Insurance Fraud |
Insurance Fraud |
E&O Prevention Strategies OverviewStrategies for Preventing Errors & Omissions: Key Features and InsightsErrors and Omissions (E&O) claims arise when a professional’s mistake or oversight causes financial harm to a client. In the insurance industry, E&O claims typically involve clients (or other parties) alleging that an agent’s error led to them being uninsured or underinsured in a loss. Such claims can result in costly lawsuits, regulatory sanctions, and reputational damage for an agency. Therefore, prevention is critical – it’s far better to avoid E&O situations than to rely on E&O insurance after the fact. The webpage in question (FYIExpress’s “E and O Prevention” page) compiles a wealth of E&O prevention strategies, including common E&O claim scenarios, practical tips, and unique insights for insurance agents. Below is a detailed report of the key prevention strategies discussed, their features, and notable insights highlighted on that page, reinforced with additional industry references and examples.
Common E&O Risk Areas and Prevention StrategiesIndustry experts have identified several common causes of E&O claims against insurance agents3. Each represents a risk area that agencies should address with specific preventive measures:
Notable Case Examples and Unique InsightsThe FYIExpress E&O Prevention page also highlighted several real-world case studies and special tips, which provide valuable insights beyond the general principles above. These cases show how small mistakes can snowball into lawsuits, and they reinforce why the preventive measures described are so important. Table 1 below summarizes some notable E&O scenarios mentioned on the page, along with the outcome and lesson from each: E&O Risk Scenario (Agent Error)Outcome of the CasePrevention LessonCertificate Omission Misleads Client – Agent issued a certificate of insurance but failed to note a key policy exclusion (work in New York City). The client assumed they were covered for that project.When an injury occurred on the NYC job site, the insurer denied the claim due to the exclusion. The contractor sued the agency for misrepresentation and negligence. The court allowed the lawsuit to proceed against the agency, finding that the certificate “misrepresented” coverage and the client reasonably relied on it to their detriment. The potential damages were substantial (hundreds of thousands of dollars in defense and settlement costs).Always accurately represent coverage on certificates. Have a standard certificate-issuance process and include any relevant exclusions or endorsements with the certificate. In this case, attaching the exclusion documentation to the certificate could have prevented the client’s mistaken belief and the ensuing lawsuit. Make it a rule: never issue a certificate that implies broader coverage than the policy actually provides.| Umbrella Policy Missing UM/UIM Coverage – Client requested an umbrella policy with an additional $1 million in Uninsured/Underinsured Motorist (UM/UIM) coverage, and the agent said it would be provided. The agent, however, failed to add the required UM/UIM endorsement to the umbrella. | After a devastating car accident with an underinsured driver, the client discovered the umbrella had no UIM coverage beyond the $100k in the auto policy. He sued the agent for negligent procurement. A jury found the agent 90% at fault and awarded roughly $753,000 in damages (after offsets) to the injured client. The case was upheld on appeal – the agent’s failure to secure the requested coverage made him liable for the shortfall. | Deliver on coverage requests. If a client specifically asks for a coverage or limit, make absolutely sure it is included, or document clearly if it cannot be. In practice, this means double-check endorsements on umbrella and excess policies. Never assume an umbrella automatically provides certain coverages – confirm it in writing with the insurer. In this case, the agent should have secured the $1 million UIM endorsement or obtained a signed waiver if the client declined it. The lesson: never neglect to add a coverage the client was led to believe they had. One small oversight in paperwork can cost hundreds of thousands in liability. | | Agent Failed to Forward Claim – A client was sued (vehicle accident) and immediately notified their insurance agent, but the agent did not inform the insurer. No defense was provided by the carrier since it never knew of the suit. | The insurer only learned of the lawsuit after a $1.2 million default judgment was entered against the insured (due to the lack of defense). By