Two of the most common causes of an E&O claim are failure to procure coverage or failure to recommend adequate values and limits. These perils are some of the most costly and most frequent E&O claims an insurance agent can experience. Coverage checklists and coverage rejection forms are a realistic way for agents to reduce their risk when it comes to the most common causes of an E&O claim. While the benefits of using a coverage checklist are not a mystery, an agent can further reduce their E&O risk. When checklists are combined with coverage rejection forms, together they create powerful evidence of what coverage the client was looking for and give an opportunity for clients to increase their limits by requesting higher limits on their underlying policy or inquire about an umbrella policy. While you can use individual coverage rejection forms for different coverage options/policies, it is more efficient and streamlined to incorporate all options into one rejection form.
What does this look like? In its most basic instance, it could be presented in the same format as shown below where you provide the client with X’s in the columns of coverage options that they currently carry and options that were rejected. The client has the opportunity to select “Please Quote” if they would like additional information about any of the coverage options.
Most importantly, below the chart, there should be a signature line where the named insureds acknowledge their rejection of the above options which may result in the denial of a claim in the future.
When can it be used?
Coverage rejection forms should be sent at the same time the application is sent to the client for signature. Since all applications should be signed, adding one additional page that can significantly mitigate your E&O exposure is worthwhile. The above example highlights personal lines, however, a similar version can be created for commercial lines clients.
It's also important to note that having the rejection in writing rather than a verbal rejection holds a lot more weight in court. Some courts may argue whether or not verbal rejections are valid or if a verbal rejection actually occurred. When there is a signature acknowledging the rejection of coverage in writing, it’s more difficult to refute the evidence.
Looking for a sample Coverage Rejection Form? Reach out to Virtual Agency Solutions and a free template can be provided.