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July 2014 -- The E&O Report

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July 2014
Volume 26, Number 8

A Follow-Up to Questions Asked During
IIABNY's 2014 Annual E&O Loss Control Seminars

On June 11, 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 750 insurance agents and brokers attended the telecast seminar. Since 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 was submitted by an attendee in Valhalla. It dealt with the issue of whether brokers charging service fees must have the 2119 agreements signed for every renewal.

Question: You mentioned Insurance Law section 2119, which requires that we have customers sign a service fee agreement when we are acting as a broker and charging the customer a fee for our services. Are we required to get service fee agreements signed on every renewal?

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 issued March 17, 2003 by the Office of General Counsel of the New York State Insurance Department (now known as New York State Department of Financial Services) 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 from the Watertown location raised the issue of how to deal with customers’ text messages sent to agents and brokers.

Question: I have a few customers that send me text messages asking questions or requesting I do something for them. How should I handle text messages I receive from customers?

Many agencies and brokerages conduct a great deal of communication with insureds and insurers through e-mail. Very often, that e-mail communication is necessary to defend against an E&O claim or lawsuit. It is for this reason we suggest agencies and brokerages put 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, we recommend the following: if a producer or another employee of an agency or brokerage receives a text message, he or she 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 that the agency may take in connection with the message. By doing so, the agency will have the proof it needs to defend itself against a potential E&O claim or lawsuit that might arise as a result of the text message.

A question was raised by a number of attendees at several different locations as to the language that should be contained in a letter that customers should sign if insurance documents will be delivered in an electronic format and not on paper.

Question: During the seminar, you explained how we should have customers sign an acknowledgement form before sending insurance policies and other documents in an electronic format rather than on paper. Can you please provide a sample of the language that should be contained in the acknowledgement form customers should sign?

Agencies or brokerages delivering insurance policies or other insurance documents to customers in an electronic format and not on paper should have their customers first sign an acknowledgement that says something to the effect of the following:

Electronic Document Acknowledgement

This is to acknowledge that as of the date set forth below, I have requested that the ______ agency provide me with electronic copies of my insurance documents. In addition, I further acknowledge my understanding that until such time as I specifically request in writing to the agency that this procedure be changed and the agency acknowledges its receipt of that request, I will only receive electronic copies of my insurance documents and I will not receive any paper insurance documents.

Agreed to this ___ day of _____, 201__


(Name of the Insured)

The form’s actual language can be different than the above. However, the most important thing to remember is that every letter should specifically state that, from the point the Electronic Document Acknowledgement is signed by the customer, all insurance documents will be delivered in an electronic format only and no paper documents will be provided to the customer unless specifically requested by the customer.


The various questions raised during this year’s IIABNY’s telecast E&O Loss Control seminar indicate attendees are well-aware of the importance of using good loss control practices at their agencies and brokerages. In our experience, an agency or brokerage that is mindful of E&O loss control techniques can substantially reduce the likelihood it will become involved in a claim or lawsuit. 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 the annual Loss Control Seminar, agencies and brokerages will encourage E&O education and awareness for all their employees. Our experience has demonstrated that agencies and brokerage that regularly follow good E&O loss control practices can not only reduce the likelihood of a claim or lawsuit, but they can also provide increased customer service and sell more insurance in the process.

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 The law firm also maintains offices in Syracuse, New York; New York City, New York; Wilton, Connecticut; Fair Lawn, New Jersey; Warwick, Rhode Island and Philadelphia, Pennsylvania.

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