How to Navigate Client Requests to Bypass Coverage Exclusions

It happens more often than you'd think. You're sitting across from a client who's ready to buy a policy, and they say: "Can we just leave that off the application? I don't want that exclusion to kick in." Or perhaps: "Is there a way to word this so the underwriter won't catch it?" These requests often center on coverage exclusions and how far agents can go.

The pressure is real. You want to close the sale. You want to help. But what they're asking, whether they realize it or not, could cost you your license, expose you to an E&O claim, and even result in criminal charges.

This is the gray area where good intentions collide with professional ethics. Understanding exactly where the line is, and how to respond professionally is critical to protecting both yourself and your client.

What Clients Are Really Asking During the Application Process

When clients ask you to "find a way around" exclusions at the point of purchase, they typically want one of the following:

• Omitting information on the application - Suggesting you leave off details (prior claims, property conditions, health history) that might trigger exclusions or higher premiums
• Rewording application answers - Asking you to phrase responses in a way that avoids underwriting scrutiny
• Misrepresenting their situation - Wanting you to characterize their risk differently than reality
• Finding "loopholes" in policy language - Hoping you can structure the purchase to avoid standard exclusions

Each of these requests puts you in direct conflict with your legal and ethical obligations.

The Legal Reality: Why This Is Clearer Than You Think

The Unfair Trade Practices Act (UTPA), developed by the National Association of Insurance Commissioners and adopted in some form by nearly all states, explicitly prohibits insurance professionals from engaging in misrepresentation during the policy sales process.​

According to the NAIC Model Law 880, unfair trade practices in insurance include:

• Misrepresentations and false advertising of policies - Making any statement that misrepresents the benefits, advantages, conditions, or terms of any policy
• False statements and entries - Knowingly making false entries in any book, report, or statement, or omitting material facts
• Misrepresentation in insurance applications - Making false or fraudulent statements on or relative to an application for the purpose of obtaining a fee, commission, or other benefit

The penalties are substantial. According to state regulations based on the NAIC model, violations can result in fines up to $1,000 per violation, or up to $25,000 per violation if committed in conscious disregard of the Act. License suspension or revocation is also possible.​

Your Duty to Disclose: It's Non-Negotiable

Insurance agents have a fiduciary duty to act in the best interests of their clients, which includes full and honest disclosure of policy terms, limitations, and exclusions. Courts have consistently held that insurance contracts demand a very high degree of prudence, good faith, and disclosure from the agent.​

A recent Supreme Court ruling in India reinforced this principle internationally: exclusion clauses must be disclosed to insured individuals, failing which the insurer's right to rely on those exclusions may be taken away. While U.S. jurisdictions vary, the underlying principle holds - agents who fail to disclose exclusions expose themselves and their carriers to significant liability.​

The fiduciary duty requires agents to disclose all material knowledge and advise clients on specific insurance matters, even when not explicitly required to do so by the basic duty of care.​

Real-World Consequences: When Agents Cross the Line

Case Study 1:Agent's Misrepresentation Binds the Insurer

In a notable Massachusetts case, an insurance agent showed a client personal liability coverage for dog bites of $500,000, when the policy actually contained an endorsement limiting dog bite liability to $25,000. When a claim was later denied, the court reformed the policy based on the agent's representations, creating more than $250,000 in liability exposure the insurer never agreed to cover.

The court reasoned that both the agent and the insured were "mutually mistaken" about the policy's contents based on the agent's representations. The agent's employer faced the lawsuit, and the E&O claim became a regulatory nightmare.

The lesson: Agent misrepresentation at time of sale can legally bind the insurer, even when policy exclusions technically exist.

Case Study 2:Falsifying Records for Clients

In Iowa, an insurance agent was convicted for falsifying records to help clients qualify for coverage and receive discounts. The agent fabricated letters from other insurance companies to falsely suggest clients had no prior gaps in coverage, and created fake roofing invoices to enhance claim values.​

The agent's license was suspended, and he was charged with fraudulent sales practices and felony insurance fraud. He ultimately pleaded guilty to misdemeanor tampering with records and was sentenced to two years of probation.

