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PLUS Convention Contains Warnings for Agents/Brokers E&O
November 12, 2003
By Charles Boyle
The Professional Liability Underwriting Society’s 16th annual convention, which concluded with a gala reception at the Philadelphia Convention Center yesterday, featured a broad range of discussions on timely topics related to the current issues facing insurers agents and brokers in a growing and high profile sector of the industry.
Attendees at PLUS heard presentations of the current issues facing the industry in dealing with Directors and Officers liability following the passage of the Sarbannes-Oxley (Sarbox) corporate government reform legislation. A panel discussion of the emerging liabilities agent and brokers increasingly face in placing coverage for their clients brought out concerns that no agent or broker can continue to ignore.
Arthur Levitt, former Chairman of the Securities and Exchange Commission, kicked off the Convention with an address, calling Sarbox “the biggest reform [of securities legislation] in sixty years.” In addition to “leveling the playing field” for investors, Levitt, who has been highly critical of many securities’ industry practices, said he welcomed the increased corporate responsibilities the act mandates, as they would hopefully “help restore investor confidence [in the stock markets] over time.”
For insurers, agents and brokers the new standards of accountability and disclosure, many of which have not yet been clearly defined, present new challenges, especially in determining risk levels, but also new opportunities. PLUS in fact chose ‘Challenges and Opportunities” as the convention’s theme.
A panel of industry leaders, moderated by economic commentator Todd Bucholz, followed Levitt with an overview of the current conditions in the economy, the insurance industry and the problems facing professional liability insurers.
Chubb Vice Chairman John Degnan indicated that, while the general economy is improving, he hasn’t seen an immediate effect on insurers. “Local producers are still nervous,” said Degnan, “over the long term the market remains volatile; there will continue to be company failures and downgrades.” He also noted that insurers needed to continue to rebuild their diminished reserves,“ noting that as a result “the market won’t soften right away, it’ll be a year and a half or so.”
For agents and brokers the most interesting discussion took place Monday afternoon. Moderator Peter Biging, a lawyer specializing in agent/broker cases, headed a panel of experts, who warned repeatedly of the potential E&O liabilities they now face.
For a number of reasons, it’s no longer enough for an agent or broker to simply exercise “reasonable care and skill” in placing coverage, as they are being increasingly seen as advisors to their clients, rather than simple intermediaries. As an advisor they often take on responsibilities of a fiduciary nature, Biging indicated, frequently without even being aware of it.
He listed the following examples that have pushed agents and brokers over the line, and have frequently led to judgments of liability for errors and omissions:
-- If they charge a premium for “extra services.”
-- If they give advice on coverage issues.
-- If they represent themselves as “highly skilled experts.”
-- If they assume “broad discretion” in placing coverage.
-- If there’s been a “course of dealing over an established period of time” that has created a “special relationship” between the agent or broker and his client.
“There’s a definite trend to make agents and brokers fiduciaries,” Biging concluded. As a result they will be increasingly expected to keep better documents and records, especially when clients have requested less expensive coverage from a carrier that may have a less than ‘A-‘ rating, or they’ve requested exclusions and lower limits than the agent or broker may have recommended. They’re also going to have to become more knowledgeable about their clients if they want to have an adequate defense against third party claims.
The convention also produced interesting discussions on handling “middle market exposures” for companies ranging from proprietary businesses to small cap public companies, and a session entitled “the Cyber Hurricane” that concentrated on the largely undefined territory of Internet related risks.
Former National Security Advisor, Sandy Berger, addressed PLUS on the final day, and while he didn’t say much about insurance, he certainly confirmed that it’s a new and dangerous world we live in.
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