Defending Broker E&O Claims: How Discipline and Best Practices Protect Your Brokerage
While you can never be truly bulletproof, strict discipline and standard practices will make you feel like you are. Conversations with clients can take unexpected paths regardless of your experience level. A strong diary system for tracking client and underwriter follow-ups ensures coverage is bound properly. These processes are key to defending broker E&O claims while fostering a brokerage culture of excellence.
In 1977, from the Ontario Court of Appeal, Justice Bertha Wilson stated in the Fines Flowers decision: “The solution lies in the intelligent insurance agent who inspects the risks when he insures them, knows what the insurer is providing, discovers the areas that may give rise to dispute and either arrange coverage or makes certain the purchaser is aware of the exclusion.” The pressure to deliver on “the intelligent broker” standard is constant as courts find little forgiveness in failures of brokers to advise, and counsel properly. Successfully defended cases in the Broker E&O space are built around processes and documentation that highlight the methodical approach of successful and intelligent brokers.
Best Practices: derived from trends and case law
- Use a standard checklist, questionnaire(personal or commercial lines).
- Stay current on products available to address your client’s exposures.
- Provide clear and definite advice to clients while obtaining decisions and instructions from insurers in writing.
- Document files in an accurate and adequate manner for every action and interaction with the client and/or insurer.
- Ask the necessary questions and have the necessary discussions to assess the client’s exposure.
- Conduct initial and periodic reviews of the client’s insurance needs to provide appropriate coverage.
- Be proactive and act immediately when a client’s circumstances change. Ask questions to determine if a change in coverage is warranted and advise the client immediately.
- Recognize material changes in risk, maintain current records of the client’s circumstances, and provide the insurer with accurate information about the client.
- Obtain the coverage requested by the client. Provide them with a copy of the policy immediately to avoid misunderstandings about coverage.
- Always prioritize your client’s best interest. Read the exclusions in the policy and advise the client of any gaps in coverage.
Real Life Examples:
While these cases are real, they are not all registered actions in court. The incidents were settled out of court.
Motor Truck Cargo
The Risk: Trucking company, important client, long-haul contracts
Details of Loss: A BC load of wine was being shipped to retail wine merchant in Alberta. Weather changes delayed delivery and the cargo froze. The load was rejected at the terminus.
The Claim: $125,000. The insurer had issued a broker requested renewal and advised there was no reefer cover and a sublimit was placed on the wine shipment. The broker issued a Certificate and did not advise the client of the Insurer’s changes in the policy. Loss occurs and the claim is denied.
Difficult to Place Property
The Risk: New property was purchased by very active commercial property acquisition Trucking Company operator. The building was described as a tear down to be used as a parking lot.
Details of Loss: A Total Loss Fire occurred 6 months after a Certificate was issued but never paid for. Quotes were obtained, but there was no follow up or insurance arranged for. No Insurer – No Claim!
The Claim: $450,000 in severity. Client says the Broker should have arranged the insurance and that the Certificate is a valid document.
The Dreaded “Delegated Authority”
The Risk: A High Value newly retired long-time client upgraded an older boat by refurbishment worth $250,000, resulting in a new value of $1.1 million.
Details of Loss: In transition from False Creek to the shipwright upstream on the Fraser River, the client/owner confused a shortcut on the GPS route and went aground causing the boat to sink.
Why an E&O? An internal transaction by two experienced brokers acting on phone requested to increase coverage from $850k. There was no follow-up at 60 days, and then the loss occurs. The insurers paid the policy limits, resulting in a shortfall for the client.
Resolution: Three years post loss, the claim is in litigation and broker likely required to pay $250,000.
Commercial Risk Renewal
The Risk: A small well-established iron fabrication shop. This successful business required an increased shop size, doubling their footprint.
Details of Loss: A small fire resulted in a large claim that left the client significantly underinsured.
Why an E&O? The broker neglected to ask the client sufficient questions on subsequent renewals. Renewals were sent out with inflationary increases to limits.
Resolution: The Insurer paid out the $22,000 limit. The demand was for an over $500,000 shortfall. The claim was settled, before trial, for approximately $150,000.
Stacy Phillips, BCOMM, FCIP, CRM
Claims Manager
This article was written by Stacy Phillips.
With over 30 years of experience, Stacy has a proven track record in leading large-scale claims and driving strategic initiatives. His expertise spans various insurance lines, including property, casualty, and auto.
As a former Regional President of the Canadian Independent Adjusters Association, Stacy is deeply committed to industry standards and best practices. He is a Fellow of the Chartered Insurance Professional (FCIP) designation and a Certified Risk Manager (CRM), reflecting his dedication to continuous learning and professional development.
Stacy’s leadership roles at prominent insurance companies have allowed him to develop strong relationships with key stakeholders, including insurers, brokers, and clients. His ability to navigate complex claims scenarios, optimize operational efficiency, and deliver exceptional customer service has made him a respected figure in the industry.
In his spare time, Stacy enjoys spending quality time with his wife. He’s passionate about an active lifestyle and is often found swimming, weightlifting, hiking, or curling. One of his weekly fitness rituals includes a cold plunge swim. As a wine connoisseur, he is certified in Wine Fundamentals (Level 1 and 2) with the International Sommelier Guild.
For more information, please contact:
ProForm Insurance
Michelle Loupret
Chief Operating Officer
Phone: 604-910-0695
Email: michelle@proforminsurance.com
