By Richard Mintzer CLU
5551 Jewel Creek Ct
Boulder, CO 80301
Richard Mintzer Associates LLC
rsm@rmaexperts.com
http://www.rmaexperts.com/
Article appeared in the March 2007 Edition of XPRO News. Any questions please call Dick Mintzer.
Following a thirty career as an insurance agent and educator I have been earning my living as an insurance expert witness since 1999. I specialize in standard of care issues and agent company disputes. Despite my experience, a strange tension occurs each time the doorbell rings and the FedEx person is outside with two legal size boxes. My reaction is always the same where do I start? Although this article is written in an insurance context I believe all experts can gain value from my experience.
The method that seems to work best for me is to focus on the instructions
given by the client to the agent and the instructions (if any) given to the agent by the insurer. This technique is an excellent focal point to begin the investigation. The goal is to determine if the insurance professionals involved in this transaction followed their instructions . Insurance professionals and professionals in general who fail to follow instructions do so at their own peril.
Sounds simple, Think again. Unfortunately there are at least three separate sources of instructions to follow. I think we can all agree that the paramount duty of any professional is to follow the instructions of their clients. Most if not all insurance experts would also agree that the duty to follow the instructions of our clients is closely followed by the duty to follow the instructions of the insurance companies they represent. Slightly more obscure is the duty to follow the statutory requirements of the Regulatory Agencies.
I am currently involved in a case where a high asset individual approached his agent and requested higher personal liability limits. The agent understood the instructions and obtained for his client a $10 million personal umbrella policy. The agent however advised that the highest limit of automobile liability he could obtain was $500,000. The reason for the lower limit on the auto liability coverage was the driving record of the client which included a DUI. Relying on this information the client instructed his agent to place the $10 million umbrella policy with a $500,000 single liability limit on autos owned and operated by the client.
To paraphrase "Murphy's Law" if there is an accident waiting to happen it will. In Act one of our reality drama our client is involved in an "at fault" accident resulting in a trial and a judgment for the injured party in the amount of $750,000, leaving our client out-of-pocket in the amount of $250,000. Act two is a civil suit brought by the insured against the agent to recover the out-of-pocket expense. At my suggestion to support his contention that the agent did not follow instructions, an expert in high insurance limits and difficult risks is retained by the insured who advises that higher limits at a reasonable cost were available to the client prior to the loss. Act three is still to be written but I can tell you that serious settlement negotiations are occurring and will likely result in a substantial judgment in favor of the high asset individual.
Here's a different twist on the issue of following instructions, my client an operator of a successful retail store opens the Yellow Pages and sees the name of an insurance agent who advertises that he specializes in business accounts. He refers to himself as an insurance counselor and in fact is the holder of the prestigious CIC designation. The client calls the agent and after a short discussion they agree to meet. At the end of a very short first meeting the client instructs the agent that he would like to be "fully covered" and also lower the cost of his insurance program. The agent gathers some coverage information, and requests and receives copies of the current insurance contracts. The agent agrees to prepare a proposal and present the proposal one week later. This meeting lasted less than 10 minutes.
This particular agent represents a major insurer which allows him to rate and bind a business owner's policy up to a limit of $1 million. This particular contract has all the bells and whistles and features replacement cost coverage on building and contents. The producer reviews his notes, studies the insurance contracts and prepares an insurance proposal featuring higher limits and lower-cost. The proposal is presented one week hence and the client is thrilled. An agreement is reached a deposit is taken and a few days later confirmation of coverage is received by the retailer. Total time of both meetings less than twenty minutes.
Once again the insurance version of Murphy's Law rears its ugly head. In the city where the retailer is located there is an outbreak of riots and civil commotion and the retail location is completely destroyed. Enter the adjusters and the accountants and a policy limit settlement is offered and all is well exceptfor one small matter the building is 60% underinsured and the contents are about 40% underinsured. Everybody happy not yet!
The client sues the agent because he asked for full coverage and obviously he did not have full coverage. The defense counters that the agent provided more coverage than the retailer had before and that the client was fully aware of the insurance limits as proven by his signature on the application for insurance. Case closed, not quite.
Discovery produces the underwriting manual provided by the insurance company to the agent. The instructions in the manual specifically direct the agent to fully explain the consequences of replacement cost coverage and to inspect the premises to determine proper replacement cost value prior to binding coverage. It is undisputed that neither occurred. The result is a very favorable settlement for the retailer, now its case closed.
Statutory regulations are usually not on the mind of insurance producers but as the familiar axiom states "Ignorance of the Law is no excuse.". In the state of Colorado insurance producers are statutorily required to offer Under Insured Motorists Coverage up to the Policy Bodily Injury limit not to exceed $100,000. The insured may decline the coverage but must sign a statement acknowledging the declination of coverage. I have been involved in several cases where the required offer of coverage has not been made or not properly made. The result almost always is a judgment for the insured.
I am an insurance expert but I believe it is the duty (insurance or not) of any expert to determine if possible what actually happened in any given matter and if there is error or omission to determine who is responsible. In my opinion it is crucial to figure out what was supposed to happen and then determine what went wrong. More often than not this fundamental information can be determined by the instructions given to the agent. Producers who fail to follow instructions do so at their own peril. If any of the readers of this article would like to discuss these issues with me please feel free to contact me.
Richard Mintzer Associates LLC
5551 Jewel Creek Court
Boulder, CO 80301
Telephone: 877-461-1656
Map & Directions