then it was too late – the insurer denied coverage for late notice. The injured plaintiff then sued the agency for negligence. The courts held that the lawsuit against the agent was timely because the “injury” (the uninsured judgment) occurred much later than the agent’s initial error. The agency and insurer ultimately faced protracted litigation and were unable to dismiss the case on technicalities. | Report claims immediately and systematically. This case underscores that dropping the ball at claim time is a sure path to an E&O nightmare. Agencies should have fail-safe procedures: for example, assign two staff members to every claim notice – a primary and a backup – to ensure it gets reported to the carrier without delay. Keep a log of claim notices and confirmations from insurers. Had the agent simply forwarded the lawsuit to the insurer when notified, the insurer would have defended the case and no default judgment would have occurred. In short, treat every claim notice with urgency. Prompt reporting can avoid a situation where an insurance coverage defense (like late notice) leaves the client looking to sue their agent. | | Providing False Policy Information (Potential Fraud) – A contractor’s liability policy had actually renewed, but the agency mistakenly (and repeatedly) told a claimant that the policy had lapsed. The agency even issued a certificate showing an expired date. The homeowners relying on this info delayed pursuing a claim with the insurer. | Believing there was no insurance, the homeowners went after the contractor directly and won a judgment – which went unpaid. When they discovered the policy had in fact been in force at the time of their loss, they filed suit against the agency and its president. The court dismissed negligence claims due to lack of contract, but allowed a fraud claim to proceed against the agency. In other words, even without a direct client relationship, an agent can be liable for fraudulent misrepresentation to third parties. The case was sent back for trial on the fraud allegations. Multiple agency staff giving the same wrong answer suggested the agency’s internal records were wrong, a serious oversight. | Always provide accurate information – to clients and anyone else entitled to facts about a policy. An insurance agency must keep its records up-to-date so it knows the true status of coverage. In this scenario, the agency should have verified the policy status before speaking and corrected the certificate. Misinforming a claimant or certificate holder can escalate to an allegation of fraud, which is far worse than ordinary negligence (and often not covered by E&O insurance!). The clear lesson is to never guess or give out unverified policy information. If someone has a legitimate interest in a policy (like a certificate holder or claimant), ensure they get the correct info or direct them to the insurer. Honesty and accuracy preserve trust and prevent liability. | | “Full Coverage” Misunderstanding – A client told her agent she wanted “full coverage” on her newly built home. The agent did not clarify what that meant and did not recalculate the replacement cost for several years. In the meantime, the home’s insured value became outdated. | After a disastrous house fire, the clients discovered their homeowners policy was $88,000 short of the amount needed to rebuild their home. They sued the agent, alleging she failed to advise them on proper coverage limits. The court ultimately sided with the agent – ruling that without a special advisory relationship, the agent had no legal duty to ensure adequate insurance just from a request for “full coverage”. The case was dismissed, leaving the homeowners to absorb the $88k loss. However, the agency’s reputation undoubtedly suffered, and this situation likely strained the client relationship permanently. | Define coverage needs explicitly – don’t rely on ambiguous requests. If a client asks for “full coverage,” that is not a precise term. Agents should politely probe what the client means and educate them. In this case, the agent should have conducted a fresh replacement cost evaluation and explained the coverage options. Even though the agent won the lawsuit by law, the clients still ended up bitter and out-of-pocket. The insight here is that winning an E&O lawsuit is a pyrrhic victory if the client is left unhappy and underinsured. It’s far better to avoid the conflict altogether by ensuring the client truly has the coverage they need. Agents should be proactive: if a client is unsure about limits or says “you handle it,” take that as a mandate to advise fully. Had