With the effects of the coronavirus on business operations and the economy still unfolding, the ultimate impact on the independent agency and the insurance industry more broadly remains to be seen. Insurers are responding with adjustments to rates and commissions, new coverages are emerging, and policyholders are looking to their agents for guidance and help.
Last month, in the case of Gavrilides Management Company et al. vs. Michigan Insurance Co., a Michigan Circuit Court ruled in favor of the insurance company based on a restaurant’s claim for lost revenue during the COVID-19 lockdown under its business interruption coverage. The judge in the case explained the ruling as the result of a lack of any physical or tangible damage to the property.
There are many similar cases filed across the country, but this is one of the first to reach the point of a court ruling. It is anticipated that many will result in rulings like the Michigan Circuit Court – but that is not likely going to be the end of it.
If business owners cannot recoup lost revenue through Business Interruption Coverage, they might (and some likely will) file E&O claims against their insurance agents arguing that their agents should have offered policies that included coverage for pandemics (whether or not they were available).
A recent article in Claims Journal details an anticipated uptick in claims against agents and brokers. Reasons cited include a failure to procure sufficient business interruption or business income coverage, as well as the agent advocating on behalf of their client for the insurer to cover COVID-19-related losses. Although well intentioned, agents avoid making any coverage commitments or claims opinions on the carrier’s behalf.
Already, the wagons are circling. A simple Google search of Business Interruption insurance displays a growing number of ads for lawyers seeking to represent those hoping to recover their losses from their insurance agents whom they claim are responsible for their lack of coverage.
Insurance agencies can minimize their exposure to E&O claims by documenting client communications carefully, fully utilizing their agency management system to catch potential problems early and quickly reporting any potential issues that could result in a claim against the agency.
When was the last time you reviewed your E&O coverage? There is no time like the present to make sure it is a solid policy affording you legal representation in addition to protection for successful claims.