| July 2013 |
Volume 25, Number 7 |
A Follow-Up to Questions Asked During the Annual E&O Telecast Seminar
On June 12, IIABNY’s annual Errors and Omissions Loss Control telecast seminar was presented live from Hudson Valley Community College and transmitted to 13 remote locations across New York State. This year, approximately 850 insurance agents and brokers attended the telecast seminar. Since we were unable to answer all the questions submitted during the seminar, we will devote this issue of The E&O Report to responding to some of the unanswered questions. A question was raised by an attendee at the Binghamton location concerning the use of insurance coverage checklists. Question: You mentioned the various benefits of using insurance coverage checklists when discussing coverage options with customers. We have checklists for both personal lines and commercial lines but they are not used by everyone at the agency. There are some people in the agency who use insurance coverage checklists and there are others who so not. Can you explain when and how you recommend that insurance coverage checklists are used?
Insurance coverage checklists are a very effective form of documentation that may be helpful when an agency or brokerage is defending against an E&O claim or lawsuit in those situations where an insured claims that a certain type or amount of insurance coverage was never discussed or reviewed. If an agency or brokerage is using coverage checklists, they should make certain that the checklists that are being used are the same throughout the agency or brokerage. In other words, one standard checklist should be used. In addition, the agency or brokerage should make certain that the checklists are being used consistently by all employees who are discussing or reviewing insurance coverage options with insureds and prospective insureds. A question from the Buffalo location raised the issue of how to deal with text messages that are sent to agents and brokers by customers. Question: During the seminar, you explained how we should deal with e-mails that customers send to us, but how should we deal with text messages that are sent to us by customers. I have a few customers that send me text messages on my cell phone asking me questions or asking that I do something for them. How should I handle text messages that are sent to me?
Text messages are not any different than e-mail and should be treated the same way. Like e-mail, text messages should be saved by attaching them to a customer file in the agency management system. There are several ways to accomplish this task, and it depends on the type of mobile device you are using. On some phones and mobile devices, there is a screen shot function that allows you to take a picture of the screen with the text messages. You can e-mail that screen shot to yourself. On other phones and devices, there is an edit function that allows you to select the individual text messages to be copied and attached to an e-mail message, which you can then send to yourself. Once you receive the e-mail with the text messages attached, you can save it in the agency management system. If you are using text messages to communicate with customers or insurers, you should be sure to familiarize yourself with how those messages can be saved using your particular mobile device. A question was submitted by an attendee in Westchester County addressing the issue of whether brokers charging service fees must have the 2119 agreements signed every renewal. Question: you discussed Insurance Law Section 2119 which requires that we have insureds sign a service fee agreement if we are acting as brokers and are charging the insured a fee for our services. Are we required to get service fee agreements signed on every renewal, or can we have them signed just when the initial policy is placed?
Service fee agreements can be drafted to cover policy renewals, but in order to comply with Insurance Law Section 2119 the agreements must meet certain criteria. An opinion by the New York Department of Financial Services Office of General Counsel issued March 17, 2003 addresses when service fee agreements may cover renewals. It states the following: While a properly drafted multi-year service fee memorandum is permissible under Insurance Law section 2119, the memorandum must relate to on-going services of the broker and specify or clearly define the amount or extent of the compensation. In addition, the agreement must also clearly indicate that the agreement continues upon renewals. Furthermore, service fee agreements that cover multiple years should not bind the insured in perpetuity without allowing the insured to cancel each year prior to the services being provided by the insurance broker. A question submitted by an agent attending the seminar in Suffolk County concerned how long an agency should retain both paper and electronic documents. Question: During the seminar you mentioned that because of the statutes of limitations for claims against insurance agents and brokers in New York, documents should be retained for a period of at least seven years. Does this rule apply to both paper documents and electronic documents?
In 2001 the Court of Appeals decided the case of Chase Scientific Research, Inc. v. NIA Group, Inc., 96 N.Y. 2d 20 (2001). In that case, the court ruled that the statute of limitations of up to six years applied to claims against insurance agents and brokers. Because New York law provides that an insured has up to six years from the time when an error or omission occurs in order to commence legal action against an agency or brokerage, we always recommend that every agency or brokerage retain all documents for a period of at least seven years or even longer if possible. Because documents can take various forms, the prudent insurance agency or brokerage should be certain that, in addition to retaining all paper documents, it should also retain all electronic documents (e-mail, scanned documents, activities and notes in the agency management system, etc.) for the same period of seven years, or even longer. When discussing insurance-related documents, it is important for every agency or brokerage, no matter what its size, to be sure to have established document retention procedures that clearly set forth the time period that documents will be retained before ultimately destroyed. Such procedures should also require that documents being disposed should be destroyed by shredding to help ensure that confidential information is protected.
While it is not necessary that the agency or brokerage have written document retention practices, it is the better practice to have such procedures in writing. This will help the agency or brokerage show that the procedures do, in fact, exist if they are questioned in any way. Document retention procedures should be both well defined and consistently followed by the agency or brokerage. Doing so will help ensure that the necessary documents are available in the event they are needed in order to defend against an E&O claim or lawsuit.
In Conclusion
The numerous questions raised at this year’s telecast seminar demonstrate to us that the attendees are well-aware of the importance of thinking about and following good E&O loss control practices. In our experience, an agency or brokerage that regularly follows good loss control practices can substantially reduce the likelihood that it will become involved in an E&O claim or lawsuit. Accordingly, it is our hope that every seminar attendee will continue to think about, implement and consistently follow sound E&O loss control practices.
Submitted by:
James C. Keidel, Esq.
Keidel, Weldon & Cunningham, LLP
Keidel, Weldon & Cunningham, LLP concentrates its practice in the defense of insurance agents and broker’s errors and omissions claims and litigation, errors and omissions loss control counsel and education, insurance coverage analysis and litigation and insurance regulatory matters. Please direct any comments or questions to James C. Keidel, Esq. by mail to the main office of Keidel, Weldon & Cunningham, LLP, at 925 Westchester Avenue, Suite 400, White Plains, NY 10604, telephone at (914) 948-7000 or e-mail at jkeidel@kwcllp.com. The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Bayonne, New Jersey; Warwick, Rhode Island and Philadelphia, Pennsylvania. |
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