Client Expectations


As courts have shifted their legal reasoning from caveat emptor to caveat vendor, sellers in the marketplace are under increasing scrutiny.  Agents, as salespersons, should be aware of this increased scrutiny of their actions and deal with both client and insurers in an ethical manner.


While agents can find themselves in breach of their ethical responsibilities by the actions they take -- their failures to act can also result in liability.  In legalese, agents are liable for there "acts of commission", as well as "acts of omission".  Customers have a reasonable expectation that the agent they deal with is a professional.  As such, they can expect that the agent will exercise due care in representing insurers to the public and be competent in servicing of that business once it is placed.   Failing to do so, in the eyes of many courts, exposes the agent to personal liability.    


For example, an agent forwards a customer's signed application and first premium payment for flood insurance to the insurer.  The agent assures the client that coverage will be underwritten. The insurance company, however, rejects the application, and notifies the agent -- but the agent fails to notify the applicant. A flood strikes and the client learns he is uninsured.  Courts have held, in circumstances like these, that the agent was held liable for the flood-related losses.   


Similarly, agents who fail to exercise "due diligence" may be personally liable for their failure.  As we discussed earlier, agents who represent unlicensed insurance entities are personally liable for losses their clients believed would be covered under the fraudulent contract.  In addition to the personal liability, the agent is also guilty of a felony by representing an "unauthorized entity".  Good intentions are not enough ...... agents must exercise due care in their business.  


While no substitute for due diligence and competent business practices, Error and Omission Insurance  (E&O) is a type of "malpractice" insurance available to insurance agents who may unwittingly be caught up in such circumstances.  As our society becomes ever more litigious, agents will want to seriously consider such coverage.


When delivering policy documents, most agents will take the time to describe to an applicant the full range of rights the policy will confer.  This is usually a good way to cement the client-agent relationship and dispel any lingering misunderstandings the client may have about the policy.   There is one right, however, that could adversely affect the agent: the so-called Free Look provision.  Some types of policies give the policyholder a short period of time to reconsider the purchase and an opportunity to recover his initial premium for any reason he or she feels is important -- or for no reason at all.   In Florida, state law requires a Free Look provision on all life and health insurance policies, as well as all annuity contracts.  Beginning in 2008, the Free Look provision for most policies in Florida was extended from 10 days to 14 days.  There are two notable exceptions:  Medicare Supplement (Medigap) and Long Term Care policies must have a minimum 30-day Free Look.  Insurers may extend these timeframes for their policies, but may not shorten them.    If the applicant cancels the policy within the policy's Free Look timeframe, the agent will not earn his or her commission.  This creates a conflict of interest between the best interests of the client and the interests of the agent, and this conflict must be disclosed.    The agent's failure to advise the policy owner of his or her rights under the Free Look provision or to explain the details of the provision constitute unethical behavior.  

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