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An Insurance Policy Can Be Forever

A risk manager for a large manufacturing company discovered one stormy morning, to his consternation, that his company had been identified as liable for the release of hazardous materials into a local river – not 5 years ago, or even 20, but 32 years ago. Quickly, yet apprehensively, he pulled out his insurance files. Searching through the old policies and records, he at last pulled out a fat stack of papers. After examining them, he leaned back with relief. Safe in the file was a catastrophe liability and property policy that eventually covered the full cost (well into seven figures) of cleaning up the river.

All too often, when these situations face risk managers, they find the insurance policy drawer empty, or filled with worthless policies and records. Increasingly, claims for exposures that were never considered valid a decade ago are now being recognized by the courts as legitimate and insureds are being hit with monetary demands. Often, these unforeseen events are covered by older insurance policies that were written decades ago and had fewer exclusions than policies do today.

Further, having a central repository for all insurance policies and information is especially prudent when a company has a history of mergers and acquisitions, downsizing, office closures and relocations. It is the responsibility of the policyholder to establish the existence of a policy if a claim is submitted for an exposure blamed on an acquired company. If you don’t have the policy, or even just the declaration page, persuading the issuing insurance company that such a policy once existed can be difficult and may require hiring a firm that specializes in searching for old policies. While brokers or agents may retain clients’ policies, most only keep your policy and supporting documents for, at most, seven years after you have ceased to be a client. To be sure you can find that long-ago insurance document when you desperately need it, risk managers should establish a retention system covering the company’s insurance policies.

Storing them is now convenient and inexpensive by scanning them onto digital media where they can be saved and stored on a CD. The cost of preserving these policies is low compared to the potential benefits you could realize in the future by quickly uncovering the exact policy to cover that years-old exposure.

While there is no hard and fast rule on which policies to keep and for how long, some experts suggest keeping all policies indefinitely. In many cases, millions of dollars have been recovered from “old” liability and property policies. Remember, when you purchase insurance, you purchase a promise by the insurer to pay, subject to the conditions and limitations of the policy. And today’s courts are increasingly interpreting policies more broadly than they were originally intended.

But if you don’t want to keep all your polices, consider retaining all liability policies – general liability, commercial auto liability, errors & omissions, officers and directors, workers’ compensation, excess and umbrella, and others. It’s okay to throw away the correspondence related to them at normal intervals per a company retention policy, but keep the vital parts.

Most of the time property policies can be discarded after the expiration of the policy, but should be kept if there are any claims outstanding, such as a business interruption claim. Once in a while, an old claim on a property policy may arise involving structural failures, for instance, of a building that developed after the expiration of the policy. The policy may offer coverage for that claim.

The best advice: Keep all insurance policies forever. You just never know when having that exact one will save your company millions.