the agent ensured adequate limits, the entire problem would have been avoided. As one expert noted, even when an agent isn’t legally at fault, “it would have been much better for all involved if adequate coverage had been purchased.” In practice, always strive to meet the client’s needs in fact, not just fulfill the literal minimal request. This protects the client and the agent’s reputation alike. | Table 1: Real-world E&O scenarios illustrating causes and prevention strategies. Each case underscores how a particular error can lead to litigation, and how following best practices can avert such outcomes. Beyond these cases, the webpage and related resources provided additional insights and tips for E&O loss control. Some notable ones include:
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Insurance Fraud Prevention
Burglar turns broken back into fortune http://www.insurancefraud.org/article.htm?RecID=3045 Crooks fingered for sawing Porky’s hand http://www.insurancefraud.org/article.htm?RecID=3238 Staged-crash ring crashes and burns http://www.insurancefraud.org/article.htm?RecID=3386#.VK10x4rF_Cc Crooked lawyer feasts on client settlements http://www.insurancefraud.org/article.htm?RecID=3456 Lawless Lamborghini ride means turnpike to prison http://www.insurancefraud.org/article.htm?RecID=3310 Roof caves in on DJ’s stormy insurance con
http://www.insurancefraud.org/article.htm?RecID=3116 Home insurance arson shrouds child murder plot http://www.insurancefraud.org/article.htm?RecID=3389#.VK13torF_Cc Can you spot a liar? Here are some things to look for Sometimes what we don’t say speaks far louder than our words.…Read More Devlish Christian insurer milks motorists http://www.insurancefraud.org/article.htm?RecID=3042 Muddled excuses for fake car theft backfire on cop http://www.insurancefraud.org/article.htm?RecID=2928 Hired torch blows himself up in botched home arson http://www.insurancefraud.org/article.htm?RecID=2892 How to avoid becoming a victim of 'flood vehicle' fraud Flood-damaged vehicles offer a tempting opportunity for criminals to defraud unsuspecting consumers.…Read more Devout grandmother burned alive in home arson http://www.insurancefraud.org/article.htm?RecID=3122 Jittery agent shoots investigator just doing her job http://www.insurancefraud.org/article.htm?RecID=2935 Crooked lawyer feasts on client settlements http://www.insurancefraud.org/article.htm?RecID=3456 Playing with fire burns homeowners and hired torch http://www.insurancefraud.org/article.htm?RecID=3118 5 Examples of Insurance FraudAUTO INSURANCE FRAUD MAXIMS
To a person intent on perpetrating an insurance fraud two maxims become immediately clear:
The most successful is the automobile personal injury fraud. It exists in almost every metropolitan community. Each perpetrator of an automobile personal injury fraud varies the methodology slightly. Rather than isolated instances of fraud they are run like a large corporate entity. The following are the categories of individuals involved in the automobile personal injury fraud ring: THE RECRUITER This is a person who worked in the community to recruit two different types of people: the victims and the insureds. They recruit victims from the ranks of the unemployed, individuals on welfare or anyone in need of quick cash. The same sources provide insureds who may even include wealthy, or well-off people, who need cash to support their purchase of illicit drugs. The recruiting techniques are simple and straightforward. A victim is offered $300 to $500 cash to allow his name to be used in a report of an automobile accident. Sometimes they must actually sit in a car that is then struck by one of the recruited insureds. Sometimes they only sell the use of their names. In fact, depending on the insurer involved and the reputation it has for investigation of such claims, living persons are not necessary to play the role of victim. In such situations, the insured merely runs his vehicle into a stationary object such as a garage wall or telephone phone to create damage to his vehicle. He reports that he struck the victim’s vehicle in a private parking lot and that the victim and four of his passengers are reporting personal injuries. All of the victims hire counsel. Almost always the victims hire the same lawyer who refers them all to the same physician or chiropractor. THE DISHONEST LAWYER Depending on his experience, the lawyer either recruits the recruiter or is recruited by the recruiter. The recruiters usually watch the results of the bar examination and then make contact with a newly admitted lawyer. They advise the lawyer that, for a