A report issued last year by Marsh & McLennan warned of a growing gap between insureds' liability risk and their corresponding levels of insurance coverage. An article in the Sept. 8, 2003, issue of Insurance Day stated, “According to the report, companies covered in the survey reduced insurance limits by an average of 9.4% over a 12-month period ending in January 2003.”
Since the number and size of claims do not appear to be decreasing, companies that reduce limits are taking a gamble. Some will win. Others will roll snake eyes. In the latter case, it's not just the companies who lose; many agencies will inherit problems and incur E&O claims as a result. Firms that gamble, lose and end up with uncovered claims may look for someone to bail them out and decide to sue their insurance agents. After all, they have nothing to lose by doing so.
Agencies may not be able to prevent lawsuits from occurring, but they can improve their odds of winning with good E&O preventive measures. Here are a few recommendations:
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