"In the IA Insurance News & Views article, "Lost Policies…No Coverage?," there was a statement made that, 'The agency, from both E&O and customer-service perspectives, should keep an archived copy of policies indefinitely.' We have not found anywhere that the agency has any responsibility to provide proof of coverage — the Insured and the carriers, yes, but not the agency. What is the effect then from an E&O side for agencies to maintain archived copies of policy forms?"
We agree that the insurance policy and its various endorsements and supporting documentation largely involve a contract between insurer and insured. However, that doesn't mean that an insurer will always be willing or able to come up with a policy form in the future. So, in order to best serve your clients and minimize your E&O exposure, we suggest the agency consider archiving at least one representative policy form of each type and edition, as explained by the VU faculty below.
My personal opinion and experience is that agencies should archive at least one copy of all policy forms used by their companies and that each customer account make some reference to them by form number. I'm not saying keep a copy of every policy of every insured, just one copy of the form used by many insureds for future reference. Otherwise, you are at the mercy of the insurer, or someone whose best interest is served by NOT being able to produce the policy form(s).
Speaking from experience, I had an agent contact me the first time a number of years ago. He had a druggist liability claim/suit on a policy written on an occurrence basis over 15 years ago. There was absolutely nothing in the customer file from 15 years ago other than a penciled reference as to who the insurer was at that time. The agent contacted the insurer and was allegedly advised [paraphrasing] that, "We don't keep records that far back...if you think we were the insurer of record, prove it."
[Note: Insurers have to be careful about this type of response. According to the Handbook on Insurance Coverage Disputes by Barry R. Ostrager and Thomas R. Newman, "If it can be shown that the insurer has deliberately withheld a copy of the policy from the insured, the insured might be entitled to punitive damages for breach of the covenant of good faith implicit in every contract." Henderson v. United States Fedelity & Casualty Co., 620 F.2d 530 (5th Cir. 1980).]
First of all, purely from the standpoint of customer service, wouldn't it be great to be able to have a notation in the file as to what policy form(s) that customer had and when, along with the ability to actually pull a paper or (better) electronic copy of the policy form(s)? Second, if an insurer disavows any knowledge of the account and is not cooperative, who do you think the insured is going to sue? So, from an E&O standpoint, this type of documentation may be critical.
Since that original incident, I've had this situation arise time and time again where a carrier is unable (or so they say) to produce a policy form.
My past experiences in testifying on behalf of my company was that the agents had better records than the company. We would ask the agents for their documentation because we couldn't always find what we needed in the company archives. Too many items got lost with so much paper at the company level.
I have been collecting insurance policy forms since 1967. Insurance brokers should have available to them all of the policy wording used by their insurers. Without the wording, how can they advise their clients? I would suggest they keep a book or file of the forms, scan them, or subscribe to some service that provides forms on computer databases.
In 1980, I had occasion to locate liability policies going back to 1939. Within the past year, we pieced together the terms of coverage for policies back to the mid-1960s for a class action suit. In both instances, identification of the policies was invaluable to the insured.
An agent should not rely on insurance companies to maintain copies of old policies. In the absence of a policy number and policy form, the insured is up the creek. All workers compensation and liability policies, including claims-made policies, should be kept permanently.
From my hurricane duty experience, I can tell you that an agency should keep policy forms and endorsements from companies. Amazingly, adjusters don't have them at times. It just makes good business sense to do it.
It's important to have a copy of each form used by agency customers. According to SCA Disposal Services of New England, Inc. v. Central National Ins. Co. (Mass. Super. Ct. 1994), "[B]ecause insurance policies are often customized or manuscripted, the use of a standard form in one policy is not by itself proof that it was included in a different policy.
How can an agent "advise" on coverages, limitations, conditions, or exclusions if they don't have the forms to READ?! If I were a plaintiff attorney in an E&O claim against an agency, I would definitely want to ask the agent how he/she can advise an insured properly if they don't have the forms to review.
Proper record retention is critical to minimizing E&O claims through documentation. Some records should be kept permanently for ALL insureds. When "records" are identical (such as policy forms used by a carrier for multiple insureds), you only need one copy on file as long as the client record indicates the form number. Here is some more information from the VU on this subject: