Searching for Dollars in Old Policies
When a lawsuit against your company alleges bodily injury or property damage occurring years ago, insurance companies will not respond if you cannot find your policies or prove they existed. This article has helpful hints on where to look and what you need to find so that the insurance company will respond.
You can recover money from insurance policies only if you have the policies or can prove their existence, terms and conditions. Paper takes up a lot of space that is often expensive and locating the exact document can be difficult to find when you need it. If your company has recently purged old documents, has a document retention and destruction policy that is followed scrupulously, or your company has acquired other companies, you need to read this article.
Asbestos litigation continues, as do enforcement actions and suits by Environmental agencies. Add to this the growing litigation concerning sexual abuse that occurred thirty or more years ago and other latent injury claims. This potential liability can be a great financial risk to your company if you cannot locate insurance policies for the period of alleged injury or damage. Much of the alleged liability predates most of the current employees at a company and very likely, the insurance policies you can quickly locate. In some instances, the lawsuit will allege specific dates of when bodily injury or property damage occurred. In other instances, the lawsuit will allege sales of products or operations that caused bodily injury or property damage, but no specific dates.
Occurrence based policies are triggered by bodily injury or property damage that occurred during the policy period, so your current policy would not apply if the allegations of bodily injury or property damage were all before your current policy incepted. If the allegations in the lawsuit are silent as to dates of injury or the injury may be continuing, your current policy should respond, but exclusions may preclude coverage. Your company may also face significant exposure if the policy has a Self Insured Retention (SIR) or large deductible. Regardless, once you have received notice of a lawsuit that alleges injury over several years you should immediately notify your current carrier and all known prior insurance carriers including umbrella and excess carriers.
The lawsuit requires an answer or other appropriate legal response, and depending on the actions of the insurance carrier(s), your company may or may not begin incurring legal costs. Defense costs for environmental damage lawsuits, in particular, can be very large. The duty to defend in the policy is broader than the duty to indemnity. Most states require the insurance carrier to pay defense costs for its insured if there is only a potential for coverage. Some states though, allow the insurance carrier to seek reimbursement of defense costs for allegations later determined not covered. A carrier can assume the defense under a reservation of rights, but other carriers may deny coverage from the onset. Locating older policies increases the likelihood your company will not be paying the defense costs.
The duty to indemnify is narrower than the duty to defend and the carrier only pays if the claim is covered. The bodily injury or property damage must have occurred during the policy period and not otherwise excluded. Courts have considered different theories of when bodily injury or property damage occurs. It may be only during exposure to asbestos, or when the injury or damage is discovered, or all the time in between. This will determine which policies would pay indemnity, but your company may have to pay a portion of indemnity if a policy cannot be located for that period. Umbrella and excess policies may also be required to share the indemnity costs depending on court rulings. They may refuse to drop down if one or more of the underlying policies are lost. If needed, seek advice of your general counsel or outside counsel for which policies apply.
All of this makes it imperative that you identify and put on notice all carriers that have any potential for coverage. You need to research back to the earliest possible date of injury or damage. If you do a diligent search and are unable to find all the policies, but have some evidence of the policies, a court may accept this evidence as proof of the policies and require the insurance company to fulfill its obligations. Again, the courts of the various states do not agree on what evidence is acceptable and how much you must have. The courts will either require a preponderance of the evidence or clear and convincing evidence. A preponderance of the evidence is a lower threshold, and means it is more likely than not that, the policy did exist, and the terms and conditions can be determined. The clear and convincing standard is a higher threshold and requires more evidence to establish existence and the terms and conditions.
When you are searching for policies, you need to know what the court will look for in determining if you have met the burden of proof, whether it is a preponderance of the evidence or clear and convincing. The court will look at primary evidence, actual parts of the original policy, and secondary evidence, any documents that may bear on the existence of the policy and its terms and conditions. The closer the evidence is to the actual policy, the stronger the evidence to carry the burden of proof.
Here are some suggestions to help in your research:
Start With Your Company
The oldest policy you can locate is the best place to start your search. This policy may refer to a previous policy number or have documents attached that discuss a prior insurance carrier. Long-term employees are also a good source of information. They may know what insurance agent or broker the company used and possibly, who the insurance carriers were. Old accounting records may also have names of insurance companies, policy numbers and limits. These may be within the accounts payable area and show the premium, or may be in the accounts receivable area showing receipt of a claim payment or premium refund or dividend. Do not limit your focus to general liability policies, but look for all insurance information. Often a worker’s compensation carrier also wrote the general liability coverage. Umbrella and excess policies will usually contain information of underlying policies.
Ask Your Customers
Contact current and past customers. Customers often require Certificates of Insurance, and sometimes a copy of the policy if the policy names them as an additional insured. This is especially true for government contracts. A company that did work for the federal government located fifty-year-old General Liability policies at the National Archives. Depending on the relationship, your company may be an additional insured on a customer’s policy.
Request Information from Insurers
Request each insurer you identified to conduct a search of their records. Provide them with any policy numbers or claim numbers that you have along with a list of possible names on any policy. The insurance company should check their underwriting department, claims department, loss control department, premium audit department, and marketing department for any policy or information indicating coverage. Some states also will require insurance companies to provide copies of the most common coverage forms if policies cannot be located. The coverage form will help establish the terms and conditions of the lost policy.
Though your search may be time consuming, and seem fruitless, a diligent and creative search can pay off. The more policies you can locate, and the more coverage you can confirm, the greater potential for recovery on a loss.
ABOUT THE AUTHOR: Tommy R. Michaels, CPCU, AIC, ARM, ARe
Tommy R. Michaels is the principal of T. R. Michaels Claim Consulting, LLC and has been involved in property-casualty claims for more than 39 years. He has been involved in numerous cases involving lost policies and reconstruction of policies dating back to the 1940s. Tommy Michaels serves as an expert witness on claim handling issues, policy interpretation, and policy reconstruction.
Copyright T. R. Michaels Claim Consulting, LLC
More information about this article at T. R. Michaels Claim Consulting, LLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.