In the world of automation, where commissions are cut to the bone, where insurance applications are electronically submitted and quotes are instantly given, it is easy to put everything on autopilot. The ease in which policies can be placed makes it easy to move quickly. But it also makes it easy to overlook attention to details and to each and every policy placement.
Are the exclusions and warranties clearly understood? Are they properly communicated to the applicant? Is correct information given by and to the insured?
In a recent case we handled, the danger of the “auto-pilot syndrome” were underscored in a lawsuit filed by the insured against the retail insurance broker, the wholesale broker and the insurance carrier.
It turned out badly for the retailer.
The insured was a new business that sought out property insurance to guard against standard risks, including fire. When standard marketplaces rejected the risk because it was a startup, the retailer sought out a wholesale broker to access other insurance markets more forgiving to a new operation. The retailer’s client was in need of coverage quickly and so in the evening hours the retail broker turned to the wholesaler’s automated web-based quoting system which offered access to a multitude of carriers.
The quoting system asked a series of questions regarding the type of risk involved and the type of insurance desired. The retailer then selected amongst the carriers that were willing to accept the submission. These carriers were new to the retailer, and so was the automated system. After the retailer selected the carrier, the retailer was directed to the carrier’s website where he answered some basic underwriting questions and the system automatically generated a detailed four-page quote. The quote outlined the terms, conditions and warranties of the proposed policy for the insured, including a Protective Devices Provision warranty, which required that there be a “functioning and operational smoke/heat detector” on the insured premises.
The retailer generated his own one-page quote and sent it electronically to the customer. But he neglected to include the online automated quote generated by the carrier’s automated system. Unfortunately, he omitted the Protective Devices warranty. The client responded quickly and requested it be bound, so the retailer clicked the box that said “issue quote”, and paid the premium by credit card. The application offered a download of the quote, and the retailer saved the quote in his AMS, but did not provide the quote to the insured.
All of the dialogue in this placement between the insured and the retailer was by email. There was absolutely no dialogue between the retailer and either the wholesaler or the carrier. The entire process was online. It was easy, inexpensive, and efficient…
…And it was woefully insufficient. The insured did not realize he had no coverage, the retailer missed the issue, and when a fire occurred about a month after the policy inception due to an electrical short, there was no coverage. The insured sued everyone in the food chain of procurement.
The trial court granted summary judgment for both the carrier and wholesaler. The quote and binder issued by the carrier were identical and were consistent with the policy. Consistent with Eddy v. Sharp, a 1988 case and the progeny which follow, it is the duty of the retail broker to obtain the proper coverage, and in this case, the retail broker failed in that duty. To add insult to injury, because the producer agreement between the wholesaler and retailer included an indemnity provision in the event of failure to procure, the wholesale broker prevailed against the retailer in its cross complaint for indemnity, and received full reimbursement of its attorney fees.
It is great to take advantage of the technology and advancements in the insurance industry, but the reality is that the same technology that makes this possible also makes it easy to process placements with haste and inattention. Caveat emptor (buyer beware)!