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Environmental Insurance Alert—Change to Evidence Rules Threatens Policyholders’ Ability to Recover Under Historic Insurance Policies

September 2, 2015

As previously discussed in this newsletter,[1] historical insurance policies can cover environmental liabilities arising out of claims ranging from Superfund Sites (for example, the Portland Harbor and Lower Duwamish Waterway Superfund Sites) to the cleanup of a neighborhood gas station. All insurance policies in effect when the pollution was occurring are triggered even if the events that caused the contamination were many years before the enactment of federal and state Superfund laws and other environmental cleanup statutes. A proposed change to the Federal Rules of Evidence could dramatically impair the ability of insured parties to prove the existence of coverage.[2]

The flip side of the value of old insurance policies is that they are, in fact, old. Even if the current owner or operator at a site or a predecessor company was in business in, for example, during the 1960s or 1970s, insurance policies often have not survived for 40 or 50 years intact. The courts and drafters of the Federal Rules of Evidence (FRE) and state law equivalents have developed rules regarding proof of these sorts of historic documents about which there is no surviving witness to testify. Among these rules is the “Ancient Document” rule, codified in FRE803(16) and 901(b)(8)(C). Although the Ancient Document rule may sound like a rule relating to musty parchment[3] detailing the obscure real property conveyances, the rule actually has practical effect in the real word, For example, the rule provides great assistance to a policyholder attempting to prove the existence and contents of historical insurance policies.

The Problem of “Ancient” Insurance Polices

A few examples may help to show the importance of the Ancient Document rule.

Example 1: The Warehouse. A policyholder is identified as a potentially responsible party (“PRP”) at a Superfund site for activities going back to the 1960s. A search of the its accounting department archives uncovers, among payroll, tax and hundreds of other boxes of routine business documents, a copy of an insurance policy from 1963. The policyholder determines that in the 1960s its company controller was responsible for insurance. The controller is long deceased and no other surviving member of the accounting department remembers anything about insurance.

Example 2: The Landlord. A policyholder operates a gas station on a leased property. Its landlord required proof of insurance. The policyholder, seeking insurance for the cleanup of the station, cannot find any policies from the relevant time period, in this case the 1970s. The policyholder has no copy in its files, but its proof of insurance exists in lease files currently in the possession of the landlord’s probate estate. The policyholder’s insurance broker, who sent the proof of insurance to the landlord, also is deceased.

Example 3: The Contractor. The policyholder is a construction contractor, named a PRP at a Superfund site because of runoff from its equipment yard. The policyholder cannot find its insurance policies from the early 1980s. However, during that time period, it worked on a large municipal construction project and the municipality required proof of insurance, which is found in the municipality’s archived files. No witnesses from either the contractor or the municipality are available to testify about the contractor providing proof of insurance on the project.

In each of these cases, insurance or proof of insurance has been located. However, obtaining a document is only the first step to using that document in court if the insurance company, as often occurs, challenges the admissibility of the insurance document. The problem is that even a document that on its face is obviously an insurance policy issued to the insured faces two major evidentiary hurdles: authenticity and hearsay.

“Authenticity” is simply the requirement that a document is what it appears to be[4]; that is, it is not a forgery or, in this, case, something other than insurance policy. If authenticity seems like a hypertechnicality—if document looks like an insurance policy, what are the odds of it being something else?—that is because in most cases it is. In most trials, the parties stipulate to the authenticity of their respective documents rather than waste time arguing about whether, for example, a bill of lading, is a clever forgery. However, with potentially millions of dollars in insurance proceeds at stake, if there is a plausible hoop for the policyholder to jump through, insurance companies are not typically inclined remove it. Thus, in a case in which no witness is available to identify an insurance policy, the policyholder will often have to prove the authenticity of the document.

Hearsay is defined as an out-of-court statement used to prove the truth of the matter.[5] It (counterintuitively) applies to documents as well as to spoken testimony. For example, the provisions of an insurance policy listing a policy limit of $1 million or that the policy covers a particular location are, technically, “statements” used to prove the truth what they say. There are numerous exceptions to the hearsay rule, including most relevantly, the business records, for exception “records of regularly conducted activity.”[6] However, to use the exception, the policyholder holder would need a witness or other evidence showing that the document is in fact a business record, including that it was made at or near the time indicated on the document as a regular practice of that business.[7] In the examples listed above, there were no witnesses who could testify.

The Ancient Document Rule

The drafters of the federal and other rules of evidence, recognizing that witnesses will become unavailable over time and the age of a document offers some assurance of reliability, adopted the Ancient Document rules to address this situation.

