Q: Should an agency keep both paper and electronic files to prevent errors & omissions exposure?

Response 1: I don't know of any hard and fast rule about dual files. However, it raises some questions, which could present a problem in an E&O lawsuit against the agency and make the agency look bad.

First, in an E&O lawsuit, you would certainly have to produce both files during discovery. If any difference is discovered between the two files, it makes the agency look bad. If there is any note in the paper file that is not in the computer file, such as a question from the insured, then the line of questioning can certainly imply that the agency, which operates primarily off the computer, did not meet the standard of care by not addressing concerns or requests of the insured. 

The next question that can arise is: Why do you keep two copies of files? The plaintiff's attorney can claim the logic is that you don't trust your electronic files—and if you don't trust your electronic files, why should the court trust them? They can also ask if these two systems of recordkeeping are not in agreement, how do we know the clients' files are accurate in other areas?

Response 2: If you are keeping both paper and electronic files, have a bonfire and get rid of all paper that has been scanned. Having two files creates a problem if there is any difference between the two. The best practice is to scan the documents as they are received or created, have an agency principal review and then shred the paper documents.

The only exceptions to this rule are signed documents that are needed in the future and older documents that have not been scanned. Keep in mind that almost every court in the U.S. accepts the scanned document as evidence, as long as a hard copy can be created from the scanned document.

Response 3: As it frequently is with E&O questions, it depends. If you're storing the same data in both forms, it's essential that they be 100% consistent. Any difference between the data calls the accuracy of both into question. On the other hand, if you store some types of data in hard copy—in-force policies, for example—and other types electronically—like expired policies—I don't see any problem. Consistency, completeness and accuracy are everything, no matter what media are used.

Response 4: I think that electronic files should be primary, but I also think that there should be a paper-drop file system that is lightly organized. Given the hazards posed to electronic files, including random attacks by hackers, I believe there should be a paper filing system that goes back at least five years. It could be used in case of some catastrophe that wiped the electronic files.

Response 5: The E&O carriers recommend and I, as an auditor, agree that duplicating records is a waste of time that allows other work to be delayed and workloads to multiply unnecessarily, leading to errors. All work should be done in an agency management system (AMS) that electronically dates and timestamps all work and activities. 

The only paper copies that most attorneys want are signature documents since scanned copies of those are hard for handwriting experts to verify and legitimate. Other documents like confirming emails, business income worksheets, premium audits, replacement cost worksheets and excess & surplus policies should be scanned and attached to the relevant activity.

One last observation: Plaintiff's attorneys will invariably review your website. It is common for websites to greatly overstate what your agency does with the typical hyperbole of “we will make sure you have the coverage you need." That can be problematic, particularly when combined with a lack of documentation.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

This article is intended for general informational purposes only, and any opinions expressed are solely those of the author(s). The article is provided “as is" with no warranties or representations of any kind, and any liability is disclaimed that is in any way connected to reliance on or use of the information contained therein. The article is not intended to constitute and should not be considered legal or other professional advice, nor shall it serve as a substitute for obtaining such advice. If specific expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney or accountant, should be sought.