MUSINGS ON JUMPING THE GUN
Jumping the Gun
MUSINGS ON JUMPING THE GUN
Disclosure Statement “Acceptance.”
A situation the other day reminded me of a pet peeve regarding disclosure statements. It is common industry protocol to send out an email “accepting” the disclosure material as soon as it is provided. This practice implies much more than it should.
The MGU/Carrier has not accepted anything, except the package (or email attachment) with the Disclosure Statement and accompanying reports. Rather, they have received it. One dictionary definition of “acceptance” is “the action or process of being received as adequate or suitable, typically to be admitted into a group.” Another is “favorable reception; approval.” Thus, industry custom misleads, for there is still the process of review, final underwriting and approval to be done before the policy is issued.
I suggest that, instead of “accepting” the disclosure materials upon receiving them, the MGU/Carrier simply acknowledges receipt of them, or, if they are for some reason compelled to “accept” them, that they do so “subject to our review.” If a jury hears “they accepted it!” that may be all it takes to cure any misrepresentations or omissions in the materials.
A simple point, and one even simpler to implement as a best practice.
MGUS and Carriers Beware: The Devil Comes Calling.
The temptation for a TPA or broker to ask is often irresistible, as is the temptation for an MGU or a Carrier to give the Devil his due. I’m referring to 1st Commandment here: Thou Shalt Not Tell a Group’s Agent What You Think of a Claim in Advance of it Being Paid.
I’ve written much on this point, but it bears repeating. It is NOT OK to tell a group’s agent, no matter how close or longstanding or valuable the relationship may be, your opinion on a claim that has not yet been paid by the group.
Why? Because you expose yourself to potential fiduciary liability for participating in the management of plan assets, or tortiously interfering with the fiduciary relationship between the plan fiduciaries and their beneficiaries. The plan management must decide on their own whether or not a particular claim should be paid, and injecting information into that decision a calculation as to whether the stop loss carrier may or not reimburse for the claim if paid is flatly impermissible under the law.
No more “off the record” conversations about a claim before it is paid by the plan (“off the record works, sometimes, in journalistic circles, but not in law). I’ve counseled before about changing the conversation to “well, if we got a claim like this, we would certainly be looking at XYZ, etc.” This is likely OK, but skates very close to the impermissible edge. In short, know clearly what you cannot do—hint at the probable outcome of the stop loss claim—and make very careful decisions about what you do say.
In fact, there should never be an indication given of the probable outcome of a claim before that claim has been formally received. A premature communication of “we see no problem” could well be held in court to be a representation or create an estoppel situation if, once the paperwork comes in, there are valid reasons to deny.
The Devil will always want to jump the gun. Don’t be tempted.
Those Pesky Binders
A binder obligates the carrier just as if the policy itself had been issued, subject to any contingencies set forth in the binder itself (maybe not just in the cover letter). Particularly in end-of-policy-year deals, the binder will state that it is subject to review of disclosure information which has yet to arrive, or which has already arrived but has not yet been reviewed.
This does not mean that that the MGU/Carrier can take an unreasonable amount of time in to issue the final policy. In such cases, at least one court has held that the carrier loses its rights to object to the adequacy of the disclosure information. So, in this situation, it is a good idea to be prompt, as just what is “unreasonable” under the circumstances may be subject to debate.
Also, the binder lacks many specifics that are contained in the yet-to-be-issued policy. For example, various policy exclusions are typically lacking. This is another reason to be timely.
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