Document, Document, Document!

By Jan Brownlee, CPCU
Assurex Global Account Manager, E&O Plus

One of the 18 E&O Plus Quality Management Program components states:

“All conversations related to clients and prospects should be documented either electronically or, if manually, on a prompted form.”

A California agency recently lost a court battle due to lack of documentation on what transpired regarding a quotation for a replacement policy. Here are the facts of the case, taken from AgencyEquity.com – E&O Cases – dated 04/14/2016:

“The owner of a two-story building housing a restaurant and apartment purchased property and liability insurance on it from a local insurance agency. When the policy came up for renewal, the insurer providing the coverage sent a non-renewal notice.

What happened next is in dispute. The building owner claimed that he told one of the agency’s two owners to obtain a new policy for him. He told the court he believed he had insurance. However, according to the agency, he was offered two quotes for replacement policies; he was told the agency would not take any action until it heard from him; he understood that he did not have coverage until he chose a policy; he told the agency he would call the following day with a decision; and he failed to do so.

Regardless, five days after the agency said it delivered the quotes, no coverage was in place. That was the day the building caught fire. According to the appellate court, “The fire started in an electrical panel box and was caused by (the owner’s) negligence.” It caused almost $500 million in damage to the insured’s building. Worse, it spread to two adjacent buildings, causing $194,000 in damage to one, which housed another restaurant, and $371,000 in damage to the other.

The insured submitted claims for the damage to all three buildings to his insurance company. The company denied all coverage, saying that no policy was in effect at the time of the loss. The owner of the other restaurant building sued the insured for his losses. The insurance company for the owner of the third building paid him for his loss, then subrogated against the insured. The insured, in turn, accused the insurance agency of failing to obtain insurance for him. He assigned to the other two his rights to recover from the agency.

The owners of the second building, along with the insurer for the third building, sued the insurance agency. The trial court dismissed the suits, citing three reasons. First, it ruled that the insured could not assign his rights against the agency to others. Second, even if he could, he could not assign them to these building owners and the insurance company. It ruled that those parties should have been seeking to recover from him, not the insurance agency. Finally, it found that the agency had proved that it was not negligent – it had not breached the standard of care required of insurance agencies.

The appellate court, however, reinstated lawsuits. First, it said that California law did permit the owner to assign his claims against the agency to others. Second, it said the law permitted the other parties to sue the agency directly.

On the subject of the agency’s negligence, the court noted the dispute between the insured’s and the agency’s versions of events. The agency’s evidence rested on a few sentences in the insured’s deposition. The insured, though, testified that an agency employee told him she would obtain insurance on the property five days before the fire. He also said that he gave her the order to obtain the coverage. Because of this discrepancy, the court concluded that a jury should determine what the insured might have told the agency employee and when he said it.

This case illustrates the importance of confirming all instructions in writing. It appears that all of the discussions between the agency and the insured were entirely verbal. Had the agency sent the insured an email or memo stating its understanding of the transaction’s status, it might have been more difficult for the insured to argue that something else happened. A short note advising the insured that the agency was awaiting his instructions and asking him to contact them immediately might have helped with the defense.”

A far-fetched case? Not at all. Situations like this happen all the time. Our goal is to eliminate as much of the unknown as possible by documenting all the pertinent facts. It takes time and it may be tedious, but getting key facts on paper is paramount to attaining favorable outcomes. As noted in the case above, the lack of documentation created a question for the court that could have easily been overcome had the agency recorded the critical parts of conversations in writing. Documentation is key to proving that certain actions took place.

Our suggestions regarding good record-keeping practice are:

  • Summarize the conversation promptly in your CRM or AMS.
  • Always include the date and time (if appropriate), name of client, the person with whom you spoke and your name.
  • Be truthful, professional and objective; do not bring emotions or your own interpretations into the documentation.
  • Include only relevant information; be brief – focus on what is important. Leave out superfluous items that have nothing to do with the primary subject of the conversation.
  • Promptly send a copy of the documentation to the insured along with a statement such as, “If this is not your understanding, please contact our agency immediately.”

Clear documentation is a good defense when situational facts become fuzzy due to misunderstandings or time lapses. It is crucial to make sure all agency personnel understand the need for recording “the key facts” and that they practice it daily.


E&O Plus is offered through Assurex Agency, Inc., a subsidiary of Assurex Global. Any redistribution, publication or sharing outside of individual E&O Plus insured firms is strictly prohibited without written consent from E&O Plus.