small share of the proceeds, they can provide him with ten to twenty new personal injury plaintiff cases every month. They claim that they have this source of business because they work as an administrator for a local chiropractic clinic or in a body shop. The young, gullible lawyer, either not realizing that it is a crime to pay a person for a case, or is so hungry for work that he or she ignores the law, agrees. The young lawyer never meets his or her client. He or she gets contingency fee agreements from the recruiter and medical reports reflecting the injuries. He then makes demand on the insurer who has already received a report from its insured (who was paid to do so) advising that the accident was the insured’s fault. The lawyer makes demands on the insurer for settlement. After a few telephone calls and copies of the medical reports he settles with the insurer for between $5,000 and $10,000 a plaintiff. The lawyer keeps all of the money less the fees of the recruiter, the victim and the insured. The lawyer makes an excellent living earning more money than he ever would on salary for any law firm. He learns the trade and recruits his own recruiters to keep more of the money. Greed and the Dishonest Lawyer The people involved in staged automobile accident claims are usually successful until they get greedy. In 2011, Robert Belshaw, 56, a Marina del Rey, California attorney was sentenced to seven years and eight months in prison for his role in an auto insurance fraud ring that stole about $3 million. Belshaw was found guilty in March of five counts of money laundering and three counts of state income tax evasion. A co-defendant and ring leader, Solomon Morris Davis, 61, of Rancho Palos Verdes, also was convicted on 20 counts of insurance fraud and conspiracy. He was sentenced in April to 12 years in state prison. The ring staged accidents to defraud insurance companies. Prosecutors told the press that Davis set up Total Medical Healthcare in the mid-Wilshire area of Los Angeles under the name of his wife, Dr. Jody Hunter-Davis, as part of the scam. She, however, did not practice medicine at the clinic and was not a suspect in the case. As part of the fraud scheme, the signatures of doctors who worked part-time at the clinic were forged for inflated billings. Davis recruited Belshaw to run a sham law practice that negotiated the fraudulent billings with insurance companies from September 1999 to April 2003. Belshaw failed to claim any of his earning on state income tax returns from 1999 to 2001, officials with the state Franchise Tax Board said. Belshaw owes the tax board more than $31,600 in unpaid taxes, penalties, interest and the cost of the investigation. Had Mr. Belshaw limited the number and extent of fraudulent claims he would probably still be presenting fraudulent claim and earning a good living. Because he got greedy, because he failed to report the money he earned from his criminal activity, he is now residing in the grey bar hotel operated by the state of California and can only wear an orange jump suit. This post was adapted from my book, Insurance Fraud Costs Everyone Available as a Kindle Book and Available as a Paperback from Amazon.com. Insurance Fraud Prevention
Basement a fiery coffin for arson plot http://www.insurancefraud.org/article.htm?RecID=3452 Cop breaks oath, law with serial car cops http://www.insurancefraud.org/article.htm?RecID=3457 10 Red Flags that could Signal a Fraudulent Auto Claim Not every claim involves fraud, but there are a few indicators that could warrant a closer look. Read more Believe it or not: The ‘Coverage for Dummies’ Hall of Fame Many people see liability insurance as a way to compensate them for their poor judgment. Take a look at some of the cases that made the “Coverage for Dummies” Hall of Fame.…Read more NYPD stings no-fault crash con http://www.insurancefraud.org/article.htm?RecID=3309 Home insurance arsonist shoots witnesses, kids http://www.insurancefraud.org/article.htm?RecID=3115 Puppies nearly burned alive in arson plot http://www.insurancefraud.org/article.htm?RecID=3454 Bugatti dunk for insurance cash all washed up http://www.insurancefraud.org/article.htm?RecID=3388#.VK10yIrF_Cc Father crushes son with truck for life insurance http://www.insurancefraud.org/article.htm?RecID=3314 Hoax Hassids stage daffy diamond heist http://www.insurancefraud.org/article.htm?RecID=1909 How to tell if your insured is being honest with you Speech patterns, body movements and gestures can be indicators of truthfulness.…Read More Insurance Fraud Prevention
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