errors and omissions insurance Potential Errors & Omissions Exposures for Insurance Agents from Sandy | Axis Error & Omission
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Potential Errors & Omissions Exposures for Insurance Agents from Sandy


Potential Errors & Omissions Exposures for Insurance Agents from SandyPotential Errors & Omissions Exposures for Insurance Agents from Sandy

The damage and destruction Super Storm Sandy caused in the Tri-State area is utterly devastating: According to latest government counts, the storm was behind the deaths of at least 146 people in the U.S., of which at least 98 were in New York and New Jersey. In New York, there were 305,000 housing units either damaged or destroyed and more the 265,000 business disrupted; in New Jersey, 346,000 housing units were destroyed or damaged, and 190,000 businesses affected. Loss estimates still vary, with Munich Re projecting insured losses at $25 billion and total losses at $50 billion. In December, state governments reported a total of $62 billion in damage and other losses. Furthermore, at least 3,500 families in New York and New Jersey are still living in hotels and motels paid by the Federal Emergency Management Agency. With winter upon us, people who still have homes but no means to heat them have taken refuge in tents set up by aid workers.

Insurance Comes into the Forefront

In all this destruction, Sandy has put the spotlight on insurance – what is and isn’t insured, what insurance coverage homeowners and business owners do and don’t have and what they think they have. For example, in New Jersey, a Assembly committee is looking to dispel the type of confusion that many residents faced after Hurricane Sandy by requiring insurers to provide clearer information about what a homeowners policy covers, and what it does not. Chief among the clarification issues was the fact that standard homeowners policies do not cover flooding or storm surges. First-party property policies, such as homeowners insurance, often cover damage resulting from wind and wind-driven rain, but exclude or limit coverage for damage resulting from floodwater. Hurricane Sandy produced high winds and extensive flooding. The resulting property damage in some cases is leading to coverage disputes over the cause of the damage.

Additionally, in New Jersey, many lower-level apartments or businesses that sustained water damage during Sandy say the property they own is being classified as a basement, severely limiting what is covered under the National Flood Insurance Program. They may, however, be eligible for grants as part of the $50.7 billion Sandy aid package, but many are upset that they didn’t understand what they weren’t insured for. As one person said, “No one told us about this basement thing.”

New York, in the aftermath of Sandy, has also introduced legislation requiring insurers to provide property owners with an easy-to-understand disclosure notice detailing their coverage in the event of a catastrophic occurrence; how and when to file a claim; their rights if a claim is denied or a settlement offer is insufficient; and where and how to obtain coverage for catastrophic events.

What’s more, because businesses throughout the region suffered losses due to widespread power failures resulting in partial or full production stoppages, it’s expected that Business Interruption losses from Hurricane Sandy will be large. Those businesses that had not added Business Interruption and Extra Expense to their existing property insurance policy or package policy will find themselves without coverage. Additionally, without Contingent Business Interruption and Extra Expense, business owners will find themselves without recompense under their insurance program should a critical supplier be unable to provide them with what they need to continue operations. Unfortunately, many companies do not purchase Contingent Business Interruption insurance.

E&O Exposure

With all the focus on insurance and what claims are covered or being denied, insurance agents and brokers are facing tough questions and scrutiny over the coverages they have recommended to their clients. Many may be facing Errors & Omissions claims alleging that they didn’t explain coverages thoroughly or offer specific insurance policies and endorsements to cover certain risks.

What’s clear in the aftermath of Sandy is that a comprehensive coverage personal lines or commercial lines checklist along with detailed documentation is required to help ensure that clients understand what they are purchasing and what they’re choosing to forgo. This type of documentation will also provide insurance brokers and agents with the backup needed should an E&O dispute occur. Equally important is having proper Errors & Omissions insurance for agents and brokers. At Axis Insurance Services, LLC, that is our business. We provide E&O policies specifically designed for the needs of insurance agents, brokers, large retail brokers, MGAs/MGUs, program managers, wholesalers and specialists. Give us a call at (877) 787-5258.

Sources: WSJ, The Weather Channel, New Jersey Star Ledger

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Blogged on: February 19, 2013 by Mike Smith
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