During the past few years, we have seen an increase in the number of non-party subpoenas that are being served on New York insurance agencies and brokerages. Very often, how a subpoena is handled can mean the difference between it developing into an E&O lawsuit, or not. Accordingly, in this issue of The E&O Report we will review some of the issues for agencies and brokerages to keep in mind regarding non-party subpoenas and also provide guidance as to how those subpoenas should be handled when they are received.
As we have said many times over the years, any agency or brokerage that receives a subpoena should always proceed with caution. Even though the caption of the lawsuit listed on the subpoena does not list the name 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 a party. In our experience, attorneys often serve subpoenas on insurance agencies and brokerages to try and obtain documents or testimony that may help support a claim against the agency or brokerage. For this reason, we suggest that every agency or brokerage should have procedures in effect as to exactly how any non-party subpoena it receives should be handled.
First and foremost, always keep in mind that any business or individual that receives a subpoena is legally obligated to respond to that subpoena, or it runs the risk of being held in contempt of court. This is true, even if the subpoena is somehow improper or defective; even a legally defective subpoena cannot simply be ignored. For this reason, we always suggest that an attorney be involved to assist the agency or brokerage in responding to any subpoena that it receives. Often, a subpoena is defective because it fails to comply with the statutory requirements for service, or it requests information that is beyond the scope of what is permissible to ask for. If any agency or brokerage responds to a subpoena 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 legally required to be disclose pursuant to New York law. In fact, responding to a defective or improper subpoena may also result in an agency or brokerage disclosing information that may be protected by New York Insurance Regulations or State or Federal privacy laws.
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 good practice for every agency or brokerage to review the language contained in its E&O policy related to claims/potential claims and subpoenas so that it understands the policy terms and provisions. Our recommendation has always been that when an agency or brokerage receives a subpoena it should immediately advise its E&O insurer. For example, the language contained in the Current Swiss Re E&O policy, issued 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 has failed to report a claim as required by the terms of its E&O policy. This failure to provide notice to the professional liability insurer could potentially result in a disclaimer of coverage by the E&O insurer for any claim or lawsuit that may be brought against the agency or brokerage 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 some E&O policies provide coverage to help assist the agency or brokerage in complying with the subpoena. As an example, the current Swiss Re E&O policy issued through IAAC provides subpoena coverage of $10,000 per policy year to have counsel assigned to assist the agency or brokerage in responding to subpoenas. This $10,000 in subpoena coverage is not subject to a deductible. In our experience, an agency or brokerage that has an attorney involved in responding to a subpoena is less likely to become involved in litigation related to the subject of the subpoena. This is the reason why some E&O insurers provide subpoena coverage to the insurance agencies and brokerages insured by their policies.
Every insurance agency or brokerage should make certain that it has established procedures in effect concerning how it will deal with any subpoena that it receives, and that the procedures are known, and followed, by all employees. As part of those procedures, there should be a method for notifying the E&O insurer for the agency or brokerage about the subpoena received. If, after being notified about the subpoena, the E&O insurer declines to assign counsel to assist it in responding to the subpoena, the agency or brokerage should then consider whether it may be best for it to retain counsel on its own to assist it in responding to the subpoena. By following these steps, an insurance agency or brokerage will be in a better position to help avoid becoming a party to the litigation related to the subpoena.
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; Fair Lawn, New Jersey; Warwick, Rhode Island, Philadelphia, Pennsylvania, Williston, Vermont and Naples, Florida.