Case Study 3:License Revocation for Misrepresentation

Five Tennessee insurance agents faced over $77,000 in fines and license revocations for violations including submitting false information on license applications, issuing misleading policy information, and recommending unsuitable policies. One agent had her license revoked and was fined for providing false information on her producer application when she was already named as a defendant in a civil suit alleging fraud.​

Where the Line Actually Is

This Is NOT Ethical:

• Telling a client, "Don't mention that on the application - it might trigger an exclusion"
• Helping a client reword application answers to avoid underwriting scrutiny
• Misrepresenting what a policy covers to close a sale
• Advising them to omit material facts (prior claims, health conditions, property issues) to avoid exclusions
• Altering or structuring false information on applications

Altering an insurance application for any reason is illegal and unethical. Common reasons agents have fraudulently altered applications include changing underwriting information so customers qualify for coverage or favorable rates - all of which violate state insurance laws.​

This IS Ethical:

• Being clear about exclusions upfront. If a policy excludes flood, say so explicitly. Have the client acknowledge it in writing.
• Offering alternative coverage. If Coverage A excludes X, help them find Coverage B that addresses their needs (if it exists and is appropriate).
• Explaining the gap. Walk them through what's not covered and why it matters for their specific situation.
• Recommending appropriate resources. If they need specialized advice about coverage structures, refer them to an attorney or specialist.
• Declining the business. If a client insists you bend the rules, it's okay, and often necessary to say no.
• Documenting everything. Keep records showing you disclosed exclusions, recommended coverage, and declined unethical requests.

The Right Conversation: What to Say When Asked

When a client asks you to "find a way around" an exclusion during the application process, here's how to respond professionally:

"I understand you want coverage for [specific risk], and I want to help you get there. But I can't omit information from the application or misrepresent your situation - that's misrepresentation, which violates state unfair trade practice laws and exposes both of us legally. Here's what I can do:​

1. Explore different carriers whose underwriting guidelines might be more favorable
2. Help you understand exactly what's excluded so you can make an informed decision
3. Refer you to a specialist if you need coverage that's outside what I can offer"

This approach protects you legally while demonstrating genuine concern for the client's needs.

Protecting Yourself: Documentation & Best Practices

Proper documentation is the backbone of compliance and your best defense against future claims.​

Do this now:

• Document all exclusion discussions during sales. Use email confirmations: "Per our call today, I've confirmed that your policy excludes X coverage."
• Use checklists. Before each sale, walk through major exclusions relevant to the client's situation and document the conversation.
• Get client acknowledgment. Have clients initial exclusion pages or acknowledge coverage limitations in writing.
• Train your team. Make sure every agent and CSR knows the specific unfair trade practices prohibited by state law and the difference between ethical problem-solving and misrepresentation.​
• Review your E&O policy. Understand what's covered if you're accused of misrepresentation. Common E&O policies exclude coverage for dishonest, intentional, or criminal acts, meaning if you knowingly misrepresent, you may not be covered.​
• Follow written procedures. Keep written documentation of conversations involving policy decisions with clients, including when they opt out of recommended coverage.
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Ethics Training: Your Best Defense

Staying current on ethics continuing education isn't just a regulatory requirement, it's your best protection against gray-area decisions.

California Insurance Code Section 1749.3 requires Property Broker-Agents, Casualty Broker-Agents, Life agents, and Accident and Health agents to complete three hours of ethics training during their two-year license term.​

New York's continuing education requirements mandate 15 credit hours, including at least one hour of ethics and professionalism instruction. Washington State requires 24 credit hours, with three hours specifically in ethics. Utah requires 24 hours with 3 in ethics training.​

These requirements exist for a reason, ethics training helps you recognize and navigate exactly these types of situations before they become problems.

The Bottom Line

Coverage exclusions exist for a reason - they're part of the underwriting decision that allows the insurer to price risk appropriately. Trying to circumvent them at the point of purchase isn't creative problem-solving. It's fraud. And it doesn't just hurt the insurer - it ultimately hurts your client too.

When a claim is denied because the application contained misrepresentations, your client loses trust. They may sue you. Your license is on the line. Your career can end.

The ethical agents, the ones who stay in business and sleep at night, are the ones who clearly explain what's covered, are honest about what isn't, and help clients find legitimate solutions to their coverage needs.

That's not a limitation. That's professionalism.

Are you an insurance professional who needs to complete your insurance continuing education but doesn’t have the time? FastrackCE can help you get all your life and health and property and casualty continuing education credits done in one place and at your convenience. We offer online insurance continuing education courses in most states, covering a broad range of topics including most of the state-mandated courses such as ethics, flood, long-term care, and annuity training.