When an independent insurance agency takes over a client’s policy through an agent of record (AOR) letter, there may be concerns about potential coverage deficiencies. Some agencies consider adding disclaimer language to the AOR letter, stating that they are not responsible for coverage gaps until they have had a reasonable opportunity to review the policy. But is such a disclaimer necessary, useful, or legally enforceable? Here’s what industry professionals have to say about this issue.
The Legal and E&O Perspective
Industry experts generally recommend consulting corporate legal counsel and errors & omissions (E&O) insurance carriers before adding a disclaimer. While disclaimers may seem like a logical step to protect agencies from liability, they often do not provide the intended legal benefits. In many cases, new producers inherit errors from the previous agent, leading to claims against both the prior and current producer. Courts have ruled that even with disclaimers, an agency can still be held responsible for failing to promptly identify and correct policy deficiencies.
Some markets now delay recognition of AOR letters until just before renewal, requiring new applications from incoming agents. In these cases, carriers may hold the previous producer accountable for coverage gaps while pushing new agents to conduct their own assessments.
The Role of Disclaimers in Legal Cases
There have been legal cases where agencies attempted to use disclaimers as a defense. However, if the agency does not conduct a timely and thorough review of the policy, courts have disregarded such disclaimers. The key takeaway: whether or not a disclaimer is included, agencies must prioritize a comprehensive review of the policy to identify and rectify coverage issues.
The Carrier’s Perspective on AOR Letters
It’s important to recognize that AOR letters are primarily intended for communication between the insured and the carrier. Since carriers typically do not take an interest in disclaimers, including such language in the AOR letter may be ineffective. Instead, agencies should focus on quickly assessing the client’s exposures and ensuring adequate coverage before the AOR letter’s effective date. Treating the policy review process like new business applications remains the best E&O defense.
The Balance Between Protection and Client Trust
While some experts argue that disclaimers may have value in setting client expectations, they caution against creating the impression that the new policy will be flawless. Instead, agencies should clarify that they are assuming the policy as it stands and will conduct a thorough review to recommend necessary changes.
Final Thoughts: Prioritizing the Client Over Legal Protection
Disclaimers do not absolve agencies of liability for negligence. The best approach is to review every policy immediately upon taking it over, communicate with the client about their coverage needs, and document all discussions thoroughly. Rather than focusing on protecting the agency through disclaimers, the priority should be ensuring that the client has the appropriate coverage in place.
By acting diligently and proactively, agencies can reduce E&O risks while building stronger relationships with their clients.
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