Agents' Errors & Omissions Review is excerpted from The Professional Edge newsletter which is published by SAFECO Insurance companies in conjunction with the marketing administrators for SAFECO's agents E&O program.

The dos and don'ts of document retention

At issue: The California Department of Insurance requires that agents and brokers maintain accurate records for each transaction regarding the following:

1. The identity of the named insured and the insurer involved;

2. The policy term and policy number;

3. The amount of the gross and net premiums and commissions;

4. Identification of the commission payees;

5. Dates of premium collection and payment to the insurer, including any return premium to the insured;

6. The identity of the licensed person handling the transaction.

SAFECO's commentary: Believe it or not, document retention can save your hide in the face of an E&O claim 10 years down the road. Although not the most exciting topic on the E&O and insurance fronts, document retention for the wary agent is critical. The following is a brief discussion of the dos and don'ts of document retention. While the following is relative to California, other states may have similar requirements. Agents or brokers should check with their respective state Departments of Insurance for specifics.

Records are to be maintained for a minimum of five years after the expiration or cancellation of the policy in question. Good sense dictates that you maintain your records for up to 10 years if economically and practically feasible. Account statements, records of deposits, canceled checks, or records of withdrawal of funds pertaining to trust accounts must be retained for at least five years. Not all records must be retained by the agent or broker for the five-year minimum. In particular, binders, applications and correspondence must be kept for a reasonable time. Again, however, longer retention can benefit the agent or broker in the long run under certain circumstances discussed below.

An agent is permitted to store records off site within one year of the policy's cancellation or expiration if they can be obtained by the agent within two business days. Regarding the medium of record retention, microfiche and electronic storage are obviously attractive options given the amount of space record storage frequently requires. It is recommended that if the documents are to be maintained electronically, that a request be made to the Department of Insurance for prior approval to ensure protection of the agent or broker. Of course, compliance with other requirements regarding retention would apply equally to computer or electronic retention.

Depending upon the agent's relationship to an insurer, he/she may otherwise be required to maintain certain information if he/she is acting to receive or transmit information on behalf of an insurer. Likewise, agents or brokers involved in the handling of claims must verify on an annual basis that they have read and understand the claims regulations. Additionally, claims documents must be maintained in such a fashion that they can be examined by the Insurance Commissioner. These documents include correspondence with claimants and/or insureds, notes, etc.

The wary agent or broker may choose to maintain these records for a longer period than required by the DOI or the regulations, especially when facing an actual or a potential E&O claim. For example, notes of conversations with an insured wherein certain coverages were offered and declined can be incredibly helpful when the claim later comes that the insured requested the coverage, was assured he/she had it, and later learned that he/she did not. Timely notes regarding information given to the insured and written confirmation to the insured can cut short the life of your average E&O claim. It is amazing how memories are refreshed when a document is produced reflecting the particulars of a transaction, such as the rejection of a certain type of coverage or policy limit.

Likewise, the presence of applications or binders reflecting the term sought or initially bound can assist in clearing up a later claim by an insurer or an insured regarding the nature and scope of coverage when their respective records are lacking.

Of course, the average agent or broker will not maintain his/her records in perpetuity. Nevertheless, retaining your files for 8 to 10 years is not only suggested but advised as a means to cut off potential E&O claims and to assist existing insureds.

While you should adhere without fail to the regulations regarding minimum retention requirements, it is important to use your common sense when setting up a retention program that fits your business, your resources and your available space. The use of off-site vendors can keep your office space free of files and save on square footage costs. When in doubt--ask. It never hurts to consult with a professional when questions arise or to follow up directly with the Department of Insurance. *

©COPYRIGHT: The Rough Notes Magazine, 2000