The Agency's E&O Exposure on a Cancellation
Priya is a producer at a small independent agency. A commercial client, Halvorsen Manufacturing, has a workers' compensation policy that renews January 1. In November, the insurer sends a notice of intent to nonrenew due to loss experience. Priya forwards the notice to the client by email but does not confirm receipt or help place replacement coverage. The policy lapses on January 1. On January 15, an employee is injured, and the claim is denied because there is no coverage. The client sues Priya's agency for errors and omissions, alleging failure to procure replacement coverage. The agency's E&O policy has a $1 million limit and a $10,000 deductible. The client's claim is $300,000. Priya's file shows the email was sent but no follow-up.
1. Assess the agency's E&O exposure and the role of the notice and follow-up.
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The agency's exposure turns on the standard of care: a producer is generally expected to notify the client of nonrenewal and, where the agency agreed to procure coverage, to place replacement coverage. Forwarding the notice may satisfy the notification duty, but the absence of confirmation and follow-up weakens the defense. The client may argue reliance on the agency. The $300,000 claim is within the $1 million E&O limit, with a $10,000 deductible borne by the agency, so net exposure is $290,000 plus defense costs if outside the limit. The judgment: document the notification, obtain written acknowledgment, and maintain a suspense system for renewals and nonrenewals. The agency should also check whether its E&O policy covers prior acts and whether the claim falls within the retroactive date.
2. Recommend procedural changes and explain how the E&O policy responds.
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Procedures: (1) send nonrenewal notices by certified mail or with delivery confirmation; (2) require written client acknowledgment; (3) set a suspense date 30 days before expiration; (4) document all placement efforts. E&O response: the policy typically covers negligent acts in the scope of professional services, subject to the retroactive date, deductible, and consent-to-settle provisions. The agency should notify its E&O carrier promptly, avoid admitting liability, and cooperate in the defense. If the agency had a documented follow-up and the client declined replacement coverage in writing, the defense would be much stronger. The claim also highlights the importance of clear engagement letters defining whether the agency is responsible for procurement or only for placement on request.