Insurers should stick to letters of agreement with brokers

Insurance companies that are lax about following the letter of their agreements with brokers may find themselves sharing responsibility — and liability — with brokers in E&O claims, an audience attending an Insurance Brokers Association of Ontario (IBAO) education panel heard.

This may even be true even in seemingly open-and-shut E&O cases illustrating broker negligence. Insurers need to be careful they aren’t creating expectations among brokers when they try to help brokers out in certain situations that may technically fall outside the insurer-broker agreement.

For example, insurers might help brokers out by ‘backdating’ insurance coverage, thus seemingly providing “seamless’ policy coverage back to the point when the policy had expired. Or insurers might allow brokers to bind coverage that technically falls outside limits defined in the insurer-broker agreement.

These practices on the part of the insurer may be contrary to the agreement between the broker and the insurer. By allowing this to happen, noted Jeff Bear, the CEO of the Ontario brokers’ regulatory body RIBO, insurers are creating a reasonable expectation among brokers and clients that a claim will be covered even in circumstances when the insurer never:

* knew about the request for coverage;

* sent out documents confirming the coverage; and

* collected premiums from the brokers or the brokers’ clients for the coverage.