Emerging liabilities fuel deep dig for insurance coverage

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Insurance archaeology, a specialty service born of long-tail environmental and asbestos litigation in the late 1970s, is seeing increased activity today in areas such as sexual misconduct and concussion claims, experts say.

Statutes in states including New York and California that allow victims of past misconduct to sue for damages despite legal time bars are fueling a need to reconstruct historical insurance coverages, along with long-time problem exposures such as product liability and asbestos.

“One aspect that is very current is all of the allegations of sexual abuse, and that can be for a whole variety of organizations,” said Sheila Mulrennan, president of Insurance Archaeology Group in Rutherford, New Jersey. “Often the allegations cover a long time period, and many states have suspended the statute of limitations, so that’s quite a problem now.”

The number of childhood sexual abuse claims filed in the jurisdictions that have enacted so-called revivor statutes has increased. For example, 350 claims were filed by noon on the first day New York’s Child Victims Act went into effect last year, according to Washington law firm Crowell & Moring LLP, which noted New Jersey and California may see increased activity as well.

“Primarily now, most of the activity is in New York and New Jersey,” Ms. Mulrennan said. “There has been significant legislation in New York and New Jersey that sent so many organizations scrambling to find out what their past insurance was so that they could respond to these claims.”

“It can be in a number of different areas,” said Donna Filippi, a senior vice president in the consulting solutions practice of Marsh Advisory, who oversees archaeology activities for Marsh LLC. “It can be revivor claims now that are going on in the abuse area. It can be for emerging torts like the concussion injuries over the last couple of years, or it can be for old standards like asbestos and environmental coverage. It crosses all lines.”

“We assist clients by going back and reconstructing their insurance programs, to give them the ability to tender claims for long-tail legacy exposures that have just come to light,” Ms. Filippi said. Generally, this involves a client’s general liability or excess coverage, but can include other lines as well, she said.

The insurance archaeologist burrows through old files and records at brokers, insurers, in storage and elsewhere, and might also look for witnesses such as retired risk managers, brokers and others, sources say.

Insurance archaeology can also be brought to bear in product liability suits, said William Passannante, a shareholder in New York with policyholder law firm Anderson Kill P.C. The firm uses archaeology services “pretty often,” he said. “At any given time, we’ll have cases that are going through some type of archeology issue.”

Insurance archaeology grew with the rise in long-tail injury litigation, much of which was associated with asbestos and environmental claims.

“This is an example of how an entire new industry can grow up as an offshoot of something else,” said Carl Pernicone, an equity partner with law firm Wilson Elser Moskowitz Edelman & Dicker LLP in New York.

Long-tail injury litigation was much less frequent before the mid-1970s, Mr. Pernicone said.

A landmark 1971 asbestos liability case in a Texas federal court, Borel v. Fibreboard Paper Products Corp., provided precedent for thousands of product liability, personal injury and property damage claims.

As later policies began excluding such exposures, especially during the 1980s liability crisis, policyholders looked to older policies for broader coverage.

“It’s very important to identify those liability policies that were written before 1986, because they’re broader and don’t have the same exclusions as general liability policies have today,” said John Kelly, founder and managing partner at risk consultants Hanover Stone Partners LLC in New York. “Many didn’t have pollution exclusions.”

The Insurance Services Office Inc. introduced stricter pollution exclusions in general liability policies in 1986.

“The real value creation comes when you go back in time to find those companies with the most liberal policy wording,” Mr. Kelly said. “A disproportionate number of claims shift toward the earlier policy years.”

“The reason why they want to go back in time is that the more recent policies are the ones more likely to have limitations in coverage,” Mr. Pernicone said. “It becomes very attractive for policyholders in long-tail injury cases to reconstruct the older policies because of the likely absence of any exclusions.”

Mr. Passannante encourages policyholders to keep their insurance policies “forever.”

“An old insurance policy which covers a year in which there was an injury can be extremely valuable,” he said.

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D&O Insurance Attorney | Anderson Kill P.C.
William G. Passannante
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