Senate Validates E-Signatures

An electronic signature bill approved by Congress last week contains important liability safeguards for independent agents according to the Independent Insurance Agents of America.

S. 761—the Electronic Signatures in Global and National Commerce Act or ESIGN Act—was approved by the House on Wednesday by an overwhelming 426-4 vote, while the Senate gave its approval to the legislation by a unanimous 98-0 vote Friday afternoon. President Clinton supports the compromise legislation and is expected to sign the measure into law soon.

The legislation facilitates the burgeoning world of e-commerce by providing electronic signatures and contracts consummated online the same legal status as signatures and contracts inscribed on paper.

“Without the liability protections offered in S. 761, independent agents and brokers potentially could have been forced to defend themselves against lawsuits for errors resulting from shortcomings in electronic procedures that they did not have a hand in creating,” said IIAA Executive Vice President Robert A. Rusbuldt. “Congressional leaders were understanding of the unique status of agents and brokers and worked closely with IIAA on a solution.”

For independent insurance agents and brokers, who act in an agency capacity aiding transactions between consumers and insurance companies, the primary concern with the initial drafts of the legislation was that they could have been held liable for deficiencies in electronic signature or electronic record procedures they had no part in creating.

Under the original proposal, parties to a contract could have used any electronic mechanism that they saw fit to execute a contract. The problem for independent agents and brokers, and anybody else acting in an agency capacity, is that they are not parties to the contract.

Agents would have been required to use whatever e-signature procedure established by their insurance companies, but agents and brokers would still have been required to assume liability for any shortcomings in those procedures.

To correct S. 761’s oversight in this area, IIAA worked with House Commerce Committee Chairman Tom Bliley (R-Va.), who chaired the House-Senate conference committee on S. 761, and several other key congressional members. Bliley and other members of the conference committee agreed to insert language in the compromise bill that makes clear that any insurance agent or broker acting under the direction of a contracting party would not be liable for any deficiency in the e-signature and e-record procedures agreed to by the parties.

“Liability for deficiencies for electronic signature procedures was a primary concern for agents as the House and Senate debated this legislation,” Rusbuldt said. “It hardly seemed equitable that agents could be held liable for the consequences of these deficiencies, especially considering that agents play no role in creating their insurance companies’ procedures for handling online transactions.”

S. 761 states that “an insurance agent or broker acting under the direction of a party that enters into a contract by means of an electronic record or electronic signature may not be held liable for any deficiency in the electronic procedures agreed to by the parties under that contract if the agent or broker: has not engaged in negligent, reckless or intentional tortuous conduct; was not involved in the development or establishment of such electronic procedures; and did not deviate from such procedures.”

“Without the clarification in S. 761, an agent or broker who believes he or she is properly binding an insurance contract through electronic procedures that turns out to be deficient may have liability exposure if the company subsequently denies coverage for a claim that should have been valid,” explains IIAA Vice President of Federal Government Affairs Maria L. Berthoud. “As long as an agent or broker doesn’t violate the exceptions to the provision, they cannot be held liable for e-signature or e-record procedures created by an insurance company.”

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