On June 6^th, the Big I NY annual Errors and Omissions telecast seminar was presented live from Hudson Valley Community College in Troy and transmitted to 6 remote locations across New York State; the telecast seminar was also transmitted via the internet for agents and brokers to watch on their computers. This year, over 600 insurance agents and brokers took part. During the telecast seminar, we received an exceptionally large number of questions from the attendees. Since we were unable to answer all of the questions submitted during the telecast seminar, we devoted the July issue of The E&O Report to respond to some of the unanswered questions we received. Due to the large volume of questions, we will also answer some in this August issue of The E&O Report. ​

A question submitted by an attendee asked the following:

Question: You stated that because of the statutes of limitations for claims against insurance agents and brokers in New York, documents should be kept for at least seven years. Does this rule apply the same to both paper and electronic documents or is it different for each? 

In 2001, the New York Court of Appeals decided the Chase^[1] case, in which it stated that the statutes of limitations for claims to be made against insurance agents and brokers in connection with an insurance transaction could be up to six years. Because New York law provides that an insured has up to six years from the time that an error or omission occurs to commence an E&O lawsuit against their insurance agent or broker, we always recommend that an insurance agency or brokerage retain its file materials for a period of at least seven years. Since documentation can take various forms, the agency or brokerage should be certain that in addition to retaining paper documents, it also retains all of its electronic customer documentation (emails, scanned documents, activities and notes in the agency management system, etc.) for the same period of time. 

Another question submitted by an attendee asked the following:

Question: During the seminar you said that insurance agencies should be using coverage checklists. We have a few different checklists that are used by some people at the agency, but there are others at the agency that do not use them. Can you please explain what is the best practice to be followed for using insurance coverage checklists?

Insurance coverage checklists, when used consistently by insurance agencies and brokerages, can offer many benefits. First, checklists are a highly effective form of documentation that may be helpful when an insurance agency or brokerage needs to defend against a customer claim that a certain type of coverage was never discussed or reviewed. If an insurance agency or brokerage is using checklists, the best practice is to make certain that the same checklists are being used throughout the agency and they are also being used consistently by everyone, when discussing insurance coverages with both existing and potential customers. Second, we have been told by many insurance agencies and brokerages that when checklists are regularly used by employees when discussing coverages, additional insurance is often sold. Checklists provide the opportunity for customers to think about coverages and exposures that they may not have originally contemplated. Third, the consistent use of coverage checklists by all agency personnel increases the level of customer service that is provided.

As we stated during the annual E&O seminars, any insurance coverage checklist that is used by an insurance agency or brokerage should have a catchall question at the end asking the customer if there is anything else for which they would like to review potential coverage, in addition to coverages already discussed. Having this question on the checklist puts the burden on the customer to bring to the attention of the agency or brokerage anything else that may not have been reviewed in connection with the checklist.       

Another question submitted by an attendee asked the following:

Question: You talked about the duty of care for insurance agents in New York and mentioned that there are several situations where there may be an increased duty of care. Can you please briefly explain those situations again?

In the Murphy^[2] case, the Court of Appeals defined the duties and obligations for New York insurance agents and brokers. In Murphy, the court stated that insurance agents have a duty to obtain the insurance coverage specifically requested by a customer within a reasonable period of time or advise of the inability to do so. The court further stated, however, that absent a special relationship, there is no duty to advise, guide, or direct a customer to obtain additional insurance coverage. With respect to how a special relationship arises, the Court of Appeals stated in its decision that a special relationship could possibly be found to exist based upon the following circumstances:

1. The insurance agent receives compensation for consultation apart from the payment of commission;         
2. There was an interaction regarding a question of coverage and the customer relied upon the expertise of the agent; and    
3. There is a course of dealing over an extended period of time that would have put objectively reasonable insurance agents on notice that their advice was being sought and specifically relied upon.  
   
   

Conclusion

We received so many great questions from the attendees at this year's Big I NY annual E&O seminars. The number and type of questions we received makes it clear that the attendees are aware of the importance of using good E&O Loss Control practices in their agencies and brokerages, and they are thinking about how to avoid potential problems from occurring. In our experience, the prudent insurance agency or brokerage is one that consistently practices good E&O Loss Control techniques. Doing so may help reduce the likelihood of becoming involved in an E&O claim or lawsuit.

Submitted by:

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

[1] See, Chase Scientific Research, Inc. v. NIA Group, Inc., 96 N.Y.2d 20 (2001)

[2] See, Murphy v. Kuhn, 90 N.Y.2d 266, 660 N.Y.S.2d 371 (1997)​