IIAA, NAIFA Outline Concerns with E-Signature Legislation

April 26, 2000

A letter was recently sent to House Commerce Committee Chairman Tom Bliley (R-Va.) outlining IIAA’s and NAIFA’s concerns with e-signature legislation pending before a House-Senate conference committee. Bliley is chairing this conference committee. The group’s problem lies in the area of liability and agent liability for shortcomings in e-signature procedures that they are not responsible for. IIAA and NAIFA advocate language that would remove liability for these shortcomings as long as the agents did not create the procedures.

The letter follows in its entirety:

Dear Chairman Bliley:

On behalf of the Independent Insurance Agents of America (“IIAA”) and the National Association of Insurance and Financial Advisors (“NAIFA”) (formerly NALU), we wanted to congratulate you on the leading role that you have taken in the consideration of electronic signature legislation.

IIAA and NAIFA are non-profit trade associations that represent hundreds of thousands of insurance agents, financial advisors, and their employees throughout the United States. Their members sell a full-range of insurance and other financial products and services and they have been at the fore-front of the electronic commerce revolution.

IIAA and NAIFA believe that the bills that you and your colleagues are considering in the conference committee contain provisions that will help to move the new world of electronic commerce into a new frontier. We would like to lend our strong support to the bills but we cannot do so at this time because we believe that they may raise a potentially significant (and apparently inadvertent) liability concern for any person functioning in an agency capacity. We also believe, however, that this problem can be easily corrected.

Both bills (and the draft Uniform Electronic Transactions Act [or “UETA”] on which both bills are based) contemplate that the parties to a contract may use any electronic mechanism that they see fit to execute that contract. The problem is that agents are not parties to the contract and they may thus be unfairly held accountable for procedures or terms over which they exercise no control.

Agents will therefore be required to use the electronic signature procedures of the companies, but they may still assume liability for any shortcomings in those procedures under a variety of scenarios. An insurance agent who believes he or she is properly binding an insurance contract under an insurance company dictated electronic signature procedure that somehow turns out to be deficient may, for example, have exposure even if the agent did everything according to the prescribed procedures.

Although we believe that such liability problems arise under UETA as well, they are especially acute under both the House and the Senate bills because both bills fail to address a number of important issues of contract formation that are addressed under UETA.

UETA contains, for example, specific provisions that address data corruption issues (Section 10) and contract formation issues (Section 15) that are not addressed in either the House or the Senate bill. When contract negotiations began to take place through the mails during the 16th Century, a number of cases were litigated over the course of several decades regarding when a contract offer was made and when an acceptance took place (the so-called “mail box” rules).

Although such issues have long been settled in the mail context, they are novel issues in the internet context and UETA attempts to address them; the failure of either federal bill to address the issue will result in much uncertainty on such questions which gives rise to a heightened degree of liability concern in the agent community.

To remedy this problem, we urge you to add a provision to the final bill that would make clear that any agent acting under the direction of a contracting party would not be liable for any deficiency in the electronic procedures agreed to by the parties. Such an amendment would shield agents from potential liability for conduct over which they have no control and enable them to continue to explore the new service opportunities that may be available in the developing digital world.

A copy of a draft amendment is attached for your review. With the inclusion of such an amendment, both of our organizations would strongly and actively support enactment of this legislation this year.

Chairman Bliley, we looking forward to working with you the other members of the conference committee as you proceed with your work on electronic signature legislation. We urge you, however, to incorporate language that mirrors the proposed amendment we have attached to ensure that the legislation does not have any unintended consequences.

We would be happy to provide additional information or meet with you at your convenience to discuss these issues in greater detail.

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