Question: You mentioned Insurance Law section 2119 requires that we have customers sign a service fee agreement when we are acting as a broker and we are charging the customer a service fee. Are we required to get service fee agreements signed on every renewal or can we have a customer sign a multi-year agreement?

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. The New York Department of Financial Services issued Office of General Counsel opinion No. 03-03-10, on March 17, 2003, which addressed the issue of when service fee agreements may cover renewals. The OGC opinion states the following: While a properly drafted multi-year service fee memorandum is permissible under Insurance Law section 2119, the memorandum must relate to ongoing 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 was submitted by an attendee at the Syracuse location asking the following:

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 apply the same to both paper documents and electronic documents? Or, is it different depending on what types of format the documents are in?

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 the Chase case, the Court of Appeals 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 agencies and brokerages retain all documentation for a period of at least seven years, or longer if possible. Because documentation can take various forms, insurance agencies and brokerages should be certain that, in addition to retaining all paper documents, they should retain all electronic documents (emails, scanned documents, activities and notes in the agency management system, etc.) for the same period of seven years or longer. Following these guidelines will help ensure that the necessary documentation is available in the event it is needed in order to defend against an E&O claim or lawsuit.

A question was submitted by an attendee at the Troy location asking the following:

Question: We have some insurance companies that only send us electronic copies of insurance policies and not paper copies, but some customers are not willing to accept anything except a paper copy of their insurance policy. What should we do in this situation?

This question was addressed by the New York Department of Financial Services in Office General Counsel Opinion no. 09-08-04 issued on August 7, 2009. In that opinion, the NYDFS said as follows: If delivery of an insurance policy is required, the insurer, as the party that is 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 insured must be provided with a paper copy of the policy.

A question was submitted by an attendee at the Watertown location asking the following:

Question: You discussed the fact that under the new certificate of insurance law, only certain certificate forms can be used. Can you please explain this a bit more?

On July 28, 2015, the New York Insurance Law was changed relating to the issuance of certificates of insurance. This change made it illegal for anyone to require a certificate of insurance be issued that includes language not contained in the insurance policy. Pursuant to the new law, the only certificate of insurance forms that certificate requesters may require 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 that issued the insurance policy do not require NYDFS approval. All other forms, however, must be approved by the NYDFS. The law prohibits a person or governmental entity from requiring, as a condition of awarding a contract for work, or if a contract has already been awarded as a condition for work to commence or continue under the contract, or if the contract has been performed or partially performed as a condition for payment to be made under the contract, a certificate of insurance if it is not one of these forms. The NYDFS posts on its website a list of certificate forms it has approved for use. As additional forms are approved by the Department, the website is update to reflect the approval.    

Conclusion

The many questions that were asked during this year’s telecast E&O Loss Control seminar demonstrate attendees are aware of the importance of following good E&O Loss Control practices in their agencies and brokerages. In our experience, an agency or brokerage that regularly practices good E&O Loss Control techniques may substantially reduce the likelihood that it will become involved in an E&O claim or lawsuit. Statistics show New York insurance agents and brokers that attend the IIABNY annual E&O seminars are 39% less likely to have an E&O claim or lawsuit than those that do not attend the seminars. As we have said over the years, one of the most effective ways to promote E&O loss control is through education.

In addition to attending IIABNY’s annual Loss Control Seminars, agencies and brokerages should continue to stress the importance of E&O education among their employees. We regularly see that the prudent insurance agencies and brokerages that consistently follow good E&O loss control practices reduce the likelihood of becoming involved in an E&O claim or lawsuit. At the same time, they are increasing customer service and selling more insurance in the process.​

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