On June 10, IIABNY’s annual errors and omissions telecast seminar was presented live from Hudson Valley Community College in Troy and transmitted to 14 remote locations across New York State. This year, approximately 700 insurance agents and brokers attended the telecast seminar. Inasmuch as we were unable to answer all the questions submitted during the seminar, we devote this issue of The E&O Report to respond to some of the unanswered questions we received.

A question submitted by an attendee asked the following:

Question: Can an insurance agency use a credit card to pay insurance premiums to an insurance company? 

This question was addressed by the New York Department of Financial Services in an Office of General Counsel Opinion issued Jan. 13, 2003. In that opinion, the NYDFS said as follows.

Where an insured pays its premium to an insurance broker, who deposits the payment into its premium trust account, the broker may forward the premium payment to the insurer by credit card where such credit card is used only for the purpose of paying insureds’ premiums and if the insurer has agreed to accept payment of premiums by credit card. After the premium is transmitted to the insurer by the credit card company, the insurance broker may withdraw the deposited funds from the premium account to pay the credit card bill, the charge for which is attributable solely to the premium payment forwarded to the insurer. Such withdrawal should be clearly accounted for as being in connection with the premium payment. However, the insurance broker may not write a check on the premium trust account made payable directly to the credit card company. Therefore, in order for the insurance broker to pay the credit card company by check, the insurance broker will have to deposit the withdrawn funds into its own operating account, and then write a check to the credit card company on that operating account.

Another question submitted by an attendee asked the following:

Question: I have a number of customers that I communicate with by text messages. How should I handle these text messages?

A great deal of communication between agencies and brokerage and their insureds and insurers is through e-mail. E-mail communication is very often necessary to defend against an E&O claim or lawsuit. It is for this reason we suggest agencies and brokerages have a procedure in effect whereby employees save all e-mails pertaining in any way to coverage or claims. Text messages are also increasing in popularity as a way for agents and brokers to communicate with their customers. Text messages present a different issue since they are not easily printed or saved to a customer’s electronic file within the agency management system. Accordingly, one recommendation we have concerning text messages is as follows: if a producer or another employee of an agency or brokerage receives a text message, they should create a corresponding note or activity within the agency management system to document receipt of that text message. The note or activity should contain the language of the text massage as well as any action the agency may take in connection with the message. Another way to deal with a text message is to email a copy of the message to yourself and then save that email in the customer file within the agency management system. By doing so, the agency will have the proof it needs to defend against a potential E&O claim or lawsuit that might arise as a result of the text message.

Another question submitted by an attendee asked the following:

Question: What should we do if we have companies that only send us electronic copies of insurance policies but a customer is not willing to accept anything except a paper copy of their insurance policy?

This question was addressed by the NYDFS in an Office of General Counsel Opinion issued Aug. 7, 2009. In that opinion, the NYDFS said as follows.

If delivery an insurance policy is required, the insurer, as the party in privity with the insured, is obligated to deliver the policy to the insured. However, nothing in the New York insurance law or regulations prohibit the insurance company from delegating to an insurance agent or broker the task of delivering the policy to the insured. But, even if the insurer sends the insurance policy to the insurance producer electronically, the insurance producer may not electronically forward the insurance policy to the customer unless the insured first consents to receive the policy in that format. If the insured refuses to accept the policy electronically, the insurance producer must provide the insured with a paper copy of the policy.

Another question submitted by an attendee asked the following:

Question: You mentioned the new certificate of insurance law that will take effect in July. Can you give some more information about what certificate forms we will be allowed to use once the new law takes effect?

Article 5 of the New York Insurance Law takes effect July 28. This new law will make it illegal for anyone to request that a certificate of insurance be issued that includes language not contained in the insurance policy. Pursuant to the new law, the only acceptable forms agents and brokers should use when issuing certificates of insurance are as follows: (1) a form issued by the insurer providing the coverage; (2) a standard certificate form issued by an insurance industry standard-setting organization (such as ISO or ACORD) and approved by the NYDFS; or (3) any other form approved by the NYDFS. Under the law, certificate forms created by the insurance company issuing the policy do not need to be approved by the NYDFS. All other forms, however, must be approved by the NYDFS before they are used by agencies and brokerages. The NYDFS will be posting a list of approved certificate forms on its website​. The list of approved certificate forms will be available starting July 28 and will thereafter be updated as additional forms are approved by the department.

Conclusion

The various questions raised during this year’s IIABNY’s telecast E&O Loss Control seminar indicate attendees are aware of the importance of using good E&O Loss Control practices in their agencies and brokerages. In our experience, an agency or brokerage mindful of loss control techniques can substantially reduce the likelihood it will become involved in an E&O claim or lawsuit. Statistics show New York insurance agents and brokers attending the IIABNY annual E&O seminars are 39 percent less likely to face an E&O claim or lawsuit than those that don’t attend.

As we have said over the years, one of the most effective ways to promote E&O loss control is through education. Therefore, it is our hope that, in addition to attending IIABNY’s annual seminars, agencies and brokerages will encourage E&O education and awareness for all their employees. Our experience demonstrates agencies and brokerages that regularly follow good E&O loss control practices can not only reduce the likelihood of a claim or lawsuit, they can also provide increased customer service. And, at the same time, they can sell more insurance in the process.

Submitted by
James C. Keidel​, Esq.
Keidel, Weldon & Cunningham, LLP