New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on April 3, 2006, representing the position of the New York State Insurance Department.

Re: Record Retention in a "Durable Medium" by Insurance Agents, Insurance Brokers and Excess Line Brokers.

Questions Presented:

1. May an insurer, licensed insurance agent or broker (including an excess line broker) transfer records into a durable medium, discard the original records and maintain the transferred records both on and off site?

2. What are the record retention requirements for an insurer, licensed insurance agent and broker (including an excess line broker)?

Conclusions:

1. An insurer, or any other party (including an insurance agent or broker) charged with maintaining the records required under N.Y. Comp. Codes R. & Regs. tit. 11, Part 243 (2003) (Regulation 152), may transfer the insurer's records into a durable medium, discard the original records and maintain the transferred records both on and off site pursuant to the record retention requirements of Regulation 152.

Although agents and brokers (including excess line brokers) are not specifically authorized to convert their records into another medium by either statute or regulation, they may convert such records into a "durable medium" as defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 243.1(c) (Regulation 152) (maintenance of insurance company records) as it would have been permissible to have created such records originally in an electronic format, pursuant to the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C.A. §§ 7001-7031 (West Supp. 2002) and the New York Electronic Signatures and Records Act ("ESRA"), §§ 301 – 309 (McKinney Supp. 2005).

2. There are separate record retention requirements for insurers, agents, brokers and excess lines brokers found in the Insurance Law and regulations. See discussion infra.

Facts:

The inquiry concerns whether the use of an electronic document storage and retrieval system based upon scanning paper documents into a computer is permissible for the following licensees that the inquirer represents: licensed insurance agents and brokers, including those with agency contracts that obligate the agent to retain insurer records, and excess line brokers.

In all instances, the licensee would discard the original documents and store the scanned documents on and off site, with the scanned documents reproducible if needed. The inquirer also seeks guidance regarding records that must be retained by each licensee and the time period for retention of such documents.

Analysis:

1. Transfer of Records into a Durable Medium

Section 243.2(d) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 243 (2003) (Regulation 152) states:

(d) An insurer shall require, by contract or other means, that a person authorized to act on its behalf in connection with the doing of an insurance business, including a managing general agent, an administrator, or other person or entity, shall comply with the provisions of this Part in maintaining records that the insurer would otherwise be required to maintain. Notwithstanding the above, the insurer shall be responsible if the person or entity fails to maintain the records in the required manner.

An insurance agent may retain records on behalf of an insurer that it represents. Although an insurance broker generally represents the insured, there may be circumstances under which an insurance broker is authorized by the insurer to maintain customer records on the insurer’s behalf.

The retention requirements for insurer records are contained in N.Y. Comp. Codes R. & Regs. tit. 11, § 243.2(b) (Regulation 152). Section 243.1(b) of Regulation 152 states: "(b) Records means books, records, files, securities, data compilations and other documents." Insurers are permitted to maintain their records in a "durable medium," which is defined in § 243.1(c) as:

…a medium for maintaining a record where the properties of such medium provide reasonable assurances against tampering with the information contained in the original and degradation of any reproduction generated, and where the reproduction is an exact copy of the original. The medium may include paper; facsimile; or photographic, micrographic, magnetic, optical, mechanical or electronic media.

Section 243.3(a)(1) of Regulation 152 states: "Records and indices of records required to be maintained under this Part [Regulation 152] may be maintained in any durable medium." Section 243.3(d) states: "Nothing in this Part [Regulation 152] shall be construed as requiring the utilization of any particular method of record retention by an insurer." The scanned records must be maintained in compliance with Section 243.3 of Regulation 152. Section 243.3(a)(3) of Regulation 152 states: "Upon transfer of an original record to a durable medium, the insurer may destroy the original record after assuring that all information contained in the original record, including signatures, handwritten notations, or pictures, is contained in the durable medium." Moreover, Section 243.3(a)(4) of Regulation 152 states: "If the insurer does not retain the original paper record, or if there was no original paper record, a duplicate or back-up system sufficient to permit reconstruction of the record shall be established at a separate location. The record may be retained in any form permitted by this Part [Regulation 152]." Furthermore, the scanned records must be readily available and accessible to the Superintendent for examination in accordance with N.Y. Ins. Law § 310 (McKinney 2000) pursuant to Section 243.2(e) of Regulation 152.

The inquirer's proposal is to scan paper documents into a computer. The inquirer proposed to discard the original documents and store the scanned documents on and off site, with the scanned documents reproducible if needed. This would comply with the requirements of Regulation 152.

Although agents and brokers (including excess line brokers) are not specifically authorized to convert records into another medium by either statute or regulation, a licensee may convert its records into a "durable medium" as defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 243.1(c) (2003)(Regulation 152) (maintenance of insurance company records) as it would have been permissible to have created such records originally in an electronic format, pursuant to the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C.A. §§ 7001-7031 (West Supp. 2002) and the New York Electronic Signatures and Records Act ("ESRA"), §§ 301 – 309 (McKinney Supp. 2005).

2. Record Retention Requirements

Neither the New York Insurance Law nor the regulations promulgated thereunder require an insurance agent or broker to retain copies of insurance policies or applications and related correspondence.

The only record retention requirements made specifically applicable to insurance agents are contained in N.Y. Ins. Law § 2119(a) (McKinney Supp. 2006) (consulting fees) and Sections 20.4(b) and (c) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 20 (2001) (Regulation 29) (premium account records). The retention period for each is three years as specified by the statute and regulation.

The only record retention requirements made specifically applicable to insurance brokers are contained in N.Y. Ins. Law § 2119 (a) and (c) (consulting and service fees) and Section 20.4(b) and (c) of Regulation 29 (premium account records). The retention period for each is three years as specified by the statute and regulation.

In addition, an agent or broker that maintains records on behalf of an insurer it represents must adhere to the record retention requirements contained in N.Y. Comp. Codes R. & Regs. tit. 11, Part 243 (2003)(Regulation 152)(See above).

Excess line brokers are brokers and as such are required to retain records pursuant to N.Y. Ins. Law § 2119 (a) and (c) (consulting and service fees) and § 20.4 of Regulation 29 (premium account records). The retention period for each is three years as specified by the statute and regulation.

Pursuant to N.Y. Ins. Law § 2118(c)(1) (McKinney Supp. 2006), an excess line broker must maintain a complete and separate record of all policies procured from unauthorized insurers and files supporting declinations by authorized insurers. Section 2118(c)(2) specifies that the records are subject to examination by the Excess Line Association of New York ('"ELANY") as provided in N.Y. Ins. Law § 2130 (McKinney Supp. 2006) and by the Superintendent as provided in N.Y. Ins. Law § 310 (McKinney 2000). N.Y. Ins. Law § 2118(b)(7) (McKinney Supp. 2006) specifically permits electronic or other media transmission of excess line documents by excess line brokers. That paragraph states:

(7) Compliance by a licensee with the requirements set forth in this section in connection with submitting for recording and stamping declarations pages, cover notes, binders, endorsements, affidavits, notices of excess line placement and other excess line insurance documents may be accomplished by means of electronic or other media transmission, provided the superintendent first approves such methods of submitting for recording and stamping. (Emphasis added).

Part 27 of N.Y. Comp. Codes R. & Regs. tit. 11, Part 27 (2004) (Regulation 41) establishes additional recordkeeping requirements for excess line brokers.

For further information one may contact Senior Attorney Robert Freedman at the New York City Office.