E&O Communique - A publication of the Utica National Insurance Group How long do I keep my records?

by Curtis M. Pearsall, CPCU, CPIA
Special Consultant to the Utica National E&O Program

This is a common question. Unfortunately there is no easy answer. A "rule of thumb" calls for a seven year retention, but each state has its own requirements. There are also requirements set out by state insurance departments, insurance carriers, unfair trade and claim practices acts and tax record requirements.

Utica National recommends that agents obtain record retention information from a number of sources, including their attorneys and accountants, insurance departments and carriers. Record retention should also be tailored to the agency lines of business as well as the applicable law.

From an E&O perspective, there is no doubt that records retention is important in making evidence available for an agent’s defense. The documentation supports agency testimony regarding the conversations and transactions involved. Lack of records may be interpreted by a jury as an effort to withhold or conceal unfavorable information. As you will note by the following E&O claim, records retention not only applies to agency information but also information provided by your customers.

The claim against the agency was for failure to renew a client’s fire policy. The clients had been customers of the agency since 1989. A renewal quote for a rental property was sent to the client in January of 1997 but was returned to the agency office on 1-13-97, due to an improper address. Upon discovery of the error, the agency sent a corrected notification that same date instructing the client to make full payment of premium on or before 1-17-97. A fire loss occurred on 2-4-97 but the premium payment was not received by the agency until 2-6-97, showing a postmark of 2-5-97 indicating the client had sent payment the day after the fire occurred.

As with most E&O claims, we look to provide guidance on how they could be avoided. This claim was probably not an avoidable claim. Although the agent had made an initial error in the addressing of the renewal notification, the error was corrected and sufficient time given to the client to submit the premium for the renewal policy. Coverage was through a Fair Plan where the agent did not have authority to issue a binder. It was the client’s delay in transmittal of premium that resulted in a fire policy not being in force on the date of loss.

The defense of the claim was made possible by the agency’s accurate documentation of the situation including the retention of the postmarked envelope from the client, copies of all correspondence and the premium payment checks.

There have been other cases dealing with liability policies – particularly old "occurrence" policies. If there is a claim and the old "occurrence" policy can't be found, there may be questions on how the policy was written and whether it would cover a particular claim. This certainly has the potential for a court battle. As noted insurance expert Ron Anderson has stated, "While lawsuits can be won by insureds without producing the actual policy, the availability of a policy can reduce the costs of and, in many cases, eliminate the need for a lawsuit." Good agency practice is to suggest that clients retain at least their liability policies forever.

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