Proving the Existence and Terms of Lost Insurance Policies
By Patrick Olmstead
Insurance claims sometimes arise years or even decades after an “occurrence.” This is especially true in the context of environmental contamination. Because the claims may not be triggered for such long periods, a recurring issue concerns lost insurance policies.
Insurers will sometimes deny coverage, if the insured cannot provide a copy of the policy. This may result in a lawsuit to determine insurance coverage.
In an insurance coverage suit, the insured has the burden to prove both (1) the existence of the policies, and (2) their terms and conditions. Under Indiana and Federal Rules of Evidence 1004, if an original insurance policy is lost, other (secondary) evidence of the contents of the policies is admissible, unless the policies were lost or destroyed in bad faith.
Rule of Evidence 1004 has a de facto “diligent search and inquiry requirement” before introducing this secondary evidence. The diligent search and inquiry is usually demonstrated by an affidavit of company employees regarding: document retention and destruction policies, the historic maintenance of the policies, the likely reasons the policies were destroyed (in conformity with the destruction policies), and the searches for the policies (including who searched, what locations were searched, and how long the search was conducted).
Once the diligent search has been demonstrated, the insured may then introduce secondary evidence regarding the terms and conditions of the policies. An insured may offer an employee affidavit regarding the policies and their terms. The affidavit would include: direct knowledge or recollection of the policies and their contents, the policy periods, any limits of liability, the hazards insured, any additional insureds or other endorsements, and if there was a duty to defend. Besides affidavits, other evidence would include company records, Board of Directors meeting minutes, annual reports, or any other documents that may tend to prove the existence or terms of the policies, such as ledger entries showing the premiums paid.
Besides an internal search, an insured may also consult with outside personnel to see if a policy can be located or to establish the terms or conditions of the policies. Such outside personnel include: accountants, auditors, outside counsel, Directors, successors-in-interest, brokers, agents, insurance consultants, underwriters, reinsurers, and excess insurers.
Insureds may also retain insurance archeologists or other insurance industry experts to opine regarding (1) the insured’s good faith and diligent search for the policies, (2) the likely terms and conditions of the policies, and (3) the customs and practice of the insurance industry at the time. Oftentimes, these insurance experts can describe the standard terms and insurance customs and practice in use during the relevant time periods of the lost policies.
Discovery may also be sought from: the insurer, brokers and agents, underwriters, excess insurers, re-insurers, and the State Department of Insurance. The State Department of Insurance will often have standard policy language that was submitted by the insurer and sometimes has non-standard policies (a/k/a “manuscript policies”) for which the insurer sought regulatory approval. If an expert or the State Department of Insurance can provide a specimen or standard policy that was in use at the time, a company employee could also review that policy and testify to any terms or conditions that resemble those of the policies that were in effect for the insured at the time.
To the extent the insurer claims that exclusions apply, it bears the burden of proving any exclusions.
If the insured proves there is coverage, the insurer may be liable for the attorney’s fees and costs incurred for that coverage action. The insurer may also be liable for punitive damages if it denied coverage in bad faith.
Therefore, many insurers will provide an “accommodation” defense—a defense with a full reservation of rights—so it can control the defense and fees until the insurance policy issue can be resolved.
Should you have any questions concerning insurance coverage issues, please contact us at your convenience.