Policy transmittal letters from brokers to their clients often contain "boilerplate" language, the purpose of which is quite evident: Reduce E&O claims! One broker's transmittal letter suggests that its client should "examine (the policy) carefully to make sure the limits of coverage meet your needs and that no items have been omitted." Will the client know or understand what has been omitted?
Shouldn't the broker offer any advice on limits? Selecting or recommending liability limits is no easy task, and determining their adequacy is often impossible, but has the broker gone too far to protect itself against E&O claims by telling its client to be sure the limits meet its needs? Policyholders have a responsibility to review their own insurance policies, but expecting some broker input isn't unreasonable.
Another broker's transmittal letter says, "We have received and reviewed the enclosed policy." That's a good start, but the letter goes on to say, "The policy sets out the benefits and coverage of the (re)insurance we have placed for you in accordance with your instructions.
We recommend that you read the policy very carefully; particularly sections that make references to exclusions/special or unusual conditions, warranties and claims notification." Obviously, the client is on his or her own. In this case, the broker didn't even bother to amend its form letter to differentiate between reinsurance and insurance!
Another broker's binder transmittal e-mail, told (warned) the client that the coverage bound was written on a "CLAIMS-MADE and REPORTED form." Not true! The policy form was claims-made, but not a claims-made and reported form. The obvious intention is, again, to mitigate E&O claims, but it's doubtful that inaccurate coverage descriptions, such as this, will serve that purpose.
In this new era of "commitments to transparency," some brokers may be going too far. When commencing a marketing process for a client, one broker now uses a "Placement Strategy Letter," which establishes guidelines of what it will do, or more accurately, what it won't do! In such a letter, the broker actually states that if the client wants the broker to employ certain strategies whereby specifically described information would be disclosed to competing insurers, the client must direct the broker in writing.
For example, the client would have to direct the broker in writing to disclose the names of prospective insurers to other prospective insurers; disclose price, price ranges or coverage terms that the client wants; disclose the terms, conditions and pricing of the expiring policy; disclose certain aspects of quotes from prospective insurers to other prospective insurers; or provide insurers an opportunity to improve their quote and give them a last look. Insurance buyers should expect their brokers to employ the marketing strategies to serve the buyers' best interests and conduct them in an ethical and legal manner.
When clients have to specify in writing to their brokers how the brokers should conduct business, and when brokers warn policyholders about policy exclusions or unusual provisions without offering advice or input, brokers have been relegated to the role of "order taker," and buyers should beware. Some may even conclude it's time for a new broker!
CHARLES COX, a principal of the Orchard Park, N.Y., consulting firm of Aldrich & Cox, writes a regular column for Risk & Insurance®.
September 1, 2005
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