Best Practices vs. Customer Relations | Do I Have to Forsake My Client to Protect Myself?

By: Robert Procter & Judd Genda | Axley Attorneys

Should an agency contact a client to notify it that its policy is being cancelled for failure to pay the premium (direct billed by the carrier)? Risk managers and errors and omissions insurance providers almost always say that an agent should not intervene and contact the insured about a cancellation notice. They will say that you do not want to create a precedent whereby the insured starts to rely on you to notify it that its policy is being cancelled. This makes sense from a risk management viewpoint because once an agent voluntarily starts monitoring a client’s account, a client that suffers a loss may allege that the agent had a legal duty to continue to monitor the account. If the agent fails in the performance of a duty, an insured could assert a claim of negligence.  The agent could then be responsible for a loss if the carrier cancelled the policy and does not provide coverage for a subsequent event.

The standard answer ignores customer service and human nature. If the insured is one of your best accounts, and you know that the account has the financial ability to pay the premium, then the cancellation for failure to pay may be due to an oversight. Moreover, you develop relationships with your clients.  Many of them become your friends. How can you keep silent when you find that a notice of cancellation has been sent to a longtime client and a friend for failure to pay the premium?

If you are going to inform your client of the impending cancellation, you should take some steps to protect yourself. One thing you can do is pick up the phone and call the insured and have a conversation to the effect that you just discovered there was a cancellation of the policy for failure to pay. Obviously, you should show some empathy and understanding that the failure to pay was an oversight and that payment should be made promptly within the timeframe described in the notice of cancellation. You should clearly state that this is a one-time event or favor in terms of the agent calling to point this out because it's not the common practice of the agent to do so. Most importantly, you should follow up the conversation with an email confirming the conversation, specifically stating that (i) you brought this to his or her attention as a one-time favor, and (ii) that the insured cannot rely on you to inform him or her in the future of an impending cancellation. Make sure you save your email. We believe that the foregoing scenario creates a situation where legally, the agent should be able to establish that it has not assumed an ongoing duty to monitor a client’s payment of premiums.

Again, the standard answer to this question is, do not notify the client because it is not your responsibly and opens you up to a possible errors and omissions claim. This answer raises a possibly bigger question:  What makes insurance agencies different from one another? Agency A sells a particular carrier’s products, but so does Agency B. Why do many customers go to Agency A rather than Agency B?  It is generally because of personal relationships and the services being offered by  the  agency. This is particularly true in the commercial area.

In other words, the question presented to you is one that requires the exercise of your business judgment. You need to balance the risks you are willing to take when providing customer service and maintaining your relationships. There is no right answer. If you are going to notify your customer, then make sure you take simple steps to mitigate your risk.

If you have questions when this, or any, issue presents itself—call the PIA Legal Hotline.

This information is provided for the convenience of PIAW members, but cannot be construed as legal advice. Members of PIAW may call (608) 200-4221, or email their questions to insurancehotline@axley.com, to work with an attorney and receive legal information specific to your situation.