It’s no secret that insurers have been hit by a wave of COVID-19-related litigation. The most recent count shows 1,328 lawsuits have been filed on behalf of policyholders. The majority of these are contesting claim denials for business interruption coverage, where businesses were forced to close due to COVID-19 lockdowns enacted at the local and state levels.
So far insurers are coming out on top, with 75% of verdicts resulting in the insureds’ claims being dismissed.
However, what is good news for carriers may be bad news for brokers and agents. Analysts are now predicting that policyholders who lose their lawsuits against carriers will then turn to litigating their broker or agent. And if this mirrors the quantity of cases already received by insurers, then the broker community needs to brace for impact.
The first batch of lawsuits against brokers have only just started to make their way through the courts. So far, the majority of cases have been dismissed in favor of the broker.
For example, In Wilson v. Hartford Casualty Company, heard in Pennsylvania in September, the judge ruled the broker was not liable, as the policy clearly excluded coverage for viruses. Likewise, two cases against agencies in Texas were recently dismissed as the plaintiffs had failed to prove that the agents had misrepresented the terms of the policy.
But this is no reason to be complacent. Brokers need to be incredibly mindful that any BI policy that was sold and where the carrier then declined cover for COVID-19-related losses has the potential to end up in a lawsuit against the seller.
What Are The Risks For Brokers?
So what are the risks for brokers and agents? The responsibilities of the broker and the duty of care you have with your customers depend on the state you do business in. This comes down to a question of whether the state classifies a broker as an administrator or an advisor.
This can range from the approach taken by New York which has determined that agents have no duty to advise, to states such as New Jersey where brokers have a fiduciary relationship with their clients, which places enhanced responsibilities on them when advising customers.
However, even where brokers have an enhanced duty of care to advise their customers on appropriate coverage, there is a strong argument that the likelihood of a global pandemic was not foreseeable at the time of procuring the policy.
Therefore, attorneys acting on behalf of policyholders may argue that a “special relationship” existed between the broker and the insured. If this can be proved, then the broker is held to a higher standard in his or her duty of care to the policyholder, which can expose them to liability for failing to procure adequate coverage.
The exact definition of what constitutes a special relationship differs by state. However, generally speaking, for a plaintiff to prove a special relationship existed, they must demonstrate that they relied on the broker to recommend and/or make decisions on coverage over time.
But even in a scenario where a special relationship is proved, it may not be that beneficial to the plaintiff’s case. This is because if the policy contained clear exclusions regarding pandemics or viruses, then we arrive back at the argument of whether a global pandemic was foreseeable when the policy was purchased.
However, in instances where the policyholder obtained some coverage for COVID-19-related losses, but is underinsured due to policy limits, then the existence of a special relationship could strengthen their case if arguing that the broker was negligent in procuring a policy with insufficient limits.
Aside from lawsuits brought by policyholders, some brokers could be at risk of cross-claims from a carrier. Managing general agents who have delegated authority to draft policy wordings are most at risk here, in instances where the language used breaches the terms of the delegated authority and exposes the carrier to a claim that would otherwise have been declined.
Practical Steps To Limit Broker Liability
To help avoid liability as far as possible for COVID-19-related BI claims, here are some practical steps that all brokers and agents can take.
- Submit all claims
Even if the carrier has made it clear that there is no cover for COVID-19-related losses, you should still submit all claims that the policyholder wishes to pursue. You should also ensure you do not place any barriers in the way of policyholders wishing to submit a claim. Furthermore, do not make any judgments on the likely outcome of the claim. Leave this to the carrier to process and communicate with the policyholder.
- Defer all questions on coverage to the carrier
Policyholders will likely have plenty of questions around coverage and policy exclusions. Given the current sensitivity around BI claims, do not attempt to provide answers to these. Instead, refer all questions to the carrier and let them provide the answers.
- Document everything
Document every interaction you have with the client and make a note of what you discussed. Follow up phone calls with emails, briefly summarizing what was discussed during the call. Take the same approach in instances where you’re having discussions with carriers.
- Review all wording on your website and other literature
Review all your customer facing literature, both online and offline, to ensure there is nothing that could be construed as providing advice on coverage. Remove anything you believe could fall into this category.
- Stay up to date on industry developments
The situation regarding COVID-19-related broker lawsuits and court outcomes is evolving rapidly, so stay up to date with the latest news and advice from reputable sources.
- Keep in touch with carriers
Carriers have been at the sharp edge of COVID-19 litigation for months now, so will be able to provide specific advice to brokers and agents that they work with. As above, this advice could change regularly, so maintain regular contact with them.
- Approach Clients With Empathy
Some of the above steps may slightly strain your relationship with clients, especially if they were accustomed to a more “hands-on” approach pre-COVID. This will be heightened by any claim denials a client receives. Therefore, it’s important to work even harder than usual on being as empathic and patient as possible.
Given that the majority of lawsuits filed against insurers for BI claim declinatures are being dismissed in favor of insurers, it seems inevitable that brokers will be hit by a second wave of lawsuits as policyholders seek another avenue for compensation.
However, many experts argue that broker liability will be limited. But while this may be the case, brokers and agents should take extra care when dealing with policyholders to reduce their risk of liability as much as possible.
Gary Markham is founder of AI-enabled predictive analytics legaltech company LSG, which provides enterprise-level litigation and panel counsel management services to insurers. He may be contacted at [email protected].
© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.