When it comes to archiving information -- particularly documents relating to insurance -- even the best-managed companies often fall short. Rarely do companies organize their insurance policies by year, or by type of coverage. Rather than finding policies worth millions of dollars stored neatly in plastic sheathes, bound together in the company vault, a request for old coverage often produces a jumble of dog-eared papers. Even worse, a request for lost policies oftentimes yields the somewhat sheepish admission that the documents were destroyed years ago.
Why keep the information, most managers wonder. What difference does it make once the policies expire? It can mean millions of dollars to a corporation. Take Fibreboard Corporation, for example. The company faced more than 200,000 claims that fell under policies dating back to the 1950s and beyond, and through insurance coverage litigation managed to pass almost all of their $3-plus billion settlement agreement onto their insurance carriers by referencing expired policies.
Other corporations in a mix of industries have faced major issues and claims -- from pollution and subsidence, to electromagnetic fields and tobacco -- which have triggered old coverage. Any time it can be shown that there was injury or damage during an older policy period is sufficient to trigger the older coverage.
Without the policy, what is to stop an insurance company from swearing that it never issued the coverage? And what if other events during the regular course of business worked to exhaust that coverage? Or worse yet, what if your company was among the last to be hit with a certain kind of lawsuit, long after the insurance companies put absolute exclusions for that type of claim into the policies?
Despite the stakes, surprisingly few companies follow the simple maxim "SAVE YOUR POLICIES" that could provide immediate solace if trouble suddenly arose and evidence of past insurance was needed. In fact, companies should do more than just save their policies. Management should save everything associated with the purchase of the policies -- the checks, correspondence with the carrier and the broker, promotional material sent by the broker or carrier, the accounting documents showing the purchase of the policies, etc.
Strategies to Help Ensure Coverage
Assuming the worst, then, what can a company do to find evidence of its coverage? And even if some evidence of coverage is found, will that be sufficient to prove up the policy? Here are some issues for management to consider:The Search Begins
The first step is to zero in on the relevant time frame, since certain claims have the potential for triggering 40 years of coverage or more while others may involve events in the more recent past.Also, consider what the name of the company was at the time -- have their been mergers or acquisitions during the relevant time period that have resulted in a name change? Also, consider what line of business in the company was focused on at the relevant time. Typically, companies have to provide evidence of insurance to different regulatory entities, which may serve as another lead. Also consider whether the structure of the company has changed over time. Was there a reorganization? A purchase of substantially all of the assets of another company? A merger? Was there a parent company? Copies of the policies may reside in the other company's files.
Additionally, try to determine who was responsible for purchasing insurance. Was it a risk manager, the company treasurer or CFO, the general counsel's office? Keep in mind that the company's current reporting lines may in no way match the way in which insurance was purchased in the past. Also, try to determine if brokers were involved. By interviewing those in-house people who were responsible for purchasing the coverage, you may be able to gather more information on outside brokerage houses. All of the brokers should be contacted and the individuals responsible for the account should be interviewed.
What to Look For
It is virtually impossible to catalog all the different kinds of evidence that may reference insurance purchased by a corporation within the confines of this article. What is important for companies to consider is how secondary evidence can be used as clues that may ultimately lead to finding the actual policy. And in some cases, secondary evidence may even be sufficient to persuade the carrier to drop a defense based on lack of coverage. If that tactic is not successful, secondary evidence can be used to help establish the material terms of the coverage through litigation.Here's a brief rundown of sources of secondary evidence that a company should track down in its efforts to locate a lost policy:
Correspondences -- documents relating to the policy -- claim documents, records of premium payments, applications for coverage, solicitations for coverage, insurance requirements for certain contracts;
Carrier's Internal Documents -- prior reserves established, evidence of reinsurance placed on the policy;
Document Retention Programs -- may make specific reference to procedures for maintaining coverage;
Legal Department Files -- may have referred to coverage information in the ordinary course of handling a then existing claim;
Corporate Indexes/Documents -- include listings of the contents of the corporate vault, any written guidelines for handling claims against the company or accident reports (these documents may refer to the name of the carrier or provide other useful information)
Accounting Records -- accounts payable, work papers prepared in the course of audits may indicate the name of the carrier or the policy number;
Licensing Records -- governmental permits and the like oftentimes require evidence of insurance as part of the permit process. Checking these files may yield these certificates or they may be maintained by the regulatory agency itself;
Miscellaneous Sources -- minutes of meetings of the board of directors, minutes of shareholders' meetings, files on easements, construction projects, lines of credit, vendors' files, construction projects, and safety records.
Remember, there is really no limit to the extent of the search. Your company's efforts will likely depend on the size of the claim at issue -- the more dollars at stake, the more exhaustive the search within the company's archives.
Conditions for Proving Lost Coverage
If the carrier is going to force you to litigate the existence of the older coverage (despite the strength of the secondary evidence obtained), then a few additional points need to be noted.First, the corporation (or policyholder) will have to prove that the original policy cannot be found and that it was lost or destroyed without fraudulent intent. Unless the carrier has an inkling of fraudulent intent, all that usually is required to verify this is proof that your company has conducted a reasonably diligent search for the policy in places where it would ordinarily be located.
Once the policyholder meets the "search test," then the company can introduce secondary evidence to the policy's terms. How can you introduce evidence of a document that your company does not possess? There are a myriad of ways, including:
- Employee Testimony: People who remember the coverage can testify to its terms. You would be surprised at the intricacy of the details that from time to time are recollected sometimes after more than 20 years from when the policy expired.
- Carrier Files: Oftentimes some of the best evidence comes from the carrier's own files, including loss prevention records, old claim files, old marketing files, premium receipts, etc. If your search turns up certificates of insurance, then this can go a long way to proving up the coverage bought.
- Industry Standards: Evidence of what were the standard forms of coverage in use during a given period of time is not difficult to develop and tends to shift the burden to the carrier to prove that something other than the standard form was used. Similarly, you may have evidence of other coverage placed with the same carrier during different time periods. Testimony could then establish that the type of coverage did not change from year to year. By the same token, you could use another carrier's policies that were purchased from a different period to the same effect.
Burden of Proof
It is important to remember who has the burden of proof in these insurance coverage cases. Typically, the policyholder must prove by a preponderance of the evidence that the policy was issued and its material terms. The carrier typically has the burden of proving restrictions on that coverage such as exclusions and limits of liability.Searching for missing policies can involve frustrating and painstaking work. The alternative, however, is usually unacceptable to management. As in the case of Fibreboard or other companies facing "bet the company" litigation, proving the existence and parameters of missing coverage can be absolutely essential to the continued life of the company.
Even for those companies facing relatively more limited threats, the continued drain on resources of having to pay to defend against claims that should be covered by an older policy is also untenable. After all, what were the premiums for, if not to for the security of knowing that the company's insurance carrier will be there years later when a claim materializes out of the blue?