Are Electronic Signatures Valid in Insurance Contracts?

The technological advances in electronic communication have created changes in the way people deal with each other and transact business, requiring insurers and the law governing insurance to play catch up.

For example, the possible theft and deliberate or accidental release to the world of electronic information have raised coverage and liability issues that were unimaginable 10 to 20 years ago.

A much more mundane issue created by these technological changes was how to reconcile the need for a person’s signature where required by law with electronic communications or transmissions, which do not contain handwritten signatures.

The answer seemed pretty straight forward: the law should recognize “electronic signatures” to be as valid and binding as handwritten signatures. And, in general, this is exactly what happened. In the early 2000s, most states enacted the Uniform Electronic Transactions Act, which, among other things, recognized electronic signatures as valid and legally binding.

While electronic signatures do not naturally spring to mind as a topic sure to capture attention, the Louisiana Fourth Circuit Court of Appeals recently issued an interesting opinion dealing with challenges to the validity and effectiveness of an electronic signature.

In Bonck v. White, Bonck purchased an automobile insurance policy from Progressive Security Insurance Co., which excluded uninsured/underinsured motorist bodily injury coverage (UMBI). Bonck went to the office of a Progressive agent to buy the policy, but completed and signed the insurance application online with the agent’s assistance.

After buying the policy, Bonck was involved in an automobile accident and filed suit against the other driver and against Progressive as her UMBI carrier. Progressive denied any UMBI coverage and presented to the court the waiver of UMBI form required by the State of Louisiana which was initialed and signed electronically by Bonck. She argued that, however, electronic signatures could not be used on insurance policies and also denied that she had signed the form waiving the UMBI coverage.

The trial court granted summary judgment in favor of Progressive and dismissed Bonck’s claim.

Valid or Not?

On appeal, the first question addressed by the court was whether an electronic signature was valid with respect to insurance coverage.

In considering this issue, the court noted that Louisiana has a statutory requirement that to be valid, the waiver uninsured motorist coverage had to be made by the insured on a form prescribed by the Louisiana Commissioner of Insurance. The court then noted that Section 2607 of the Louisiana Uniformed Electronic Signature Act, L.R.S. 9:2601, et seq., provides:

• A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
• A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
• If a law requires a record to be in writing, an electronic record satisfies the law.
• If a law requires a signature, an electronic signature satisfies the law.

In light of this statute, the question of whether an electronic signature would be valid to waive UMBI coverage would seem to be an easy call. However, the court remarked that it could find no cases in Louisiana applying the Uniform Electronic Signature Act to an UMBI form.

Further, the only case to even mention the statute involved in an arbitration clause in an incentive program contract and the court found that case offered “no guidance” with regard to an electronic signature on a UMBI form. Nonetheless, the court noted that the Commissioner of Insurance elected for the period shortly after the Uniform Electronic Signature Act was enacted in Louisiana had issued an advisory letter authorizing the use of electronic signatures in transacting the business of insurance in Louisiana.

Reasoning that the waiver of UMBI coverage fell within the transaction of insurance business in Louisiana, the court concluded that the Uniform Electronic Signature Act does apply to automobile insurance policies in general and the waiver of UMBI cover specifically.

No Guarantees

However, the court was quick to note that this finding did not end the case.

Bonck had denied electronically signing the UMBI form in an affidavit submitted to the trial court. She also pointed out that the UMBI waiver form was dated four days after the date she had completed the initial application online and also that it contained a different spelling of her first name than what she normally used.

While acknowledging that aspects of Bonck’s affidavit testimony were self-serving, the court concluded that her affidavit and with the discrepancy in date were sufficient to create a fact issue requiring further proceedings in the trial court.

Although the court reached the result that would reasonably have been expected with regarding to the validity of electronic signatures on insurance policies, its apparent hesitancy to apply the Uniform Electronic Signature Act to insurance policies is surprising.

The court was quick to disclaim any reliance on the sole case applying the Louisiana Uniform Electronic Signature Act to an agreement because that case involved an arbitration clause in an employment agreement rather than an insurance contract. The insurance commissioner’s advisory letter, on the other hand, appeared to be the decisive factor to the court.

While it cannot be said that, absent the advisory letter, the court would have ruled that the Uniform Electronic Signature Act did not apply to insurance policies, the court’s reasoning leaves open the possibility that it might have found that electronic signatures were valid and binding when used in general private contracts, but not when used in insurance policies.

While insurance policies are at their essence a contract between two parties, they are heavily regulated by most states in the various statutory requirements imposed on them could justify treating them differently from other private contracts. There do not seem to be many cases which have addressed the applicability of the electronic signature laws to insurance contracts. While the end result in the Bonck case is what insurers would have expected, insurers should note with caution that its reasoning could lead to different results in states other than Louisiana.

In addition to the purely legal issue of whether electronic signatures on insurance policies are valid, the case also illustrates that electronic signatures are not guaranteed immunity against factual challenges to their authenticity. Indeed, any electronic glitches in the document could provide the basis for disputing an electronic signature.

For example, the four-day difference in the Bonck case between the date of Bonck’s appearance at the insurance agent’s office and the date shown on the documents ultimately delivered to her may have been the result of a computer programming error. Nonetheless, it provided support for Bonck’s claim that she did not sign the UMBI waiver form.

In summary, it is probable that anyone reading a one or two sentence summary of the holding in Bonck would find it to be a completely unremarkable case. However, a closer reading of the court’s reasoning and the facts of the case reveal a more interesting and nuanced opinion which could have led to a surprising result if one or two facts were different.