It seems like everywhere you look, there are law firms that are committed to representing individuals in insurance cases on behalf of the policy holders—whether it’s about fraud, negligence, or settlement amounts with policy claims. However, insurance agents and insurance companies both need to be on their toes when it comes to legal disputes coming at them from the client’s side.
Take a look at five ways your agency might need legal representation, and certain legal assistance you already need to have in place before becoming an active insurance agent.
According to DMV.org, subrogation is “defined by a legal right that allows [the insurance company] to make a payment that is owed by another party, e.g., the ‘other driver’s insurance company,’ and then collect the money from the party that owes the debt after the fact.” This is a commonly used practice among insurance agencies, especially if another party is at fault.
However, if you don’t want a legal issue on your hands, you must inform your client that you’re pursuing this option. Additionally, as an insurance agent, it is your job to make sure that you recover your client’s deductible and refund it to them. If you use subrogation and it affects your client’s right to receive ongoing benefits, you might have a problem and could be facing legal action on behalf of your client.
Bad Faith Litigation
Bad faith laws pertaining to insurance are in place to protect your clients from any unethical behavior on your behalf, and is also commonly known as “insurance fraud.” According to HG.org, in most jurisdictions in the United States, you as an insurance agent and as an insurance company “owe a duty of good faith and fair dealing to those they insure.” If for some reason your agency fails to pay a claim (when it’s “in compliance” with the insurance policy) or delays the processing of a claim, you need to seek legal representation.
Offering your client less than they are due under his or her policy also falls under the bad faith category. In all insurance contracts, there is a statement referring to the act of fair dealing and “good faith.” Be sure you stick to it, or you could potentially be out of not only a lot of money, but your job.
Similar to bad faith litigation, tort litigation occurs when your client attempts to sue the insurance company because of perceived negligence on the insurance agent’s behalf. For example, in Barrick v. State Farm Mut. Auto Ins. Co. and Jones, there was a lawsuit against an insurance agent for “inadequate insurance limits.” The “Jones” in the law suit was the insurance agent, and the family sued State Farm, as well as the insurance agent, when their son accidentally killed a motorcyclist in a crash involving the dad’s car. The lawsuit against the Barricks was settled at $200,000, with State Farm only paying $100,000 of the settlement, because their policy limits for auto liability coverage was only for $100,000 per person. The family “asserted claims for negligence, negligent training and supervision of [the insurance agent], and assumption of duty.” The Barricks claimed that State Farm was negligent in the training of their insurance agent, because he took on “additional duties beyond those of an insurance agent by recommending and also selecting the Barricks’ insurance coverage limits.”
Thankfully for State Farm and Mr. Jones, they had a good attorney, because the claims were dismissed in court. Also, State Farm had been working with Mr. Jones for more than 20 years, and the Barrick family was well aware of the coverage limits, since Mr. Jones was consistently keeping them in the loop of what their policy covered and gave them all the required documents for their review.
Professional liability insurance is not only an important type of coverage for your clients, but insurance agents and companies need to have a professional liability policy as well. It’s beneficial because it will help the agent or the company pay for settlement costs and legal fees if they were to make a mistake and get sued by the client. This policy insures that the law suit won’t be as lengthy as other general litigation can usually be—and when time is money for successful insurance agents, you don’t want that time wasted with litigation.
Nobody is perfect, and these simple mistakes could cost the agent or the company a fortune. Two aspects of professional liability include omissions and misrepresentations (also called “errors and omissions). This can occur if the insurance agent simply forgets to write down the name of a medication their client needs to have covered under their health insurance, or sells a client unnecessary coverage. Agents can also be sued if they offer comprehensive coverage to their clients and forget to inform them about recovery amounts or gaps.
Declaratory judgment litigation typically occurs more often in liability insurance policies, such as property or bodily injury, personal injury or advertising injury. Most insurance agents and companies face this type of litigation when the client wants to determine whether the suggested coverage is valid in their situation.
The insurance company or agent can file a declaratory judgment to “settle important questions of law before the controversy has reached a more critical stage,” according to americanbar.org. However, all states require that a controversy actually exists before either party is entitled to begin the declaratory judgment proceedings.