It's a question on the minds of many small and large business owners: "how long should I retain records?" For insurance agents, the answer to that question has a direct impact on overhead costs like storage, scanners, staff, and even on the potential exposure to administrative sanctions and errors and omissions claims. The purpose of this article is to discuss the recent statutory changes in Florida regarding policy document retention and factors that agents might consider in setting their document retention policies.
The Florida Document Retention Statute
On July 1, 2015 the Florida Legislature attempted to clarify for agents and regulators how long agencies should retain records, but the answer may still be as complicated as before. For many years Florida insurance agents have looked to section 626.748 of the Florida Statutes for document retention guidance. The previous version of the statute read as follows:
Every agent transacting any insurance policy must maintain in his or her office, or have readily accessible by electronic or photographic means, such records of policies transacted by him or her as to enable the policyholders and department to obtain all necessary information, including daily reports, applications, change endorsements, or documents signed or initialed by the insured concerning such policies. Fla. Stat. § 626.748 (1997).
The new statute, which went into law on July 1, 2015, added the following provision: "Every agent transacting any insurance policy must maintain in his or her office...for a period of at least 5 years after policy expiration, such records..." Fla. Stat. § 626.748 (2015).
Under the Florida Administrative Code, the Division of Insurance Regulation's rule regarding maintaining complete records is similar to the old statute and also does not specify a time limit. Fla. Admin. Code R. 69O-104.004 (2001). The Florida Division of Insurance Agents and Agency Service repealed their identical rule on January 1, 2015. Fla. Admin. Code R. 69B-104.004 (Repealed 2015).
What Does "Policy Expiration" Mean?
The term "policy expiration," which was added to the new version of the statute, is not a defined term under Chapter 626 of the Florida Statutes, nor is it specifically found within the statute relating to motor vehicle cancellations and non-renewals under Fla. Stat. § 627.728. However, Florida Statutes defines the term “renewal” as: “the issuance and delivery by an insurer of a policy superseding at the end of the policy period a policy previously issued and delivered by the same insurer, or the issuance and delivery of a certificate or notice extending the term of a policy beyond its policy period or term…” Fla. Stat. § 627.728(1)(b) (2015).
Florida courts have also held that insurance policies lapse or expire when renewal premiums are not paid. Williams v. Security Mut. Cas. Co., 377 So. 2d 733 (Fla. 3d DCA 1979) (policy automatically lapsed when insured did not pay premium on or before the expiration date of the policy); Allstate Indem. Co. v. Mohan, 764 So. 2d 901 (Fla. 5th DCA 2000) (renewal policy could not come into existence unless the insured paid the quoted renewal premium before the expiration date of the policy).
In its Bill Analysis and Fiscal Impact Statement Report, the Florida Senate Committee on Fiscal Policy analyzed what was then called Senate Bill 1222. The Bill proposed changes to Florida Statutes section 626.748, among several other statutory changes affecting licensure requirements and commissions collections for agents. The Impact Statement shows recognition by the committee that there was no specific time period for retention, but the report did not delve into the reason for the language requiring document retention for 5 years after policy expiration. See Fla. S. Comm. on Fiscal Policy, CS for SB 1222 (2015) Staff Analysis (April 17, 2015).
Based on Florida statutes and cases involving non-renewal cited above, a policy expires when it is either cancelled or not renewed. Moreover, a policy that continues to renew does not reach its policy expiration date. The implications of this new statutory provision may be best illustrated with examples.
Example 1: Suppose an insured obtains a six month automobile insurance policy from an insurance agent. The policy goes into effect on August 1, 2015. The insured makes several months of premium payments and then stops. The insurer mails a notice of cancellation for non-payment of the premium and the policy expires at 12:01 AM on November 1, 2015.
In this example, under the new language added to Fla. Stat. § 626.748, the agent must keep the required documents until at least November 1, 2020, five years from the policy expiration date.
Example 2: Suppose an insured obtains a six month automobile insurance policy from an agent with an effective date beginning August 1, 2015. The insured continues to timely make all premium payments. Over the years the insured continues to timely renew the policy. The policy then expires on February 1, 2035.
Under this example for the long-time client, the agent must continue to maintain records obtained at the inception of the policy, such as the initial policy application, and the uninsured/underinsured motorist selection form, until at least February 1, 2040, which is 5 years after the policy expiration and 25 years after the policy inception date.
Consequences for Non-Compliance
The administrative sanctions for an agent who fails to comply with the document retention requirements are clear. Two divisions under the Florida Department of Financial Services have issued administrative rules regarding agency compliance with Fla. Stat. § 626.748. Both the Division of Insurance Agents and Agency Service and Division of Insurance Regulation have promulgated identical consequences for an agent’s failure to comply with the document retention requirements. The rules state "if a licensee is found to have violated any of the following provisions of the insurance code, the following stated penalty shall apply...Section 626.748, F.S. -- Suspension 2 months." Fla. Admin. Code R. 69O-231.110(20) (1993); Fla. Admin. Code R. 69B-231.110(20) (2014).
Whether civil liability may be imposed for an agent’s failure to retain policy documents remains an open question. In Dominion Bus. Fin., LLC. v. Nationwide Prop. & Cas. Ins. Co., No. 8:10-CV-870-T-30EAJ, 2010 WL 2179113 (M.D. Fla. June 1, 2010), the Plaintiff, an additional insured under the policy, sued Nationwide and the agent in state court. The counts against the agent were for failing to provide records pursuant to Fla. Stat. § 626.748 and the agent's professional liability information under other provisions of the Florida Statutes. Nationwide moved to remove the case to federal court on the grounds that the claims against the agent were for the purpose of destroying diversity jurisdiction, and that no private cause of action existed for violation of Fla. Stat. § 626.748. The Plaintiff moved to remand the case back to state court. In its Order on Plaintiff’s Motion to Remand, the District Court concluded that it was "possible" that a declaratory action could be allowed given the liberal construction of Florida's declaratory judgments statutes, but that the agent should be dismissed because the count has no connection to the breach of contract claim against the insurance company. Id.
Although this ruling is not binding authority on Florida state courts, it leaves open the question of whether some type of civil cause of action could exist against an agent for not providing the kind of documentation required under the statute.
Before the new version of Fla. Stat. § 626.748 was passed, the Florida Division of Agent and Agency Services recommended that policy records be maintained “as long as the agent continues to transact insurance." Insurance Insights, Vol. 3, No. 3, (Florida's Chief Financial Officer Division of Agent and Agency Services), March 2014. Even after the new statute's enactment this still appears to be prudent advice. Of course, trying to retain policy records for potentially hundreds of clients for decades is not without its challenges. Indeed, agents and their agencies must be vigilant in protecting electronic information from hacking, store off-site backups of electronic information in the event the agency's primary storage system is damaged or destroyed, stay informed regarding the growing prevalence of the cloud and its associated security and privacy concerns, and how to maintain a file format that will still be readable decades from now. Nevertheless, one thing is clear: in Florida, any cohesive document retention strategy must begin with the fact that policy documents and backups may need to be kept securely for as long as the agency’s doors are open.