Agent Liability — Acts of Commission & Omission
Agents can find themselves in breach of their ethical responsibilities both by the actions they take (acts of commission) and by their failures to act (acts of omission). Customers have a reasonable expectation that the agent they deal with is a professional who will exercise due care in representing insurers to the public and be competent in servicing the business once it is placed. Failing to do so, in the eyes of many courts, exposes the agent to personal liability.
Agents who fail to exercise “due diligence” may be personally liable for their failure. As discussed in Chapter 2, agents who represent unlicensed insurance entities are personally liable for losses their clients believed would be covered under the fraudulent contract. In addition to the personal liability, the agent is also guilty of a felony by representing an “unauthorized entity.”
While no substitute for due diligence and competent business practices, Errors and Omissions (E&O) Insurance is a type of “malpractice” insurance available to insurance agents who may unwittingly be caught up in such circumstances. As our society becomes ever more litigious, agents will want to seriously consider such coverage.
The Free Look Provision
Most agents will describe to an applicant the full range of rights the policy will confer — non-forfeiture options, policy loans, assignment, etc. There is one right, however, that could adversely affect the agent: the Free Look provision. This provision gives the applicant a short period of time to reconsider the purchase and recover his or her initial premium for any reason — or for no reason at all.
If the applicant cancels the policy within the Free Look period, the agent will not earn his or her commission. This creates a conflict of interest between the best interests of the client and the interests of the agent — and this conflict must be disclosed.