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To paraphrase our president, policyholders have often needed to show more than a little backbone to pursue claims against insurance companies to the bitter end. But the California Supreme Court recently made that backbone a little thinner in an important decision that strengthens the ability of policyholders to collect policy benefits when the insurance policy has long since been lost or destroyed. This important California decision ( Dart Industries v. Commercial Union Insurance Company , 28 Cal.4th 1059) illustrates just how strong a backbone can be required to collect on insurance, particularly when a copy of the policy cannot be located. For 18 years, Dart Industries’ battle encompassed two trials, four appeals and now a state Supreme Court ruling in its favor, resulting in a remand to the Court of Appeal to determine if sufficient evidence of damages was presented to affirm. This lengthy dispute stemmed from Dart’s potential liability for its predecessor having manufactured and sold a drug called diethylstilbestrol (DES) as long ago as 1946. Beginning in the 1970s, suits were filed alleging that DES caused serious adverse health effects in the children of women who ingested the drug decades earlier. DES is probably best known to lawyers as having spawned the concept of “market share liability” — the imposition of liability on manufacturers based not on proof that a particular plaintiff was injured by a particular defendant’s drug or product, but rather based simply on proof that the defendant had a share of the market for that drug. ( Sindell v. Abbott Laboratories (1980) 26 Cal.3d 588) Dart sued its three primary insurers to obtain a defense and indemnity. Two settled, but Commercial Union refused. Commercial Union apparently felt it had a stronger defense because a copy of the relevant five-year policy — in effect from 1946 to 1951 — could not be found. It is not a tremendous surprise that the insurer had discarded the policy, because most insurers have learned that keeping the policy only leads to greater liability to policyholders. Why? Because California law requires that the policyholder prove both the existence and material terms of its insurance policy. If the policyholder cannot meet this burden, then the insurer isn’t liable. In the typical automobile accident, medical malpractice or homeowners’ claim this burden is usually easy to meet because most policyholders (and most insurance brokers) do keep their policy for at least the current policy year. But claims may be based on wrongful conduct that occurred years if not decades ago, where the damages are not manifested until many years later. Asbestos personal injury cases, environmental contamination or toxic tort cases, product liability cases, construction defect cases — tort law permits these suits to be brought based on alleged misconduct of years past and where the damages alleged may have manifested themselves many years later, even decades. For instance, the ongoing use of a landfill can cause environmental contamination from the day the landfill begins operations until it ceases. The courts have held that every year there is new or progressively deteriorating pollution of the environment, there is “property damage” that triggers each policy. ( Montrose Chem. Corp. v. Superior Court (1995) 10 Cal.4th 645, 689; Aerojet-General Corp. v. Transport Indemnity Co . (1997) 17 Cal.4th 38) In the personal injury arena, the ingestion of asbestos fibers begins to cause cellular changes to the lungs, and the courts have found that cellular damage to qualify as “bodily injury” during each policy period from first exposure to asbestos fibers until judgment or death. Every policy in effect during those years is liable for the loss. ( Armstrong World Industries, Inc. v. Aetna Casualty& Surety Co. (1996) 45 Cal.App.4th 1, 47-48.) If the defendant kept copies of all of its general liability policies, it can pursue coverage for each of the years in which bodily injury or property damage is alleged. But if it did not, it may face a lengthy and expensive battle proving what those policies said. That’s where the Supreme Court’s recent decision in Dart comes in, because that decision lessens the burden for policyholders. Commercial Union contended that Dart needed to prove the language of the missing policy verbatim. The Supreme Court said no. Commercial Union argued that Dart needed evidence of the standard language usually incorporated into Commercial Union policies in 1946 (“specimen policies”). The Supreme Court said no. Commercial Union said Dart needed evidence of industry practice. The Supreme Court again said no. And Commercial Union asserted that Dart must show what standard insurance policy provisions were required by statute in 1946; the Supreme Court answered “no.” Dart could not meet its burden of proof based on the type of evidence Commercial Union demanded because Dart’s policy was a “manuscript” policy. These policies are not “off the shelf” preprinted form policies, but instead include specific contractual provisions chosen from a broader array of possible wording to provide a more customized policy. Any proof Dart submitted of the terms contained in a standard 1946 Commercial Union policy would not have sufficed because Commercial Union could retort that Dart’s policy was not a “standard” policy. Proof of industry custom and usage would suffer from the same defect. And there was no statute requiring that insurers provide “long-tail” occurrence-based coverage at the time. So what did Dart need to show in order to meet its burden of proof? The court said Dart needed to show: 1. failure to locate a copy of the policy after conducting a diligent search (undisputed in this case); 2. that the policy was lost or destroyed without fraudulent intent on the part of Dart; and 3. the existence and terms of the policy material to the risk at issue. Thus, Dart needed to establish that the policy contained language indicating an intention to cover the sorts of personal injury claims asserted in the DES cases, and that it covered those “occurrences” that manifested themselves long after the policy expired — the primary issue disputed by the insurer. But Dart did not need to prove all the terms and coverages that did not apply to the DES Claims. Thus, Dart did not need to prove that it also had coverage for trespass claims or environmental contamination because those coverages were irrelevant. Dart was able to meet its burden by the testimony of only one witness — the insurance agent for the insurer and broker for the Dart account in the late 1940s and apparently thereafter. That broker testified to not only having reviewed the policy, but having participated in meetings at which the policy’s coverage was discussed. Most importantly, he testified to having a specific recollection that the policy included the necessary long-tail or “occurrence”-based coverage that obligated the insurer to pay for injuries initiated by the ingestion of DES during the policy period but not manifested until after the policy period ended. The court specifically noted that it did not matter if the broker’s testimony could not be corroborated by documentary evidence because the testimony of a single witness may be sufficient, and had been believed by the jury. What does Dart mean for other policyholders? First and foremost, never throw out insurance policies, no matter how remote you think it might be that a covered claim will ever arise. But if that policy has already been lost when a claim does arise, do not give up the ship either. Consider whether you can find evidence of that missing policy from any one of a number of sources, such as: • The insurance broker or agent. • The company’s present and former lawyers. • Entities who may have been named as an “additional insured” on the company’s policy, or who may have obtained certificates of insurance from the company’s broker. While Dart did not rely on evidence from the insurer, do not neglect the possibility that the insurer can help you build your case. The insurer may have some records to indicate that a policy was purchased, such as proof of premium payment or a claims history. A subsequent policy may indicate that it was a renewal of a prior policy. And the insurer may have specimen policies that can establish the terms of a standard policy of the relevant time. Alison Hightower is a partner in the San Francisco office of Nossaman, Guthner, Knox & Elliott where she specializes in maximizing insurance coverage for policyholders. She can be reached at [email protected].

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