Every agency receives requests for questionable actions from its clients and their advisors, banks and sometimes even governmental entities. The best and most common example of these requests involves certificates of insurance. In most agencies, probably daily, someone requests a certificate of insurance where fulfilling that request would be problematic. The problem is on a spectrum from just slightly not right to downright illegal (legal vs. illegal at a criminal level depends upon the nature of the request and the exact state as some states have criminalized certain certificate of insurance additional language).
Adding improper or completely incorrect language to a certificate is an obvious and well-known E&O exposure. But, if one goes far enough to the right on the spectrum, these additions become illegal. Obviously, agents need to make their clients happy. They are always facing the ultimatum, “If you don’t do it, I’ll find an agent who will.” Because the certificate problem is so common and the requests often seem so minor, certificates provide a good example of where does one draw the line? The “Broken Window” theory of crime states that to minimize crime, police should prosecute people breaking windows, so crime does not escalate. Many criminals start out small and each increase in criminal activity seems like a minor increase relative to their past actions, and so they become more corrupt.
It is easy to do the same with certificates because the requests seem so minor and because so many people in this industry lack adequate education. An account executive or producer may have no idea how quickly their actions escalate from being a minor, possible problem to a serious E&O and regulatory/criminal issue. It is very important for agencies to deeply educate all their employees on certificates and draw thick, dark lines in the sand that no one is ever to cross.
Because producers and account managers are people pleasers with their clients, the temptation to respond positively to their requests often draws people into actions that are more risky than bad certificates. Their mindset is to please the client and the request seems completely reasonable, so why not do it? I have seen a few producers who forged customers’ signatures because, in their heart, they honestly thought they were doing their customers a favor. For whatever reason, the fact that forgery is illegal never crossed their minds. They were just trying to save their clients time. There was nothing nefarious in their actions.
Education creates awareness and that is the solution, along with strong procedures and double checking to catch these situations.
More problematic at times are banks. I get requests from my clients’ banks to do this or that which is unethical, and sometimes probably illegal. Sometimes I truly wonder if bank regulators actually regulate given some of the requests I receive. I too want to please my clients, but I’ve drawn my lines and no amount of berating and threats by these bankers will change my mind, even if my client leaves me – and most of these clients do leave because other consultants will sign off on the requests.
Banks frequently try to force agents to issue binders rather than evidences. Someone at the bank wrote a rule that requires a binder. The bankers don’t even know what a binder is but they insist on requiring one. The problem is that at least 75% of the account managers I meet do not know what a binder is either. So, they issue a binder. The problem is that a policy already exists (the policy number has been issued – the fact the policy has not arrived is a moot point), and/or the agency does not have binding authority. I find that almost no one has read the agency contracts relative to binding authority so people are issuing binders that extend beyond the allowed time. A binder is not just evidence/proof of insurance. A binder is an actual insurance policy. So when one issues a binder on top of an existing policy, two policies now exist and a potential problem is created.
Banks try to get policies issued with the wrong property limits too. Banks are not the named insureds so agents should never take instructions from them. Being in the middle is not pleasant because the insured needs the insurance paperwork to close the loan and the paperwork argument seems inane to the insured and you want to please the insured. It is an uncomfortable situation and my advice is to not exacerbate the problem by doing the wrong thing.
The right approach is not the simple approach. The first step is educating yourself so that you understand what should be done relative to your contracts, your E&O and the law/regulations. The second step is to gain articulation skills so that you can discuss the situation with your insured and the bank. The third step is to accept that some bankers will never listen to anyone but their own boss or a banking regulator. They are lost causes. Your agency must decide where it is going to draw the line in these situations.
Another example involves surety and is perhaps more challenging. What happens here is an agency has two clients bidding on the same job. One client submits the correct specifications when applying for the bond. The other client does not submit correct specifications and their specifications result in a much better approval/price. You see both sets of specifications. Do you tell the bonding carrier the second set of specifications may not be quite correct? Do you tell the other client about the questionable specifications the other contractor has submitted? Where do your contractual and legal obligations lie?
Education is vital to the solution. Staff/producer education is where to start. Client education is also important. I believe most insureds are honest and when they make the wrong requests, they are usually doing so because a bank or one of their customers has requested documentation that is not correct. They have no idea that what they are asking of you is wrong. Educating the customer then, including how to go back to whomever is requesting the documentation, is critical. There are four parties, sometimes five in these situations with you and the insured stuck in the middle. Become the partner of your client and your team, to solve the problem. You can’t just throw it back on the client and you can’t acquiesce to the client’s request either (at least not ethically, or maybe not legally).
If the other party is a bank, the situation may honestly just be hopeless. I encourage you to work with your associations’ lobbying groups to address these situations otherwise I don’t think some banks/mortgage companies will care about abiding by the proper insurance rules. I wish I could be more hopeful on this point. If the bank is local, many clients have achieved success by sitting with the bank president and educating him/her. Some have even had success talking to the latest mortgage company, but it takes time so the situation is not entirely hopeless – just sometimes. Your agency has to decide where on the spectrum to draw the line in these difficult situations.
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.