Avoiding Surety E & O Claims – Part 3

By:         Jack Anderson, President of Goldleaf Surety

Common Surety Handling Misstep No. 6:

Failure to Adhere to Conditions & Exclusions of Line of Authority.  In instances where a surety has extended a line of authority to an agent and the agent has issued a bond that falls outside the line of authority, the agent will be held accountable for any loss a surety experiences as a result of the agency mishandling its authority.

Ways to Avoid Surety E&O Claim:  Train all associates on specific criteria granted by bond lines of authority.  When a line of authority is given by a surety company, it gives the agent authority to issue bonds that fall within the scope of the line.  Verifying that the project meets each and every item on the bond line of authority is critical.  Don’t focus solely on single bond size and aggregate limits under the line.  You need to know and understand the other conditions and exclusions before issuing a bond under the line.

Common Surety Handling Misstep No. 7:

Failure to Provide Timely Information to the Surety.  An agent is responsible for communicating all information to the surety that is relevant to the surety’s decision to authorize a bond.  The surety may have recourse against the agent for information that is omitted if that information would have been material to a surety company’s ability to avoid a claim situation.

Ways to Avoid Surety E&O Claim:  Deliver all relevant information to the surety in a timely manner.  Create a policy that calls for providing all known information to the surety that may impact their decisions for both bond approval and the handling of a claim.   This requirement is included in the agency agreement that is signed with the surety and honoring it is critical to maintaining the relationship with the companies with whom you do business.

Over the past several blogs, we have discussed only a few examples of situations that create E&O exposure for agents.  By implementing internal risk management policies and standardized procedures, and addressing proper steps and expectations for associates who handle bonds for your clients, you can significantly mitigate your E&O risk.