In today's increasingly data-driven digital world, independent agents not only have to think about how to keep data secure, but also how data is used and who owns it. Ownership of expirations, including related records and data, is perhaps the most critical issue for independent agents to consider in their company appointment contracts. Indeed, an agency derives much of its value from its expirations. 

The relevant provisions in an agency-carrier contract have the potential to impact ownership in significant ways, including the circumstances under which a carrier may take ownership of an agent's expirations, or use data such as customer records for marketing or when selling a line of business. 

Over the past several years, some in the industry have raised questions about who owns the electronic data associated with an agent's expirations as if it were an unsettled matter. In most circumstances, the answer is clear and simple under longstanding legal precedent and industry custom and practice.

Any argument to the contrary would be wholly inconsistent with precedent and how the independent agent system functions.

Legal Precedent: The Yonkers Case

In surveying the legal landscape of the American independent agent system, there is perhaps no more seminal case than that of National Fire Insurance Company v. Sullard, 97 A.D. 233 (N.Y. App. Div. 1904)—commonly referred to as the “Yonkers Case".

In the Yonkers Case, an independent insurance agent challenged a lower court decision that restrained him from selling his book of business to another agent and that required him to relinquish to the insurance company his “expiration register," or policy records. The appeals court held: “Our opinion is that the plaintiff [insurance company] was not the owner of the expiration register, nor entitled to its possession and hence not entitled to enjoin the defendant [agent] from the use in any lawful manner of the information derived from the expiration register."

The court's view of expirations plainly extended not just to some limited notion of the policy but rather to the records and data associated with it.

Since the Yonkers Case, courts consistently have held that, when the contract does not expressly state otherwise, the agent's ownership of expirations extends to records, work product and data as valuable assets of the agent. For example, one appeals court collected cases from various jurisdictions and summarized this bedrock principle as follows: 

“Contrary to the operation of normal agency principles, whereby the principal has ownership rights in the lists of customers and other similar data obtained during the agency, it is the custom and practice in the insurance field that, in the absence of a contract to the contrary, the independent insurance agent owns the expirations at the termination of his agency. The practice is a protection of the work product of the individual agent and represents a valuable asset in the nature of goodwill. This universal custom is a main premise under which the American insurance industry functions and is known as the American Agency System." 

See In re Estate of Corning, 108 A.D. 2d 96, 100 (N.Y. App. 1985) (citations omitted and emphasis added); see also Schatzki v. Weiser Capital Mgmt., LLC, 2013 U.S. Dist. LEXIS 168572, *45 (S.D.N.Y. 2013), which found that “absent a contract to the contrary, an independent insurance agent's customer information belongs to [the] agent" in addressing ownership of electronic client database.

How Should Agencies Protect Ownership and Usage Rights?

Most carriers respect this longstanding precedent and industry standard. However, with all the new technology for collection and use of electronic data, there can be a tendency to think of this data as something new and unique.

Moreover, when striving for a competitive advantage, there can be a desire to stretch the bounds of appropriate data usage, even if there is no ill intent. Courts, however, have and should view it the same way as Sullard's expiration register in the Yonkers Case—the sole use and benefit of which is for the agent. 

Another context in which ownership of data arises is contracts with third-party vendors, such as agency management systems. There is more limited precedent in this area and agents should carefully review terms relating to the ownership and return of data processed by a vendor. If the relevant terms are deficient or ambiguous, the agent should consider adding language that expressly requires the vendor to recognize the agent's exclusive ownership of its data, to return and destroy such data, and limit the use of data solely to providing services under the contract.

Overall, it remains important for agents to address the ownership and usage rights of expirations and related data in express contract terms. In connection with its contract reviews, the Big “I" Office of the General Counsel often provides sample language that may be helpful. While this cannot substitute for specific legal advice from an agent's own attorney, using language like the following, as tailored to the particular circumstances, may help to protect the agents' ownership interests, clarify the parties' expectations, and avoid confusion or disputes in the future.

Sample Language for Appointment Contracts:

The use and control of the Agent's expirations, including those on direct billed business, the records thereof, and the Agent's work product and data relating thereto, shall remain in the undisputed possession and sole ownership of the Agent. The Company shall not use its records or the Agent's expirations in any marketing method for the sale, service, or renewal of any form of insurance coverage or other product, nor shall the Company refer or communicate the Agent's expirations, including records, work product or data relating thereto, to any other agent or broker, or affiliate or company, without prior express written permission from the Agent.

Sample Language for Vendor Contracts:

At any time during this Agreement or after its termination, Vendor will destroy or return to Client all data, information and other materials of Client within Vendor's possession, custody or control upon Client's request. Vendor will deliver such items to the Client in a timely manner and in a mutually agreeable format. Vendor acknowledges that Client's data, information and other materials shall remain the exclusive property of Client and shall only be used consistent with delivering the services set forth in this Agreement.  

If you have any questions about this or similar issues, contact Scott Kneeland or Eric Lipton.

Scott Kneeland is Big “I" general counsel. Eric Lipton is Big "I" senior counsel.