By Lori L. Siwik*
Suppose a governmental agency demands that your company pay for environmental remediation at a landfill that your company used 30 years ago, or several individuals allege that their cancer was caused by exposure to hazardous chemicals your company manufactured in 1940s through the 1960s. When faced with either of these legal problems, corporate counsel should immediately look for their historic Commercial General Liability (CGL) policies.
FINDING POLICY EVIDENCE – USE OF INSURANCE ARCHAEOLOGISTS
Insurance policies are very valuable assets that don’t become obsolete once the policy period has expired; but over time, a company’s insurance policies are often destroyed because the company is not aware of their ongoing value, or they are simply “lost.” Unfortunately, when contacted for help locating historic coverage, many insurance companies claim to no longer have copies of their insureds’ policies. Thus, it is vital that policyholders locate and properly maintain their historic and current policies. If the policies cannot be located, coverage may still be available to the policyholder by proving “secondary evidence” of the coverage. When reconstructing historic insurance policy evidence, insurance archaeologists can help.
Archaeologists look for policies issued as far back in time as applicable to the offense – such as the first sale of the offending product, the first pollution activity, the first alleged exposure, etc. They search for primary as well as umbrella and excess policies in order to reconstruct the highest possible limits of coverage.
SOURCES OF “SECONDARY EVIDENCE”
If actual copies of policies cannot be located, archaeologists reconstruct as much as possible about the terms of the coverage from other documents and sources. Interviews of key individuals are often worth their weight in gold. Someone who has been with the company for a long time often has valuable information about company procedures, company history and the names of former and current employees who may have knowledge of the insurance policies. Internal policyholder files often contain evidence of insurance policies. Insurance companies are another fruitful source of insurance documents since many insurance companies maintain the policies in hard copy or on microfiche. Other sources include insurance agents or brokers, federal and state court files, regulatory agencies, and various archives, to name a few.
The starting point of any policy reconstruction is to identify the offending company and all succeeding companies. Acquisition and divestiture agreements may contain important indemnity and insurance language concerning the assumption of liabilities.
TYPES OF DOCUMENTS THAT PROVIDE “SECONDARY EVIDENCE”
Many documents other than the policies themselves contain information about the coverage. These documents include, for example:
- Declarations Pages or partial policies
- Certificates of Insurance
- Correspondence referring to policy numbers, dates of coverage, or terms of coverage
- Subsequent policies referring to or suggesting prior similar coverage
- Schedules of insurance or insurance summaries (often available from insurance brokers)
- Premium invoices
- Proof of premium payment, such as checks
- Excess policies, which refer to primary policies
"NOW YOU HAVE SECONDARY EVIDENCE” – WHAT NEXT?
Even when the actual policy cannot be found, an insurance company may accept secondary evidence as proof of the policy’s terms and address the claim based on that evidence. If the insurer and insured reach an impasse due to the insurer’s refusal to accept secondary evidence as proof of coverage, a lawsuit may be the next step.
ESTABLISHING PROOF OF COVERAGE IN A LAWSUIT
Even if the policyholder cannot submit a copy of the actual insurance policies as evidence in a lawsuit, secondary evidence can often provide the necessary proof.
First, the policyholder must demonstrate that it conducted a “diligent search” for the policy, that the policy was lost or destroyed, and that the loss or destruction was not the result of bad faith.(1) There is no precise definition for what constitutes a diligent search. Often, a corporate officer of the policyholder will submit an affidavit that discusses the company’s document destruction policy and attests to the company’s inability to locate the policy despite a thorough search. In addition, a policyholder can hire an insurance archaeology firm to aid in locating its historic insurance policies. If the court finds that the policyholder did not conduct a diligent search or acted in bad faith, the court may rule that no secondary evidence can be admitted to establish coverage.(2)
Second, the policyholder must prove the existence and material terms and conditions of the policy. Importantly, it is not necessary for the policyholder to reconstruct the missing policy word for word. Courts have stated that the policyholder need prove only “essential terms.” Different courts require different elements of proof. Generally, the insured must prove the identity of the named insured, the policy term, the type of coverage and the limits of coverage.(3)
Once the policyholder has met its burden of proof regarding coverage under the lost or missing policy, the burden shifts to the insurer to prove that the policy contained limitations that preclude coverage.
Insurance policies have become an important asset for many policyholders as a result of the surge in litigation involving environmental and toxic tort claims. Policyholders should have a document retention policy that prevents the destruction of any insurance policy - - no matter how old. All insurance policies should be maintained and safely stored in a vault or fireproof cabinet. Lost insurance policies, however, are not a bar to coverage. With a diligent search, policies, or secondary evidence of them, can be found and then used to demonstrate that coverage exists for the claim or claims at hand.
(1) Coltec Industries, Inc. v. Zurich Insurance Company, 2002 U.S. Dist. LEXIS 18979 (N. D. Ill. 2002). Burt Ridge Box, Inc. v. Travelers Property Casualty Corp., 302 F.3d 83 (2nd Cir. 2002).
(2) Estee Lauder International, Inc. v. World Wide Marine Service, Inc., 1989 U.S. Dist. LEXIS 12192 (S.D. N.Y. Oct. 13, 1989).
(3) Dart Industries, Inc. v. Commercial Union Insurance Co., 28 Cal.4th 1059, 52 P.3d 79, 86 (Cal. 2002).
*Lori L. Siwik is Vice President and General Counsel at Risk International Services, Inc.. Risk International specializes in risk management services, insurance archaeology, and insurance claims recovery, particularly in the areas of environmental and toxic tort liabilities. Visit Risk International’s website at www.riskinternational.com