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Let's Talk Employee Benefits

If I have learned one thing while working on E&O risk mitigation it is that claims do not discriminate by agency size, location or line of business. Working with agencies that sell benefits products has taught me so much about this area of the agency and the important role it plays in an agency’s success. I’ve also learned that some individuals working on the benefits teams do not always feel there are as many resources available compared to those for P&C business. Your team at the IIAW provides resources that help an agency operate effectively & efficiently, prepare for regulatory changes in Wisconsin & on a national level and stay connected to the independent agency channel. None of these goals are specific to any one line of business. As a Swiss Re auditor and educator, I appreciate the opportunity to work with an agency’s benefits team, as it allows me to share claim examples and operational recommendations that help mitigate E&O claims. Here are a few of the claim examples from our partners at Swiss Re Corporate Solutions.


Claim Example One:

The agency's client is Fred's Seafood House and they have been clients for ~20 years. The agency procures life policies for them. Life policies were changed to "ABC Life Insurance Company" in 2011 and have renewed every year since that time. The prior carrier provided coverage for owners, managers and salaried employees. The client wanted this changed to include manager trainees. The request was put in and manager trainees were added to the policy but at the same time, owners were deleted. Do not know why this occurred and no one at the agency ever caught the mistake.


When the insured moved the policy to ABC Life Insurance in 2011, the application requests coverage for owners in addition to the other members.


Agency sent a copy of the prior policy to ABC Life Insurance; it was either requested by ABC Life Insurance or the agency sent it as a matter of routine. When the reliance policy is issued, owners are not included in the definition of covered people. Policy was sent to the insured who forwarded it on to the client. Neither insured nor client notice this omission. Policy has been renewing on an annual basis. Also, in order to receive a death benefit, the employee must work full time.


There are 4 owners: 2 are listed on the census that the client provided and 2 were not. The 2 that are listed are on the payroll and the 2 that are not listed are not on the payroll since they were original owners and received their compensation in another form e.g. K1 compensation. However, if owners had been listed as a covered person, it probably would not have made a difference that they were not listed on the client's census.


Every month, the client calculates the premium based on covered people. The owners were always included in this calculation. Monthly premium would then be issued to ABC Life Insurance based on this calculation. Of note is that the client only calculated benefits of $100k for one of the original owners instead of the $194k it should have been.


In 2016, one of the original owners, Fred Doe, died. He was 78 years old.


ABC Life Insurance has denied coverage since he was not a covered person and they cannot prove that he worked full time.


The claim settled with Westport paying $86,250 on behalf of the insured agency due to the failure to notice the mistake in the policy deleting the owners in covered persons. The Swiss Re E&O Claims Team Leader indicated that he has handled Benefits claims where "policies were renewed late, there was a gap in coverage, policy replacement where the coverage obtained covers less than what the expiring policy covered and failed to add someone or mistakenly omitting someone from coverage". Nearly one-third of all E&O claims among Benefits departments came from new business with a new or existing customer of the agency.


Regardless of the line of business you work in, E&O claims are caused by human failings. We’re all human and we all make mistakes. It is essential for an agency to review operations across all lines of business to ensure the adequate measures are being taken to decrease mistakes and focus on your number top priorities: exceeding the expectations of your customers and providing quality service and insurance products.


Claim Example Two:

John Doe was an employee of John Doe LLC. John Doe LLC is s stockholder of the agency and a named insured on the agency's Employee Benefits policy with "ABC Insurance Company". John Doe LLC was also a named insured on an Agency Paid Life Insurance policy for $15,000 and a Voluntary Group Life insurance policy for $50,000 that was purchased by the agency from "XYZ Life insurance Company". John Doe was listed as a participant in the voluntary life policies obtained through the agency.


On April 6, 2018 John Doe sold his book of business to another agency affiliate under a monthly payment arrangement. According to the agency there was an issue at that point as to whether John Doe was considered retired or was acting as a consultant. The agency kept John Doe on both the agency paid and voluntary group life policies. The agency paid the premium for both policies and John Doe reimbursed the agency for the cost of the voluntary group life policy.


On December 5, 2019 John Doe passed away. XYZ Life declined coverage under both life policies as non-active persons, employees, and affiliates cannot participate in the life insurance plans. According to the agency, conversion of the Agency Paid policy was not permitted however the Voluntary Group policy could have been converted to an individual policy upon the retirement of John Doe.


Plaintiff is alleging damages of $50,000 for denial of payment of the life insurance claim.

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