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  • Writer's pictureChris Burand

It's What They Don't Tell You

“It’s what they don’t tell you that matters.”

The person, an esteemed expert, who emailed me this quote was referring to insurance company shenanigans, illusory coverage, and maybe fraud.

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The easiest analogy is E&O (errors and omissions/professional liability). Most E&O classes cover errors, mistakes that agents make (do you ever wonder why the policies are professional liability policies but in E&O classes instructors advise agents to never classify themselves as professional?), but they do not cover omissions. A cyber policy is an excellent example because determining the quality of a cyber form depends heavily on your ability to know what coverage needs to be included. If you just read the policy and base a conclusion on what is specifically listed, including specific exclusions, a high probability exists you will miss the omissions. The coverages not listed are often the most important coverages.

The mental work required is hard to determine what is missing versus reading language that you do not like, such as unfair exclusions. You must know what should exist. Otherwise, no noticeable void exists. And many entities are now counting on greed and ignorance to hawk their omission filled products.

If you are a professional agent (and what good are you if you are an amateur?), you understand the importance of what coverages should be offered by the market. Markets though have absolutely no obligation to say, “Here’s the blanket coverage you probably want to offer your client, but we are not going to offer it.” Many agents tell me they really miss the days when their underwriters used to help them in this manner. I’m glad those agents see the difference.

I also hear many agents tell me they are depending on their underwriters to counsel them under some misguided idea they have the knowledge and a willingness to do so. Every once in a while, an agent will tell me how upset they are having incurred an E&O claim, or a lesser but important situation, because they actually depended on the underwriter and the underwriter was wrong. The best example is asking whether this or that is covered. In today’s world, the underwriter’s opinion is of no importance.

An acute example of having no duty to advise are Third Party Administrators (TPAs), though a limited example because most agents do not use TPAs. TPAs are the black hole omission in many contracts because it is often not clear if they are responsible for their mistakes. Possibly worse is that agents take coverage classes, but they do not take TPA contract classes. If you are engaging with TPAs, I strongly recommend getting educated on TPA contracts.

The reality is that if a person is not educated on some subject, they have no way of identifying omissions. Some TPAs in my experience are extremely willing to take advantage of such ignorance. Some of their salespeople are ignorant too, probably on purpose so they do not let anything slip. Some TPAs are fantastic, but TPAs are likely the least regulated part of the entire insurance industry. Do not do business with a TPA if you don’t know what should be in the contract unless you get educated or hire an expert to assist you.

Another example is how some of the new entities’ policies actually work. For example, is the policy actually a dollar one policy? Do you consider a $100,000 deductible dollar one? What happens if the reinsurer is not rated and that attachment point is $1 million. Is this still an A+ program, especially if the non-rated carrier only has surplus equal to one large claim? You must ask the questions to learn these details and to ask the questions, you need to be educated on the subject. The market is not going to tell you voluntarily.

One of the best policy examples that commonly exists in professional liability policies and sometimes in general liability policies are absolute exclusions. As Fred Fischer has written extensively and in detail, these are extremely problematic exclusions because they limit a professional’s liability coverage to their exact professional services. For example, if a cyber consultant is sued for failing to detect accounting fraud and their policy included an absolute clause, they probably would not even have defense coverage because their profession has absolutely nothing to do with detecting accounting fraud. The plaintiff attorneys are simply suing every consultant their client ever hired. These are not fair exclusions when applied to these kinds of situations. But these are often difficult exclusions to identify because there is no bold print announcing the exclusion.

Somewhat similarly are the policy clauses that I term as being mis-directional. For example, the common clause that states coverage applies to claims anywhere in the world if the claim is brought to court in the U.S. or Canada. I do not have any judicial data on how many foreign claims occur that are only adjudicated outside the U.S. and Canada but involving a U.S. based client. Where might the plaintiff have an advantage?

Or a good cyber restriction that says ransomware will be paid if paid in U.S. or Canadian dollars or Euros. Sounds good except most ransomware demands are in crypto. Oops.

I also pine for those days when agents worked collaboratively with carriers. It was more fun and safer. But those days are toast. This means agents must become far more educated than ever. If you want to buy your CE priced at $100 an hour and get four hours credit in an hour and think you’re educated, keep living your delusional life. Serious education requires high quality education that may not even be approved for CE and it is going to cost a lot more than those internet classes. Professionals pay for such education in all professions. Amateurs do not. Amateurs expect someone to tell them the answers.

Professionals know the onus is on them to learn because they know it’s what they do not tell you that matters.


NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

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