Sharpen Your Skills With Our E&O Claim Scenarios
We believe that insurance professional can improve the service that the client receives by sharpening their professional skills by looking over case studies and scenarios that have lead to E&O claims.
Application Submitted to Two Carriers
A client came to an agent seeking life insurance. The application was submitted to two carriers, Carrier A and Carrier B. An application was completed which denied the existence of a pre-existing heart condition. Further during the underwriting, a medical exam was taken and the EKG came back as “irregular.” Carrier A thus requested additional testing and when the client refused this request, Carrier A denied the application. The agent maintained 2 files, one for Carrier A application, and one for the Carrier B application. At this point, the agent closed the Carrier A file.
Carrier B, on the other hand, continued its underwriting. Carrier B asked the client if previous EKGs had been conducted and the client said “no.” It then requested an attending physician’s statement (“APS”) from the client’s doctor but the doctor responded that he had no medical records for her, as he was just a personal family friend. For reasons that remain unclear, Carrier B, nevertheless, concluded that they could waive the APS requirement and issue the policy.
Subsequent to this and to the closure of the Carrier A file, the agent’s office received medicals from Carrier A showing a prior heart condition. These documents were filed under the closed Carrier A file.
Death Benefit Contested
The client died with the 2 year contestability period of the Carrier B policy. Carrier B then conducted an investigation and denied the claim, contending that its investigation uncovered the pre-existing heart issues which had not been disclosed on the application.
The client’s heirs/beneficiaries (plaintiffs) sued the agent and Carrier B. As against the agent, the plaintiffs made the argument that, even material misrepresentations were made in the application, the agent’s office knew or should have known of the client’s condition inasmuch as it had possession of documents evidencing the client’s heart condition in its office – albeit, in the closed Carrier A policy folder/file – and that had these medicals been passed to Carrier B – prior to the Carrier B policy issuance – Carrier B may have noted the medical condition and issued the policy nonetheless with, for example, a higher premium.
Rights Were Waived
Further, the plaintiffs allege that had the agent advised them of the Carrier B wavier of the APS, they would have been able to argue against the denial of the death benefit at the initial time of its issuance, as Carrier B arguably waived their rights to challenge the policy issuance based on that underwriting decision.
Lessons Learned from this E&O Case Study
The arguments being made by plaintiffs are clearly disingenuous/without merit because of the clear fraud in the application process. But one of the broad lessons of this series of claims scenarios is that the potential of a claim being made against an agent when something goes wrong in a transaction, and a benefit is not paid, is only limited by a plaintiff’s counsel’s imagination. In the above example, imperfect file administration gave the plaintiffs and their lawyer a window of opportunity to set forth a colorable claim of negligence. There is an argument that it is a potential duty of the agent to disseminate the documents showing a preexisting condition at all times. In this case, we merely seek to frame the issue, and we leave it to risk management-wise agents to fashion their own administrative remedy to defend against such a claim.
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