ELECTRONIC RECORDS ADMISSIBILITY

 

by Bill Wilson

 

Are electronic records admissible in court? How long must records be retained? Bill Wilson addresses these and other questions about electronic records admissibility in this document.

 

 

Here are three recent “Ask an Expert” questions we received with regard to electronic records and moving to a “paperless” office:

 

Agency #1: “Our agency is in the process of going paperless. Before we do this, we want to make sure we are clear on a couple of issues. At this point, a company has us hold an original application with a signature, and we've asked them if they will accept a scanned image of that signature for audit purposes. We can't change or alter the image in any way after it is scanned. Our question, then, is legally, is there any length of time (including claims information) that we have to keep paper or can it all be scanned and shredded? How are the courts looking at this issue? All apps and claims information that we have in file are copies or originals — these have been sent directly to the companies. Before doing away with files and all paper, we want to be clear on the legality of all this. All our information is backed up to CDs; this includes our management system files and our transactional files, which are stored outside our management system.”

 

Agency #2: “I'm trying to determine what, from a legal point of view, we can file electronically vs. paper files. I have the Uniform Electronic Transaction Act (1999), but it doesn't go into that kind of detail. Is there any source I can go to that will detail by state what the requirements are for maintaining policy files, applications etc.? Also, are there still any states that require a wet signature for the typical P/C type applications?”

 

Agency #3: “Our agency t-files all the company daily paperwork. We retain this paper for seven years, which takes up a ton of space. Our agency management system will do imaging, but at a very high cost. I have figured out a way to scan the paper, save it by date, and network the master file so that we all have access to any particular image by date and client. The question is, once the paper is scanned and saved, can the paper be shredded? (Of course proper daily backups will occur, but CDs are inexpensive.)”

 

Let's start the discussion with a disclaimer. We aren't attorneys, so we can't give legal advice. If you need a definitive legal opinion, you'll need to consult with a qualified, licensed attorney well versed in this area and familiar with both federal and state laws that might apply.

 

That being said, we can look at some of the issues involved. First, in addition to the law cited above, here are some others that might govern:

  • 1975 Federal Rule of Evidence 803(6)
  • Uniform Business Records as Evidence Act
  • Federal Business Records Act (this was repealed in 1975, but some states have reportedly codified this in their statutes)
  • Common law “Shopbook” rule (based on King v. Murdock Acceptance Corp.)

 

In addition, there are a number of recent federal and state laws dealing with electronic commerce and digital signatures (the Electronic Signature Act, the aforementioned Uniform Electronic Transactions Act, and others). A detailed analysis of these laws is beyond the scope of this article.

 

As a general rule, electronic records have been recognized and admissible as evidence in lieu of paper records for some time when certain conditions are met and certain procedures are in place. Federal and state laws generally require more proof to verify the accuracy of electronic information than that required for paper documentation. This includes a standard procedure for verifying the accuracy of the information and possibly audit procedures.

 

In general, automated data is considered admissible as evidence when it meets these criteria:

 

  1. Electronic files must be the sole, or at least primary, source of information.
  2. The recorded information must have been input in the ordinary course of business, for business purposes, at or near the time of the event recorded.
  3. The agency must have relied on the accuracy of the records.
  4. The information must be input by a competent person who had a business duty to input the information accurately.
  5. The person inputting the information must have had personal knowledge of the event recorded, or obtained information from someone who had such knowledge.
  6. The systems and procedures for recording and retrieving the recorded information were reliable, including:
    • The input procedures used to record the information and the methods for verifying the accuracy of the data are subject to a standard procedure of verification and audit.
    • The procedures used to maintain and retrieve the stored information and the methods for verifying the accuracy of the processing system are standardized throughout the entire office.
  7. The agency should have standard written procedures for entering, retrieving, testing, and auditing the accuracy of the data electronically stored in the system.
  8. There must be a consistent formalized back-up procedure.

 

Alpine Risk Management Corporation, LLC (POB 20128, Oakland, CA 94620, (510) 653-5117) has information on this subject, together with an excellent E&O procedures manual. You can e-mail them at alpinerisk @ lanset.com.

 

In addition, our agency management faculty had these comments on moving to a “paperless” office:

 

FACULTY RESPONSE

 

The purpose of scanning is to reduce paper. It wouldn't make sense to scan and keep the paper. Most companies don't have a problem with this, and with e-signature laws, scanned copies should be just at good in court as the original document. For years, companies used to use microfilm, and that was acceptable. Proper back-up would be the key concern.

 

FACULTY RESPONSE

 

We help install many optical scanning systems, both vendor and third party, and have found that most states now allow scanned items to act in place of paper (i.e. they can be evidence, including signatures). But the scanning system must be date stamped and unchangeable.

 

FACULTY RESPONSE

 

Most states have a law that requires that an insurance agency be able to produce the “best available data.” Also, if the images are attached to the customer's files in such a way that they can't be deleted or changed, they are accepted as if they were originals. Also, they must stand the proof of any procedure, whether in writing, followed by all employees, regular audits, etc.

 

FACULTY RESPONSE

 

I would agree that the record retention schedule should be the same, whether it's paper or electronic. However, agents do have to be careful, due to state requirements. For example, they might have to keep the paper-based wet signature on applications and other forms, as opposed to electronic. Many states are recognizing the electronic equivalent, but not all. Agents should check with their state insurance departments to make sure of any local requirements.

 

Because electronic records can theoretically be kept for much longer at little or no cost, how long is long enough? There might be a tendency to want to keep electronic records longer. An agency might not want to keep electronic records longer than paper even though they can.

 

Bill Wilson, CPCU, ARM, AIM, AAM is director of the Independent Insurance Agents and Brokers of America (IIABA) Virtual University VuPoint Newsletter from which this article is reproduced, with permission. For more information, e-mail [email protected] or visit http://vu.iiaa.net/default.htm.

 
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