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You are here: Experts > Money > Personal Insurance > Property & Casualty Insurance > Statutory Laws in Georgia Protecting Insured's
Expert: Kristen Mulcahy, CIC - 10/27/2009
Question
QUESTION:
Insured A & B Inc. paid their annual premiums to their retail agent of record at the inception of a P & C policy providing Auto Liability and physical damage coverage for their trucking operation. 60 days into the policy period the insured received a notice of cancellation for non-payment of premium to the company. The insurance policy was taken out through an MGA (Managing General Agency by the retail agent of record and the retail agent of record failed to provide the MGA with the premium payment made by the insured. Subsequently, the retail agent of record filed chapter 13 bankruptcy and was taken over by the bankruptcy courts, who discovered the premiums were no where to be found.
In lieu of the retail agent of record not sending the MGA/Insurance company the premium payment made by the insured (Which was the payment in full), the MGA/Insurance company "Cancelled" the insured's coverage for non-payment and the insured was forced to take out another policy is basically "Out" a full years premium and having to pay another annual premium to a different insurance company, to allow them to operate legally with coverage in place.
Question 1: Does Georgia Insurance Law provide any statutory rights to the insured, by stating "Payment made to a retail agent of record constitutes payment made to the MGA/Insurance Company?
Question 2: What action should an insured take if they find themselves in this situation?
Thank you for your help and i look forward to hearing your input.
Sincerely
Tyler
ANSWER: Tyler;
You have described a situation that unfortunately, occurs all too often. I am not in the state of Georgia nor am I familiar with the insurance laws in the state but I do have some information to share. My guess is that payment received by the agent does NOT constitute "payment received". It MIGHT if the agent of record was an appointed agent of the carrier. However in this case, they are not. They had to access the carrier through the MGA. If the payment had reached the MGA, but was never forwarded on to the carrier, then the argument could potentially be made but in this case, the premium was essentially given to a middle man, a third party who has no contractual relationship with the carrier.
Some potentially good news is that the lost premium could possibly be recovered through the agent's E and O (Errors and Omissions) policy. Obviously the agent was in financial trouble so it's possible that they did not have an E and O policy in force. However, most state insurance departments require a policy be in force and may even require notification of a lapse in coverage in which case, they would require the agent cease and desist until a policy was in force. In either case, the state insurance department may very well have that information on file, which will allow A and B, Inc., to file a claim. Most E and O policies are "Claims Made", meaning, the policy that's in force when the Claim is Made, is the one that responds. Most other types of insurance are "occurrence" based, meaning, what ever carrier was in force when the claim Occurred, is the one that responds. With Claims Made policies, even when the business is no longer in existence, because claims can still arise (until a statute of limitations time frame is reached) Tail Coverage is usually purchased, it is generally less expensive than a normal E and O policy so there is the chance that the agent has Tail Coverage in force.
I hope this has been helpful. If there is anything additional I can answer for you, feel free to email me again. Good Luck.
Kristen
---------- FOLLOW-UP ----------
QUESTION: Thank you for your response. Very informative. The agency you referred to in your response did have an E & O policy in place, however the agency filed Chapter 13 bankruptcy and ultimately sold the "Assetts" of their firm to another agency. Being the other agency "Bought" A & B Inc.'s business (Revenue) from the agency which filed bankruptcy, could the insured have grounds to file a claim against the purchasing agent's E & O policy, given they acquired their account and then informed the insured they have to take out and pay for a new policy, depsite the insured already paid their premiums for an annual policy period?
Answer
Tyler;
The insured can absolutely file a claim with the purchasing agent's E and O policy. When a business is sold, regardless of what type, appliance store, flower shop, etc... the purchaser is buying the assets AND the liabilities. Secondly, if the first agent did have E and O in place, then a claim would be filed against the purchasing agent's E and O, and that carrier would in turn, subrogate against the other E and O Tail Coverage carrier. The result? A and B, Inc. gets their money back and the 2 E and O carriers can fight amongst themselves to determine who's responsible for what.
I will say, if the purchasing agent is the one that found the error in the first place, informed A and B, then wrote a new policy, I'm SHOCKED that the purchasing agent hasn't stepped up to the plate to try to remedy the situation for A and B. It's appalling actually. Also, consider what would happen, or still could happen, if a claim occurred during the time that A and B had no coverage in place?? Would the purchasing agent just say "oh well, sorry Charlie", NO, a claim would be filed against their E and O immediately, and still should be.
I hope I've been helpful. Feel free to email me again Tyler. Good luck!
Kristen
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