RISKVUE ARCHIVE | FEATURE STORIES

Re-creating Lost or Missing Insurance Policies

By Jessica Meyer and Paul Banker

Missing liability insurance policies continue to generate substantial litigation in insurance-coverage disputes. Because of the "occurrence" language used in liability policies, missing policies can potentially be called upon to provide coverage for a loss long after the expiration of the actual policy period, provided that damage occurred during the policy period. In practice, this has proven particularly important in the context of continuous-trigger, long-tail liability situations, such as those presented by pollution and asbestos claims.

When it comes time to establish coverage for such continuous-trigger incidents and the applicable policies have been lost or destroyed, it is up to the policyholder attempting to secure insurance coverage to prove the existence of the policy, its terms, and the conditions of coverage. The insurer's only burden is establishing the terms of any applicable exclusions or defenses to coverage. Thus, it becomes vitally important for policyholders to understand what must be proven and where to find documents and evidence that may re-create a lost but applicable insurance policy.

There is no concrete rule about how much documentation an insured must show to prove the terms and conditions of an insurance policy, and the level of precision varies by state. Although a few courts still require the insured to establish by clear and convincing evidence the existence, terms, and conditions of a lost policy, the majority of the time--absent evidence of fraud--an insured must show only that the conditions under the policy are "more likely than not" what the policyholder demonstrates.

Without the policy in hand, the insured is left to rely on secondary evidence gathered from numerous sources to prove the terms of the policy, which may have expired decades earlier. A prerequisite for admitting secondary evidence is a showing by the insured that, at one time, the original policy existed and that it is now legitimately lost, destroyed, or unavailable. Once that is shown, the policyholder may admit evidence such as declarations pages, testimony from insurance agents or brokers responsible for obtaining insurance for the policyholder, testimony from representatives of the insurer, insurance-policy-reconstruction experts, and standard policy forms in use by the insurer during the relevant period.

There are several places for a policyholder to search to uncover secondary evidence to support an assertion of insurance coverage. Policyholders can start by investigating their own information, such as certificates of insurance; corporate documents and policies related to risk management, potentially found in accounting ledgers; correspondence; payment information; loss and claim information; and information maintained by corporate attorneys, accountants, or historical insurance brokers or agents.

But more than likely, the policyholder will have to expand beyond these corporate records to re-create a policy. The most important information will likely be found with the insurer. Understanding where an insurer might have information about a missing policy involves developing an understanding about how the insurer historically conducted business at the time the policy was issued. Beginning with the assumption that a policy existed, it is then possible to follow the chain of custody backward in time.

The underwriting file may be the single best source of information related to a missing policy that the insurer could provide. If an insurer issued a policy, there would probably have been an underwriting file at some point in time. That file may have contained an application for insurance filled out by the policyholder or broker, along with information about the risk rating and premiums. Depending on the insurer's practices, the underwriting file might have contained either an actual copy of the policy or a sufficient description of the component forms that a policy could be re-created from that information.

The next best place to search for information about a missing policy is the historical-claims file. To the extent that prior claims had been made against the policy, the insurer may have maintained records within its claim file, which could contain evidence of payments made under a policy, correspondence between the agent or broker, copies of paperwork from legal proceedings, or loss-run information. Depending on the size of the claim, or whether there were coverage issues, it is even possible that a claim file would contain a copy of the applicable policy.

If a policyholder's insurance program was complex--stretching over a number of years, or structured in layers of coverage--the relationship between primary and excess coverage should be considered. An excess policy will generally describe the underlying coverage in terms of the type of policy, the carrier, the policy period, and the limits. The same process that applies to a primary-policy search could be extended to an excess-policy search. There would probably be a separate excess-policy underwriting file and potentially excess-policy claim files. Any of this information could be used in re-creating a missing primary policy.

Similarly, the insurer's own information about reinsurance may be a lead to information about a missing policy. Depending on the limits of insurance involved, the insurer may have obtained a reinsurance policy in order to further spread the risk of loss associated with a particular policy. If that was the case, chances are the insurer would possess information about the identity of the reinsurer. The reinsurer would, in turn, probably possess an underwriting file for the reinsurance policy. This file would likely describe the underlying policy that the original insurer is reinsuring; it might also contain a copy of the original insurer's policy.

The pervasive use of third-party vendors to store corporate documents has created another potentially valuable source of information. Presumably, an insurer understands how its corporate documents are stored, and a request for the insurer's information about a missing policy would encompass information held by an off-site-storage vendor. But verifying that the third-party document-storage vendor has made a thorough search of its information is a means of ensuring that nothing was overlooked. Third-party vendors, which store large quantities of documents for many different customers, will also likely have their own databases to hold information about what they store. Understanding these systems, the scope of their information, how they are searched, and what historical information is maintained about requests and transmittal of particular boxes could provide insight during a missing-policy search.

In addition, to the extent that the insurer used standardized or ISO forms, it may be possible to more easily re-create the terms of a missing policy with information that falls short of finding an actual copy. A policyholder seeking to re-create a missing policy may want to consider retaining an "insurance archeologist" to help. Insurance archeologists are specialists who can serve as either consulting or testifying experts. They have experience with the insurance industry, as well as with the documentation created by both insurers and policyholders in the insuring process. An archeologist may be able to not only help formally or informally with the search process, but also help analyze the information yielded by the search to develop additional leads. Insurance archeology is a specialization that has emerged in response to missing-policy issues as they have presented themselves in the context of long-tail liabilities like pollution and asbestos claims.

In conclusion, insurers and policyholders can work together to manage missing-policy disputes and investigations to seek an efficient resolution. Understanding the potential sources of useful information, investigating them logically, and then critically analyzing the results can help head off costly litigation alternatives.

ABOUT THE AUTHORS

Jessica Meyer is a member of Lindquist & Vennum's Insurance Recovery practice group. She is experienced in litigating insurance-coverage and bad-faith cases involving commercial general, homeowners', auto, property, errors-and-omissions, and umbrella liability insurance, as well as property policies. Ms. Meyer can be reached at 612-371-2409 and jmeyer@lindquist.com.

Paul Banker co-chairs Lindquist & Vennum's Insurance Recovery group and assists clients with commercial litigation and appellate cases. He is a member of the Minnesota Supreme Court's Advisory Committee on the Rules of Civil Procedure, and an adjunct professor at the William Mitchell College of Law, where he teaches legal writing and representation. Mr. Banker can be reached at 612-371-3969 and pbanker@lindquist.com.

riskVue | The webzine for risk management professionals
February 2008