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Shrinking the “Vicarious Liability” Gap…

Does your society sell its products the same way it did in 1950…1970…or even 1990?  The answer is almost certainly “no.”  Many societies have abandoned member-to-member marketing strategies in favor of one that utilizes a network of independent agents offering products and services to both existing and prospective members.  Other societies that have relied on a captive agent force have transitioned to independent agents or have augmented those captives with independents in areas where the society seeks to grow.  And societies that still maintain captive agents have modified agreements so that these individuals are independent contractors rather than employees.

There is no question that for many societies, independent agents represent a growth engine and a more cost-effective way to bring the fraternal message to more people.  That’s the good news.  But every rose has its thorns, and an independent field force could generate a potential gap in your society’s liability insurance coverage.

Agent’s Policy Doesn’t Necessarily Protect Your Society

The overwhelming majority of independent agents carry “errors and omissions” liability insurance to protect them from any actions that could damage their clients.  Independent agents can purchase such coverage from a variety of places – a local broker, their state or national trade group, or a program offered through one of the insurers they represent, such as the American Fraternal Alliance-sponsored program through CalSurance.  But all E&O policies are not created equal, and simply having a liability policy in place doesn’t mean that your society is protected from the agent’s actions that may result in damage to one of your members.

For instance, let’s say your independent agent moves one of his or her client’s annuities from one insurance company to your society.  The transfer results in the client having to pay early withdrawal fees – a fact that is not disclosed until after the transaction has been completed – and the client sues the agent for the actual damages and also claims that the new annuity’s maturity date is unsuitable.  Your society is also named in the lawsuit because the consumer claims that it should have also known that the annuity was unsuitable.

Does your agent’s E&O policy extend to cover the society’s “vicarious liability” exposure?  The answer in most cases is, unfortunately, “no.”  However, if the agent purchased his or her E&O policy through the Alliance-sponsored CalSurance program, the society is afforded vicarious liability coverage – and a huge gap in the organization’s liability coverage is narrowed.  It’s important to remember, however, that just because you offer the Alliance-sponsored program to your agents, doesn’t mean you have “vicarious liability” in place.  If the agent chooses to purchase E&O coverage from another source, the “vicarious liability” coverage feature does not apply.  So, it’s quite feasible that societies have the coverage in place for some of their independent agents and not for others.

Is there a way to close the gap?

The most effective way to reduce this coverage gap and ensure that your society has “vicarious liability” coverage in place for all its agents is for societies to mandate that all of their agents purchase their E&O coverage through the Alliance-sponsored CalSurance program.  Societies that utilize independent agents may be reluctant to impose such a mandate – especially for new agents or those that may generate only a handful of new memberships each year.  However, you can go a long way toward limiting your society’s “vicarious liability” exposure by ENCOURAGING them to obtain their professional liability protection through the Alliance’s program.  We’re confident our program’s coverage and pricing can meet or beat anything else in the market.  And, since the agent pays for the policy itself, there is no cost to your society for making this coverage available to them.

Your society gets several incredible benefits just by making this program available to your agents:

  • You can make your society more attractive to independent agents by saving them money and enhancing their own liability coverage.
  • You can reduce your society’s “vicarious liability” gap and ensure that your organization is protected from any financial damages resulting from the actions of your field force.
  • You can help expand the Alliance-sponsored program giving you and your association greater negotiating power in the marketplace and increasing the chances of improving coverage features and pricing.
  • You can hold down future Alliance dues increases because the modest royalty fee the Alliance earns from this program helps the organization offer better advocacy, information, education and networking products and services to its members.

Want more information on your “vicarious liability” gap and how to close it?  Contact Allison Koppel of the Alliance at akoppel@fraternalalliance.org or Michele Gerace of CalSurance at mgerace@calsurance.com.

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