Written by David A. O’Neill, J.D., Director of Investigations, Enviroforensics and PolicyFind
Published in CleanFacts Issue 2 2008
Successful dry cleaners keep a clean shop. Yet in recent years, the tidiest of dry cleaners are discovering that their inclination toward older and cleanliness is having a negative impact on their ability to stay in business. Shedding and discarding old business records has long been the way to keep storage areas manageable and office areas functional. However, dry cleaners are finding that certain of the old business records they destroyed are the very documents they now need to keep their doors open.
More and more dry cleaners are being served with law suits by their landlords because the groundwater beneath their dry cleaning plant is contaminated with chlorinated solvents. These dry cleaners are incurring legal fees to defend themselves. Federal and state environmental agencies are sending notice letters demanding that dry cleaners hire environmental engineers to test the soil and groundwater and access the extent of the contamination. These dry cleaners are spending their savings to fund the several phases of environmental agencies require.
Both their attorneys and the agencies advise dry cleaners that they need to file insurance claims under those business liability policies issued to them during the time of the contamination, however these dry cleaners find that they did not retain insurance policies prior to the current policy, believing them to have expired. They contact their insurance broker, who tells them that only the older policies will cover pollution and regretfully advises that their agency has a seven-year record retention plan that called for the purging and destruction of these older policies years ago. Without these policies, these dry cleaners are told, their only alternative is to pay the attorneys and the environmental experts until the clean up is completed.
What was it about these historical insurance policies that now makes them so valuable?
General liability insurance policies issued before 1986 typically featured insuring agreements that provide coverage for property damage on an occurrence basis. Unlike the policies issued thereafter, these general liability policies were comprehensive and did include coverage for pollution. General liability policies issued in 1986 and later typically featured what has come to be known as the absolute pollution exclusion-a provision that specifically denied coverage for pollution. Policies featuring the absolute pollution exclusion have been upheld by courts in most states as denying coverage to dry cleaners seeking defense or indemnity under their provisions.
However, the comprehensive general liability policies issued before 1986 have been judged in many states courts to provide coverage for unintentional polluting events such as spills, leaks, overfills, boilovers, and underground storage tank malfunctions. If these policies were so valuable, why were so many of them trashed and shredded by policyholders and insurance agencies alike? The simple answer to this question is that the policyholders didn’t realize how valuable they were until the U.S. Congress passed legislation requiring anyone responsible for polluting land or water within the United States to pay to remove the pollutants and rehabilitate the property. Eventually, as federal and state environmental agencies enforced these new environmental laws, insurance companies were stepping up to defend policyholders against environmental claims and it became clear just how valuable these old policies were. About the same time, many insurance agencies determined that this would be an excellent time to purge these policies. Most state insurance departments did not require insurance companies to retain them. That is why it can be expected that the insurance company has each dry cleaners original historic business insurance policy, even if the dry cleaner’s insurance agent did not retain his/her copy of it.
The problem is that while the insurance company has the dry cleaner’s policy, it stores these policies by policy number. The insurers routinely refuse requests from policyholders for copies of their policies unless those requests include the policy number and descriptions of the terms of conditions of the policy. The insurance company knows that the courts will not require that it search without this information and so its standard business practice is not to do so. Very often requests for copies of policies issued to dry cleaners are rejected by insurance companies for lack of this specific information. When this occurs, the dry cleaners gives up hope and begins to fund the defense and the environmental assessment out of his/her savings.
There is an alternative however. It is called insurance archeology and compared to the cost of legal and environmental experts, the cost of employing an insurance archeologist to document your historical business insurance over time is quite affordable. The insurance archeologist is part sleuth and part auditor. He or she is a forensic specialist trained to identify and assemble business records that prove the existence and terms of those liability insurance policies issued to policyholders but long since lost or destroyed. Sifting through miscellaneous records in the dry cleaner’s possession, as well as those preserved in public and private archives, the insurance archeologist assembles proof of the policies required to defend the dry cleaner’s businesses. These documents are then provided to the insurance carriers as evidence of coverage. Once in possession of evidence of the existence, terms and conditions of these policies, the insurance companies are then required by law to search their archives for the actual policies. Once found these policies have the capacity to pay attorney’s fees and fund the various environmental tests required to return the land and water beneath the dry cleaning plant to a condition acceptable by the regulatory agencies.
Enviroforensics™ is the parent company of PolicyFind™ an insurance archeology firm that specializes in the location and retrieval of insurance evidence for dry cleaner policyholders and has successfully conducted over one hundred policy searches for dry cleaning establishments. Policy Find™ operates in all fifty states and in the provinces of Canada, Puerto Rico to prove the existence, terms and conditions of policies needed by dry cleaners to keep their business.