If you ever attended an errors and omission seminar presented by Keidel, Weldon & Cunningham, LLP, you might have heard us mention what you should do if your agency or brokerage is served with a non-party subpoena. Over the past few years, we have seen an increase in the number of non-party subpoenas served on New York insurance agents and brokers. How those subpoenas are handled can mean the difference between whether or not ​they develop into E&O lawsuits. In this issue of The E&O Report, we will review some of the issues associated with subpoenas and provide guidance as to how those subpoenas should be handled when received.

As we have said many times during the years, any agency or brokerage receiving a subpoena should proceed with caution. Though the caption on the subpoena does not list the agency or brokerage as a party to the litigation, the fact remains that a legal proceeding is pending and it is not difficult for the lawsuit to be amended to add the agency or brokerage as a party. In our experience, attorneys will often serve subpoenas in order to try and obtain documents or testimony that could help support a claim against the agency or brokerage. For this reason, we suggest every agency or brokerage should have procedures in effect as to exactly what must be done if it receives a non-party subpoena.

An agency or brokerage that receives a subpoena is legally obligated to comply with that subpoena, or it runs the risk of possibly being held in contempt of court, even if the subpoena is somehow defective. A subpoena cannot simply be ignored or disregarded. For this reason, we always suggest that an attorney be involved to assist the agency or brokerage in responding to any subpoena received. Often, a subpoena is defective because it fails to comply with the statutory requirements for service, or it requests information that is beyond what is permissible. If any agency or brokerage responds without the assistance of counsel, it is possible that it will be complying with an improper subpoena and, thus, disclosing information that it is not required to be disclosed pursuant to New York law. In fact, responding to a defective or improper subpoena may result in an agency or brokerage disclosing information that may be protected by New York Insurance Regulations or State or Federal laws. Therefore, an agency or brokerage that responds to a defective or improper subpoena puts itself at risk of facing a possible E&O claim, lawsuit or possible regulatory action.

Many E&O policies contain language that defines a “claim” or “potential claim” against the agency or brokerage as including the receipt of a subpoena. For this reason, it is a good practice for every agency or brokerage to review the language contained in its E&O policy related to subpoenas so that it understands the policy terms and provisions related thereto. Our recommendation has always been that when an agency or brokerage receives a subpoena it should immediately advise its E&O insurer of the subpoena. For example, the language contained in the Westport Insurance Company E&O policy, issued to IIABNY members through IAAC, defines a claim as including the receipt of “a summons, a subpoena, or any other notice of legal process.” As such, an agency or brokerage that receives a subpoena and responds to it on its own without notifying its E&O insurer runs the risk that it failed to report a claim in compliance with the terms of its E&O policy. This failure to provide notice to the insurer could potentially result in a disclaimer of coverage by the E&O insurer for any claim or lawsuit that may arise in connection with it.

An additional reason why an insurance agency or brokerage should advise its E&O insurer of a subpoena that it receives is because many E&O policies provide coverage to help assist the agency or brokerage in complying with the subpoena. As an example, the current Westport E&O policy provides subpoena coverage of $10,000 per policy year, which is not subject to a deductible, to have counsel assigned to help the agency or brokerage respond to subpoenas. In our experience, an agency or brokerage with an attorney involved in responding to a subpoena is less likely to be dragged into litigation. It is for this reason E&O insurers provide this type of subpoena coverage.

Every insurance agency or brokerage should make certain that it has an established procedure in effect concerning how it will deal with any subpoena it receives. It should also ensure the procedure is known and followed by all employees. As part of that procedure, there should be a method for notifying the E&O insurer for the agency or brokerage about a subpoena it receives. If, after being notified about the subpoena, the E&O insurer declines to assign counsel to assist in responding to the subpoena, the agency or brokerage should then consider whether it may be best to retain counsel on its own. By following these steps, the prudent insurance agency or brokerage will be in a better position to avoid becoming a party to litigation related to a subpoena it receives.