How to avoid a lawsuit
Insurance brokers are facing an increasing number of professional negligence lawsuits. We speak to Marc Chiarella of Colin Biggers and Paisley Lawyers about the mistakes brokers make that land them in hot water and how to avoid them.
Video transcript below:
Donna Sawyer, Insurance Business Online
Donna Sawyer: Insurance brokers are facing an increasing number of law suits by dissatisfied clients claiming professional negligence. Marc Chiarella of Colin Biggers & Paisley says there are a number of fundamental mistakes brokers make that can land them in hot water.
Marc Chiarella, CBP
Marc Chiarella: One of the things we miss is the broking process actually starts at client procurement stage. So sometimes brokers maybe represent two clients’ areas of expertise which they don’t have or they venture into other areas of expertise which is not part of their core business. These can be a fundamental flaw because it imposes a wider duty in those areas on the broker. The next stage is generally the retainer stage. Basically brokers sometimes don’t classify exactly with their clients what it is and the service that, services that they are going to provide to those clients. It’s really imperative that they do have a clear understanding with their clients exactly what the services that they will be providing will entail. Also as part of the retainer process commissions and understanding remuneration, being on a single page with your client about what levels of remuneration you are obtaining.
Next comes obviously the proposal part where the broker often doesn’t understand completely the insured’s risk or their client’s risk and there is an onus to make enquiries on the broker into the status of the risk of their client. Then often comes the fundamental mistake of not explaining the duty of disclosure and we see that continually coming up in the cases.
Donna Sawyer: He says a few specialty areas of insurance are susceptible to legal action.
Marc Chiarella: The largest one at this point in time is definitely in the property sector and in relation to ISR policies, Industrial Special Risk policies. The most common recurring things are failure to advise on things like sub-limits, also failure to advise on applications of policy endorsements and exclusions and definitely issues like flood cover for instance and there also things like underinsurance and co-insurance which keep coming up.
Donna Sawyer: If you become the subject of a complaint, Marc Chiarella says there a few crucial steps that you must take to protect yourself.
Marc Chiarella: When the complaint does come in, make sure it’s well documented, make sure it’s referred to the appropriate person in your organisation, equipped to handle the complaint and again document everything that occurs. More of a practical thing is to start looking at the file, starting looking at the complaint, making sure that you correlate as much information as possible regarding their complaint, send a holding response, don’t ever admit liability but send a holding response to the complainant and tell them that you are looking into it and you are attempting to get to the bottom of it and be proactive in that sense.
Donna Sawyer: This is Donna Sawyer, reporting for Insurance Business Online.