On the Trail of Missing Policies

Note: The information contained in this article is not meant to represent or replace legal advice.

It is no longer unusual to hear of lawsuits stemming from events that occurred long ago, when typewriters were in frequent use and no one had a cell phone. But such claims pose some thorny problems for insurers. For example, an individual or organization might state an insurer has historically provided coverage, but the insurer may not have any record of such a policy. If the policy cannot be located, the insurer needs to consider two separate issues:

(a) Did the company issue a policy to this “insured”?

(b) If it did issue a policy, what were the terms of coverage?

DID THE INSURER ISSUE A POLICY?

In the event no one has a copy of the policy, the next step is to look for any information from other sources. The investigation requires the parties to be insurance sleuths following historical clues that may or may not reveal evidence of coverage.

A starter’s list of evidence that can assist in determining whether a policy was issued to the “insured” includes:

* Information from the insurance broker’s file. This would include, for example, cover letters stating that a policy has been issued; memoranda to the insurer confirming premiums and/or risk factors; slips confirming a premium had been paid and letters or applications to other insurers outlining the insurance history for the individual/organization;

* Evidence from members of the insurance brokerage about their recollection of the coverage secured for the insured. If, for example, the “insured” was a large account for the brokerage, and there was a history of coverage with one insurer, some individuals might be able to remember some details of historical coverage;

* Minutes from the board of directors of the insured;

* Budgets or accounts at the insurance company indicating payments of the premiums;

* Any letters between the insured and the insurer (or through the broker); and

* Claims files held by the insurer regarding claims made closer to the time of the policy period.

The onus is on the insured to establish the existence of the policy (and its terms), but an insurer should be prepared to answer questions as to the efforts made to locate a missing policy if the matter ever ends up in court.

WHAT WERE THE COVERAGE TERMS?

Even if everyone agrees that an insurer issued a policy for the relevant time, the terms of coverage might not be known. A court will not “write” a policy for the parties. If the terms cannot be established, a person or organization could be left with no coverage at all.

The onus to establish the terms is on the insured. The insurer has a duty of good faith to attempt to locate information that assists in determining the terms of coverage for a policy it issued. The duty of good faith does not change the onus on the insured; nevertheless, the insurer must be ready to establish it has made a reasonable effort to assist its insured in the search for the missing policy.

Locating policies issued within the same time frame to similar institutions might be helpful in establishing the terms of coverage. But if there is any evidence suggesting the insured was issued a manuscript policy, then policies issued to other institutions will be of limited (if any) value.

Many of the sources reviewed to establish the existence of the initial policy are also helpful in determining terms of coverage. Brokerage files, brokers or underwriters who worked at the relevant period of time on the account, historical claims files and the insured’s own business records can all help to illuminate the coverage trail.

THE INVESTIGATION IS AFOOT!

A case involving a missing policy brings out the opportunity for everyone involved to be Miss Marple or Sherlock Holmes. We take out our magnifying glasses and search for clues in all available records. Unfortunately, even with tremendous ingenuity, the trail may turn cold, leaving everyone in a state of frustration. Despite this possibility, and keeping in mind some of the major sources of information available to crack this type of case, the insurer can fulfill its duty of good faith by committing itself to a complete and thorough search.

Given the potential difficulties in establishing historical coverage, insureds may want to consider holding onto policies rather than sending them to the garbage or shredder as we might with credit card invoices and bank statements. Even better than properly investigating missing policies is to eliminate the need to do an investigation at all.