FRE 901(b)(8) addresses the authenticity—the document “is what it appears to be” issue—as follows:

Evidence About Ancient Documents or Data Compilations. For a document or data compilation, evidence that it:

(A) is in a condition that creates no suspicion about its authenticity;

(B) was in a place where, if authentic, it would likely be; and

(C) is at least 20 years old when offered.

Thus, in the example above, the 20-year-old-plus insurance policy information found in the warehouse, the lease file and the construction project files would all be “authenticated” by this rule. The documents were found in places one would expect to find them and there is no reason for any suspicion about them.

Once documents are shown to be authentic under FRE 901(b)(8), the “statements” in them are defined by the Federal Rules as admissible despite the hearsay rule. FRE 801(16) makes admissible “[a] statement in a document at least 20 years old and whose authenticity is established.”

The existing Ancient Document rule has been repeatedly applied in cases involving proof of historic insurance policies. For example, in Kleenit, Inc. v. Sentry Ins. Co.,[8]the owner of a dry cleaning chain liable for cleanup costs attempted to prove the existence of its insurance policies from the 1960s in part by evidence from its accounting files showing “prepaid insurance “ from Travelers Indemnity Company. However, the individuals responsible for both accounting and insurance were deceased.[9] The best any living witness could say was that the individuals involved “kept fastidious records” and described the company’s annual accounting practice in general terms. [10] The court nonetheless rejected Travelers’ objections to the admissibility of the documents, holding that the Ancient Document rule applied because the documents were found in a place (the former’s accountant’s office) “where they would likely be if authentic” and that the documents were not in any condition that raised any suspicions.[11]

Similarly, in State of California v. Underwriters at Lloyds,[12] part of the long-running insurance coverage dispute involving many millions of dollars in environmental liabilities at the Stringfellow Acid Pits Superfund Site, the State was able to prove the existence of insurance policies from the 1960s in part by the use of the Ancient Document rule. In that case, “[t]he documents are more than 30 years old” and [t]he content of the documents establishes the documents have been generally acted upon as true by those with an interest in the matter, i.e., insurance coverage.”[13]

However, the importance of the Ancient Documents rule is reflected as much in the cases that do not get reported as in the reported ones. There is no way to quantify the number of instances when, because of the Ancient Documents rule, an insurance company may decide not to litigate the admissibility of the policy documents but to defend the case on other grounds.

The Proposed Amendments to the Federal Rules of Evidence

In August 2015, out of concern about the authenticity of electronic documents, and, in particular, the dawn of the second decade of the age of email, the United States Judicial Conference proposed abolishing in part the Ancient Documents rule. The Committee on Rules of Practice and Procedure issued a report[14] proposing to abolish the hearsay exception prong of the Ancient Document rule. It assumed that there would in almost all cases be a witness available to establish the applicability of the business records exception and explained that many forms of electronic documents “have just become or are about to become more than 20 years old, and there is a real risk that substantial amounts of unreliable [electronic documents] will be stockpiled and subject to essentially automatic admissibility under the existing exception.”[15]

Whatever the merits of this proposal with regard to emails, it is potentially detrimental to proof of historic insurance policies and other, almost invariably hard copy (paper), documents in cases involving environmental, toxic tort, real property and similar disputes that hinge on historical information generated long before the email was even dreamt of. Fortunately, the abolition of the Ancient Documents rule is not yet a fait accompli and there is still time to comment on the proposal. Comments may be made at the U.S. Courts website until February 16, 2016.[16]

For more information regarding environmental insurance coverage, please contact any member of Marten Law’s Litigation practice group.

[1] http://www.martenlaw.com/newsletter/20150306-oregon-2013-environmental-coverage-statute.

[2] Available at http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment pdf.

[3] Most readers with any gray in their hair will probably not be pleased to learn that the drafters of the FRE felt any document older than 20 years qualified as “ancient.” FRE 803(16), 901(b)(8)(C).

[4] FRE 901 defines authenticity as “evidence sufficient to support a finding that the item is what the proponent claims it to be.”

[5] FRE 801(c).

[6] FRE 801(6).

[7] Id.

[8] 486 F.Supp.2d 121 (D. Mass. 2007).

[9] Id. at 124.

[10] Id.

[11] Id. at 130.

[12] 2005 WL 5490961 (Cal.Super. March 17, 2005)

[13] See also UNR Industries, Inc. v. Continental Ins. Co., 682 F.Supp. 1434, 1442 (N.D. Ill. 1988); Hoerner v. ANCO Insulations, Inc., 812 So.2d 45, 72 (La. App. 2002)(insurance policy documentation admitted as ancient documents).

[14] Available at http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment.

[15] Id.

[16] Id.


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