Part 3: Why Past Policies Matter

The ancient Chinese philosopher Confucius once said: “Needing insurance is like needing a parachute. If it isn’t there the first time, you most likely won’t be needing it again.” That quote may be dubiously sourced, but the principle is a true one. Not having sufficient insurance can be an existential threat to your business or organization in the event of litigation.

“But ah,” you may say, “My family’s business has been adequately insured since my 9x-great-grandparents started it! They brought their policy over with them on the Mayflower and even made sure to secure winter famine coverage with their Plymouth Mutual agent shortly after making landfall.”

That’s well and good. But if historical claims arise against your organization, chronicled annals of insurance documented by no more than oral tradition will not be enough to trigger coverage. While you do not necessarily need to archive vellum parchment policies dating back to the Colonial Period, this installment of our series on insurance explains why it is important to keep records of all the policies that have been in effect during the course of your organization’s operation.

Occurrence vs. Claims-Made: Coverage Periods Explained

If you became stranded on a desert island, the first person likely to find you would likely be someone trying to sell you insurance. Whether it’s your postal mailbox or your LinkedIn messenger inbox, it seems that the barrage of insurance sales pitches is inescapable. As a result of the proliferation of customizable policies, businesses are constantly upgrading their policies and switching carriers to get coverage that fits their exact needs. This may result in a chronological succession of policies, each of which may vary in the scope and amount of coverage. While it can be wise to upgrade coverage, a claim based on events in the past may raise the question of which past policy, if any, is triggered.

For each policy you purchase, your insurance carrier will issue you a copy of the policy, which sets forth the terms and conditions of coverage, the scope of coverage for each category of loss, and the exclusions to coverage. The insurance company will also issue you a declarations sheet that will specifically spell out the policy limits under your policy for each category of loss described in the policy. Towards the top of the declarations sheet, it will generally provide a “coverage period,” or a range of dates between which the coverage as set forth in the declarations sheet is in effect.

In terms of how coverage is triggered, there are two types of liability policies: Occurrence policies and claims-made policies. Under an occurrence policy, coverage is triggered by an injury or loss event that occurs during the coverage period stated on the declarations sheet. Under a claims-made policy, coverage is triggered by a claim that is filed during the coverage period. Unlike most errors and omissions (E&O) policies and professional liability policies, which trigger coverage on a claims-made basis, almost all commercial general liability (CGL) and commercial umbrella policies are occurrence-based. This means that if an event gave rise to an injury that occurred in June of 2007, coverage for that loss would likely depend on what policy was in place in June of 2007 and not on the policy currently in place.

Historical Liability: How Past Policies are Triggered

Public policy disfavors the litigation of injuries alleged to have happened many years before they were asserted as claims. Records may not have been kept from that long ago and witnesses’ memories may not be as sharp. Moreover, it’s difficult for businesses to have to worry about claims that might come up from things that happened decades ago. This is why all jurisdictions have statutes of limitation for most types of lawsuits. These statutes limit the amount of time that plaintiffs have to assert claims against a tortfeasor. For most personal injury claims, this period is typically no more than three years. If a plaintiff sits on his claims for a period longer than the applicable limitations period, the claims are time-barred regardless of how meritorious they may have been.

However, there are still instances where older injuries can still give rise to liability. One exception to most statutes of limitation is the so-called “discovery rule,” under which the clock on the limitations period does not begin to run until the plaintiff discovers the injury or at least should have discovered the injury. For example, a person may have retired from a long career at a factory ten years ago but was unaware of her exposure to toxic chemical until the recent diagnosis of a disease caused by that exposure. In this case, the claim did not arise until the injury was discoverable. Even though the applicable statute of limitations might be two years, the clock on the two-year period only started running after the plaintiff’s diagnosis and her claims are not time-barred.

Another basis on which older claims are still justiciable is through so-called “revival statutes,” which are laws that amend or suspend the statute of limitations for a particular category of claims to allow plaintiffs to sue for historic injuries. After the #MeToo movement, a current trend in several states has been to pass revival statutes for sexual abuse claims, allowing plaintiffs to sue for abuse that occurred in the past.

These are just a couple examples of how events in the distant past might give rise to claims now. In such instances, the insurance coverage available to defend your organization and pay any judgments or settlements will be that which existed at the time the injury occurred. This is why it is crucial to keep extensive records of past insurance policies so that the existence, scope, and amount of historical coverage can be easily determined.

Insurance Archeology

“Oh no,” you may say, “neither I nor my predecessors have kept records of our organization’s past insurance policies!” This is common. Many organizations, especially ministries and small businesses, neglect to keep such records. However, through an inquiry known as “insurance archeology,” it is often possible to identify historic coverage in spite of a lack of policy records on hand. Yes, “insurance archeology” is a real thing. It may not be as exciting as Raiders of the Lost Ark, or as scholarly as an academic symposium on antiquarian artifacts, but it can save your organization a substantial amount of money if litigation arises from past events.

The first source to consult is your organization’s insurance agents, carriers, and brokers. If your organization has switched policies all while still using the same carrier or even the same broker, those parties will often have archived records of past policies. Indeed, in some states, they are required by law to do so for a specified number of years.

You can also contact any attorneys or law firms who have represented your organization in the past. Even if the matter for which they represented your organization was not litigation, there’s still a likelihood that their file for your organization might contain some reference to past insurance coverage. Even if just sparse information such as policy numbers or agent information could be retrieved, that data alone could aid in the discovery of historical policies.

Should your own efforts to ascertain historical coverage come up empty, there are professional insurance archeologists who perform extensive forensic inquiries to determine the existence of any historical coverage. While these archeologists may not be as entertaining as Indiana Jones or Laura Croft, their services can be invaluable in the midst of threatened or impending litigation where substantial sums of money are at issue.

Conclusion

Certain industries and fields have higher risk of liability arising from historic acts or omissions than do others. For instance, companies that have engaged in the long-term use of industrial chemicals may encounter claims arising from contamination or exposure that occurred decades ago. Organizations that have worked with children are particularly at risk for historic abuse claims in states where the applicable statute of limitations has been extended or suspended. But businesses and organizations of all stripes should make every reasonable effort to be able to trigger coverage under past policies if the need arises.

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Featured Image by Rebecca Sidebotham.