Tales From The Trenches – Health Agent Stretches the Rules and It Snapped Back!

Tales From The Trenches – Health Agent Stretches the Rules and It Snapped Back!

The Scenario

A health insurance agent tried to help their client find more affordable health insurance by maneuvering the employees between two firms to qualify as small groups with a very bad result.

The Facts

The Agent recommended that their client move some of its employees from a primary entity over to another related entity so that they could save on health insurance costs and be treated as a small group plan.  However, after the group health plan became effective, the health insurance carrier took issue with the arrangement, arguing that the firm materially misrepresented the size of their group by not providing accurate information on their application or census.  The firm had to enter into settlement discussions with the insurer and pay over $2.4 million in exchange for the insurer’s commitment to reverse its decision to rescind and pay all covered employee claims.

The Outcome

The Agent was involved and his E&O insurer paid $575,000 to resolve the matter between him and his client with an additional $20,000 in defense costs.  All things considered, this was a successful resolution of a very large problem.

How to Avoid This Claim

Follow the rules and professional codes of conduct.  As agents and brokers, we owe all parties a duty of truth and fidelity.  The insurance industry is built on integrity and faith.  If a client is ever-pressing you beyond those guideposts, it is a client you don’t need.