How Long Should I Keep My Records?

by Curtis Pearsall

There's no single answer to the question of how long you should keep your records. A rule of thumb generally calls for a seven-year retention, but each state has its own requirements. An agency is also confronted with requirements set out by state insurance departments, insurance carriers, unfair trade and claim practices acts, and the tax code.

My company recommends that agents obtain information from a number of sources, including attorneys, accountants, insurance departments, and carriers. Record retention also should be tailored to the agency's lines of business as well as to applicable laws.

From an Errors & Omissions (E&O) perspective, there's no doubt that records retention is of great importance for an agent's defense. The documentation supports agency testimony regarding the conversations and transactions involved. Lack of records might be interpreted by a jury as an effort to withhold or conceal unfavorable information. Here's the story of an E&O claim, in which records retention applies not only to agency information but to 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 1997 but was returned to the agency office on Feb. 17 due to an improper address. On discovery of the error, the agency sent a corrected notification on that same day instructing the client to make full payment on or before Feb. 23. A fire loss occurred on Feb. 24 but the premium payment was not received by the agency until Feb. 26 -- showing a postmark of Feb. 25, which indicated the client had sent payment the day after the fire.

This claim was probably unavoidable. 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 renewing the policy. Coverage was through a fair plan, for which the agent did not have authority to issue a binder. It was the client's delay in transmitting the premium that resulted in the Fire policy not being in force on the date of loss.

The agency could defend against the claim by showing accurate documentation of the situation, including the postmarked envelope, copies of all correspondence, and the premium payment checks.

There have been other cases dealing with Liability policies-particularly old 'occurrence' policies. If there's a claim and the occurrence policy can not be found, questions may arise on how the policy was written and whether it would cover the particular claim. This certainly could lead to 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 recommend that clients retain at least their Liability policies-forever.'