In this same regard, you also should be wary if the client thinks he is doing you a favor by giving you his business. While we all appreciate our clients' businesses, the client relationship is a two-way street, with you providing a service in exchange for compensation. If it appears at the outset the client does not hold this view of the relationship, it may indicate the client has unreasonable expectations of what you should do for her.

The problem client may rear her head in any of the aforementioned ways at the outset of the relationship. Of course, you can't turn away all prospective clients who complain about their existing brokers. You need to use your intuition and experience to evaluate whether someone is truly a problem client and whether it is worth your while to accept the new business. In fact, the problem client is often not so obvious in the early stages of a new relationship. In the beginning, everything may seem perfectly normal and it won't be until later that you realize the problem client has infiltrated your agency.

For example, let's assume Shady Industries Inc. has been a client of the agency for a few years. Shady uses your agency for all of its insurance needs, including workers' compensation insurance. Over time, Shady begins to pay its workers' compensation insurance premiums later and later, until it eventually gets to the point where the carrier cancels the policy. Shady then calls you in a panic to fix the problem it created, and as a courtesy, you arrange premium financing and get the policy reinstated. Eventually, Shady stops making payments again, and the same scenario repeats itself a second, third or fourth time. Shady is an example of the most frequent problem client: a client who pays its premiums late or not at all.

Related: Read Matthew Marrone's previous column, “Meet and document customer's reasonable demands.”

I have defended insurance brokers under these circumstances in many E&O cases. Even though Shady allowed the policy to cancel due to non-payment, once an employee is injured and has no coverage, you can expect Shady to claim the broker should have done something to prevent the cancellation. Shady may contend that based upon your previous successful efforts to reinstate the policy, it assumed you would automatically fix the problem each time it happened. While it may be a defensible claim, it is an E&O claim from a problem client nonetheless. This is often the same client who rarely responds to your inquiries, but demands an immediate response from you. Shady probably received notices to pay the premium and warnings the policy would cancel, and likely ignored them until the policy actually canceled. It is at that point Shady will call and demand you immediately reinstate the coverage, and will probably find a way to fault you for the cancellation.

These are the most obvious kinds of problems that may not surface until several years into the relationship, even though there may have been warning signs at the outset. From a risk management standpoint, you should seriously consider whether it is advisable to keep such clients. Once these particular problems arise–late payment or non-payment of premium and failure to timely communicate with the broker–they are not likely to correct themselves and will often lead to E&O claims.

Finally, there are some red flags that may arise either at the beginning of the client relationship or many years down the road. Let's assume Shady's CEO, Rich Flipper, is an entrepreneur who owns a few different businesses, including a popular downtown nightclub, Risky Bizness. There have been several publicized incidents involving the nightclub, including fights and citations for underage drinking. Flipper has been informed the liability carrier is non-renewing the Risky Bizness policy, and asks you as a favor–on short notice, of course–to find replacement coverage. You know that coverage for nightclubs is difficult to place, and you have no direct access to any markets that will write them. Be wary of the client who asks you for favors, especially when they involve stepping outside of your core areas of expertise, as well as the client who is in a rush to quickly place coverage. While accommodating a client under these circumstances can distinguish you from a service standpoint, these scenarios also present fertile breeding ground for E&O claims, and you should avoid them as much as possible.

Problem clients increase your risk of E&O claims in two ways:

• They frequently become involved in difficult situations more likely to result in adverse consequences
• They are more willing to blame you when something goes wrong.

Just as we all have great clients, we all probably have at least a couple of problem clients. The cost-benefit analysis of having such problem clients is going to vary from business to business. However, if you can reduce your problem clients, either by avoiding them at the outset or by parting ways with them once they become difficult, you will certainly reduce your exposure to E&O claims. As a trusted advisor once told me, sometimes the best client is the one you don't have.

Related: Read October's Avoiding E&O column, “Train novice agents, producers.”

Read Matthew Marrone's previous column, “Meet and document customer's reasonable demands.”