Insured during the Claims Process without Incurring Liability

It is obvious that an agent should not express any opinion as to coverage after a loss has been reported. That is easier said than done, especially when a policyholder makes a direct inquiry concerning coverage. It almost seems like a no win situation. If the agent tells the policyholder that he “does not know” whether coverage is in force, the agent looks ignorant. If the agent responds by stating “I can’t tell you”, he/she appears to be uncaring and unhelpful. On the other hand, if the agent makes a representation concerning coverage, he/she is exposed to tremendous liability.

One of the worst things that an agent can do is to begin telling the policyholder scenarios under which the loss might be covered and scenarios under which it might not be covered. For example, jewelry left in an unattended vehicle is not covered. If the policyholder describes a loss that may fall under the unattended vehicle exclusion, and the agent begins telling the policyholder that he might not be covered because of that exclusion, this may tempt the insured to give false information to the insurance company and/or police which would subject the policyholder to having the claim denied as well as subjecting him/her to criminal prosecution.

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light of these dilemmas, what is an agent to do? How is an agent to avoid giving a representation as to coverage while at the same time being of assistance to his policyholder? The following is a suggested response when a policyholder inquires as to coverage after a loss is reported:

Mr. Policyholder, let me tell you what I am going to do. I will report this incident to the Claims Department. The Claims Department will assign a claim number and claim representative and you will be contacted shortly. The Claims Department will gather information concerning this event. Once all of the information is obtained, it will make a claims determination. Only the Claims Department can make that determination. In the meantime, I will be available to you to help facilitate the claims process. However, the Claims Department will be directly involved in the resolution of your claim. If you don’t hear from the Claims Department within the next couple of days, please let me know.

This is not intended to be a script, but is merely a suggestion as to how correct information can be conveyed to your policyholder in a way that shows your concern while at the same time provides protection from potential liability.

Johnston Legal Group PC
800-771-6946
 

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