Policyholder may receive coverage despite lost liability policies so long as other proof is sufficient to demonstrate existence of insurance

Journal of Risk and Insurance, March, 2003 by Jeffrey W. Stempel

Dart Industries, Inc., v. Commercial Union Insurance Co., 52 P.3d 79 (California Supreme Court--August 19, 2002)

Long-tail liability claims have driven a good deal of the development of insurance law during the past quarter-century. One recurring issue with such claims is the matter of proving entitlement to insurance. Recently, the California Supreme Court faced this issue in connection with claims against a policyholder that had once manufactured diethylstilbestrol (DES), a synthetic estrogen widely used from the 1940s through the 1960s as an antimiscarriage drug. Today, we know that DES has been alleged to have resulted in birth defects in the children of those mothers, and these children, now adult women, have sued DES manufacturers alleging that the drug caused precancerous and cancerous vaginal and cervical lesions as well as other damage to their reproductive organs, resulting in infertility or miscarriage.

Suits of this nature were brought against Dart Industries, which is the successor to Rexall Drug Company, which manufactured DES from the 1940s until the late 1960s. Plaintiffs suing Dart had mothers who had taken DES during this period, when Rexall/Dart was insured by Commercial Union (1946-1951), Liberty Mutual (1951-1966), and Continental (1967-1981). Thus, there was at least exposure to DES during the relevant time period and allegations of actual injury to trigger coverage as well.

Dart requested a defense of the suits but was rebuffed by these insurers, in part because neither Dart nor the insurers had retained any copies of the policies.

Dart eventually settled with Liberty Mutual and Continental, leaving its claims against Commercial Union. Dart contended that production of the actual policies was not required so long as Dart could otherwise prove the existence and contents of the policies. The trial court agreed, but the California intermediate appellate court disagreed, finding that the policyholder must introduce into evidence the exact policy language if there was to be recovery. The California Supreme Court reversed, essentially agreeing with Dart's evidentiary arguments.

Under both California common law and statute (California Evidence Code [section][section] 1521, 1523), the content of a document is to be proved by introduction of the original document itself into evidence. If the original is unavailable through no fault of the proffering party, the court may accept a copy. Photocopies are usually considered "duplicate originals" under both state and federal evidence law and are treated as an original for purposes of admissibility. Where neither original nor copy is available, the contents of the document may be proven by other evidence, including the testimony of witnesses who saw the document, drafted the document, negotiated the agreement, or otherwise have some sound basis for knowledge as to what the document provided. See Folsom's Executors v. Scott, 6 Cal. 460,461 (1856); Clendenin v. Benson, 117 Cal. App. 674, 4 P.2d 616 (1931); and Rogers v. Prudential Ins. Co., 218 Cal. App.3d 1132, 267 Cal. Rptr. 499 (1990) (all setting forth this general approach).

In Dart, the California Supreme Court determined that in applying this approach to lost insurance policies, the burden of production and persuasion is on the policyholder to establish that the "occurrence forming the basis of its claim is within the basic scope of insurance coverage." See 52 P.3d at 87, quoting Aydin Corp. v. First State Ins. Co., 18 Cal. 4th 1183, 1188, 959 P.2d 1213, 77 Cal. Rptr. 2d 537 (1998). After the policyholder has made this showing, there is coverage unless the insurer can shoulder the burden of production and persuasion to demonstrate that the claim is excluded under the policy. In particular,

the claimant has the burden of proving (1) the fact that he or she was insured under the lost policy during the period in issue, and (2) the substance of each policy provision essential to the particular coverage that the insured claims.... In turn, the insurer has the burden of proving the substance of any policy provision "essential to the...defense" [all of which] will be case specific.

52 P.3d at 88 (footnote omitted). Added the Court:

Although it is a truism that we look to the language of a contract to ascertain its meaning, it is equally true that when a contract has been lost in good faith, and the actual language is unavailable, the law does not require proof of such language.

52 P.3d at 89.

Applied to the Dart-Commercial Union dispute, the Court found adequate proof by Dart that it had been insured under a commercial general liability policy covering the period of 1946-1951, during which some of the mothers of the plaintiffs claiming injury had ingested DES. Because the policy was manuscripted and not drawn on a standardized form, Dart was unable to point to a specimen policy upon which its policy was modeled. Nonetheless, the Supreme Court found that Dart had produced enough evidence to sufficiently establish that Commercial Union had agreed to provide occurrence-based coverage with a duty to defend and a set policy limit per occurrence. On this basis, Dart was able to prove entitlement to defense by Commercial Union in connection with the DES claims.