Often times when companies are faced with an environmental cleanup, they cannot locate occurrence-based liability insurance policies issued decades earlier that may provide coverage for their claim costs. The claims may be the result of the company’s direct operations or an acquisition of a company that caused the progressive injury or pollution to soil, groundwater or natural resources several decades earlier.
Commercial general liability (CGL) insurance policies issued prior to 1986 are extremely valuable when a company is faced with such property damage claims since the policies did not contain absolute pollution exclusions. However, the policies may not be readily available to the company to enable it to file a claim with its insurers to recover cleanup costs. Many times the policies are missing or have been destroyed after so many decades have passed. Does that mean that the policyholder has lost the opportunity to pursue an insurance coverage claim? Not necessarily. Not having copies of insurance policies may not be automatically fatal to a policyholder’s claim for coverage. There are ways to prove the existence of coverage, even decades later.
It is generally accepted by most jurisdictions that the policyholder bears the burden to prove the existence of coverage and the terms of a missing insurance policy. In turn, the insurer must prove the existence of policy provisions or endorsements that reduce or exclude coverage. If the policyholder cannot produce a copy of the missing policy’s declarations page, secondary evidence can be used to prove the existence of the policy.
Fortunately for the policyholder, many jurisdictions have favorable case law identifying what secondary evidence is sufficient to establish coverage when an insurance policy is lost or missing. In general, so long as some evidence of coverage exists – such as declarations pages, cancelled premium checks, premium invoices, renewal notices, policy summaries, broker or agent records, board meeting minutes or other historical business records – courts will find in favor of coverage.
A District of New Jersey case earlier this year is encouraging for policyholders facing long-tail claims and demonstrates that courts will consider even scant evidence along with expert opinion to show policies may have existed. In E.M. Sergeant Pulp and Chemical Co., Inc., et al. v. The Travelers Indemnity Co., Inc., et al., a policyholder’s limited indirect evidence of policies issued by Travelers combined with expert testimony enabled the policyholder to survive summary judgment brought by the insurer in a coverage lawsuit for environmental pollution cleanup costs. It is important to note that in New Jersey, a preponderance standard is applied unlike other states, such as New York, that have adopted the clear-and-convincing standard. Although the court concluded that “the indirect evidence of coverage, and the clash of expert opinions about it” was “barely sufficient to create a triable issue,” the case moved forward. In the E.M. Sergeant case, the documents presented by the policyholder to demonstrate coverage were discovered in old business records and included handwritten company ledger pages from 1948-1950 and 1963-1965, a 1964 fund application referring to a bodily injury claim previously settled by Travelers, a few old policy forms and a note stating that Travelers had provided coverage for 40 years. To support this scant evidence, the policyholder’s expert proffered an opinion that Travelers coverage was continuous throughout the 1950-1963 period.
Courts in other jurisdictions have acknowledged certain secondary evidence as sufficient to prove the existence of coverage. In Emons Ind., Inc. v. Liberty Mut. Fire Ins. Co., a New York federal court found coverage based on an affidavit by an insured’s president attesting to coverage with minimum limits, the insurer’s loss prevention survey discussing an increase in product liability coverage, and subsequent policies issued by the same insurer. In Delaware, a district court found sufficient evidence for coverage in Remington Arms Co. v. Liberty Mut. Ins. Co., based on business records and sample insurance policies, deposition testimony of employees testifying to terms and periods of coverage, premium and dividend payments, and the declaration of a former general counsel and insurer employee who had experience with the insurance program in question. Likewise, in Massachusetts, an appeals court held in Rubenstein v. Royal Ins. Co. of America that a trustee’s recollection of purchasing insurance, a schedule of insurance, internal memoranda forwarded to underwriters, an insurer’s employee’s recollections of the policies in question, and specimen policy forms met the preponderance of evidence standard to establish coverage.
So, how does a policyholder access its historic insurance program to locate policies or sufficient secondary evidence to prove coverage?
One method is to retain an insurance archeologist to unearth missing policies or evidence of coverage. While extremely beneficial, retaining an archeologist can be expensive.
Another method is for the policyholder to perform its own audit. The existence of a policy often can be established with a copy of a declarations page or evidence of the elements of that page, such as information about the named insured, the policy term, the limits of coverage and the type of coverage. The policy language of a missing policy can then be proven by researching standard industry forms from the time period.
The policyholder should review all historical business records, insurance and claims files, ledger sheets, cancelled checks, accounting records, plant and safety records, and closing documents related to transactions. Insurance brokers are also a good source of historical coverage information as are retired risk managers or company executives who purchased the insurance policies. Former risk managers or executives may be able to provide an affidavit or, at a minimum, identify the insurers that issued policies and the coverage limits of the policies. If umbrella or excess policies are located, the policyholder can often identify the primary coverage layers by reviewing the schedules of underlying insurance.
Once the policyholder has identified documents related to coverage, a policy reconstruction expert can be retained to assist with establishing important material terms of a missing policy. Expert opinions are often relied on by policyholders and courts in cases involving missing insurance policies to prove coverage.
Finally, retaining insurance coverage counsel is also important when insurers deny coverage and take the position that the secondary evidence proffered by the policyholder is not sufficient to prove coverage. As the case law demonstrates, even though an historic CGL policy may be missing or lost, coverage is not necessarily unavailable to cover long-term environmental claims.
By Catherine M. Aiello, Esq.
Cathy Aiello is counsel at Lowenstein Sandler in the firm’s insurance group.
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