Producer's EdgeBy Isaac Peck, Publisher
An incredibly common claim against the independent property and casualty (P&C) insurance agent is the uninsured motorist claim.
Here’s a few iterations of what this claim looks like:
1. An insured, who did not purchase uninsured motorist (UM) coverage, will get into an accident with an uninsured motorist and their claim with their own insurance carrier will be denied. They will then make a claim against the insurance agent alleging that (A) UM coverage was never offered to them, and/or (B) UM coverage was not explained properly to them and the agent was negligent in their duties (or some version of this argument).
2. An insured, who did not purchase UM coverage, will get into an accident with an uninsured motorist. The insurance carrier may check to see if the insured signed a declination of the UM coverage. If the insurance agent cannot procure the signed declination, the insurance carrier will pay the insured’s claim, but them subrogate the claim against the insurance agent. For example, if the insurance carrier had to pay $30,000 to the insured because of the uninsured motorist accident, the insurance carrier will send a demand letter to the insurance agency and demand the insurance agency pay the claim because they failed to get a signed declination of the UM coverage.
The second scenario here occurs, in part, because many states require that drivers carry UM coverage unless they explicitly reject it in writing. This written rejection ensures that policyholders are aware of the coverage they’re declining.
Texas is among these states. According to the Texas Insurance Code, insurers must provide UM coverage unless the named insured rejects it in writing.
Other States With Similar Requirements Include:
• California: Insurers must offer UM coverage, and policyholders must reject it in writing if they choose not to include it in their policy.
• Florida: UM coverage is offered, and a signed rejection is necessary to exclude it from the policy.
• Illinois: UM coverage is mandatory unless the insured rejects it in writing.
• New York: Insurers are required to provide UM coverage unless a written rejection letter is provided by the policyholder. It’s important to note that insurance laws vary by state, and the requirements for rejecting UM coverage can differ. In cases where the insurance carrier is not required to get a signed declination, the insureds themselves are more likely to bring a UM claim against the insurance agent (as opposed to the claim coming from the carrier).
Anatomy of the Claim
Claims against insurance agents regarding UM coverage are relatively common and often involve allegations of failure to inform, failure to procure, or misrepresentation of the coverage.
Here’s a breakdown of typical claims agents might face related to UM coverage and how these issues are framed by the claimants:
1. Failure to Offer or Recommend Uninsured Motorist Coverage
• Claim Overview: The insured (claimant) will claim that the insurance agent did not offer UM coverage and/or did not properly explain the benefits of UM coverage.
• Example: A client is injured by an uninsured driver and then discovers their policy lacks UM coverage. The client files a claim alleging the agent failed to explain UM coverage or recommend it, even though it could have provided essential protection.
2. Failure to Procure Requested Coverage
• Claim Overview: This occurs when a client specifically requests UM coverage, but the agent fails to include it in the policy, resulting in no coverage or insufficient coverage during a claim.
• Example: A client recalls requesting maximum UM coverage, but after a serious accident, they find out they only have the state minimum or no UM coverage at all. The client sues the agent for failing to secure the level of coverage requested.
3. Misrepresentation of UM Coverage Limits
• Claim Overview: In this type of claim, the client accuses the agent of misstating the level or extent of UM coverage provided. This can happen if the client mistakenly believes they are fully covered for UM when they actually have limited or no coverage.
• Example: An agent might say “You have full coverage,” leading the client to assume that includes high UM limits. When an accident with an uninsured driver occurs, the client learns that their UM limits are much lower than expected and sues the agent for misleading them.
4. Failure to Explain UM Coverage Rejection Requirements
• Claim Overview: Some states require agents to inform clients about UM coverage and obtain a signed waiver if the client chooses to decline it. Agents may face claims if they do not adequately explain UM coverage or fail to document the rejection.
• Example: A client alleges that they were never informed about UM coverage options or provided the opportunity to accept or reject it formally. After an accident, the client realizes they lack UM coverage and sues the agent for failing to explain or document the decision.
• Second Example: In states with requirements for signed UM rejections, the insurance carrier may sometimes pay the claim for the insured and treat the claim as a covered claim, but then subrogate against the insurance agent’s professional liability (E&O) insurance to be made whole for their error in not getting the rejection form signed.
5. Failure to Add Underinsured Motorist (UIM) Coverage
• Claim Overview: In some cases, clients mistakenly assume they have UIM (underinsured motorist) coverage, which, though related, is distinct from UM coverage. Agents may face claims if clients are underinsured when struck by a driver with minimal insurance.
• Example: A client believed they had UIM coverage that would cover excess costs after an accident with an underinsured driver. Finding no such coverage, the client sues the agent for failing to explain the UIM option or obtain it on their behalf.
6. Failure to Increase UM Limits
• Claim Overview: Clients may allege that an agent didn’t offer higher UM limits or failed to keep the UM limits on par with the bodily injury liability limits, which some clients might assume would match.
• Example: A client has increased their liability coverage multiple times over the years but was never offered or informed of the option to adjust their UM coverage accordingly. After a severe accident, the client discovers that their UM coverage is far below their needs and brings a claim against the agent for failing to inform them of the option to increase UM limits.
How to Avoid a UM Claim
Given that this is such a common claim for many insurance agents, the question arises: what can be done to prevent these types of claims?
It starts with developing thorough processes. A clear process helps ensure that every client interaction regarding UM coverage is well-documented and legally sound. Here are some suggestions for your practice:
1. Include a reminder in each agent’s email signature, explicitly stating the importance of UM coverage and encouraging clients to reach out with questions. This small but consistent reminder can reinforce the agency’s dedication to keeping clients informed and create a record of the agency’s proactive approach to UM coverage.
2. Incorporate digital signatures with a quality control (QC) check in place to confirm each client’s acknowledgment of the offered coverage. Ensuring clients review and sign electronically helps establish a clear and verifiable record, especially if clients decline coverage. Alongside this, documenting any declined UM coverage in writing is a must.
3. Make it part of your process to keep your files organized. A well-organized file, including signed forms, emails, and records of discussions, can be essential in defending against a claim. Having an organized client file can also make it easier to spot when key documents are missing.
4. Create email signatures that disclose UM limits separately when sending quotes and policy documents. Include a prompt for the client to contact you if they would like higher UM limits.
Insurance agents must be vigilant in safeguarding themselves against errors and omissions (E&O) claims that allege a failure to offer or explain UM coverage. Proactively offering and documenting coverage discussions helps insurance agents better protect their clients—and themselves.
Stay safe out there!
