Identifying the tail on risks is a central part of any business. This is particularly true for insurers and sureties and, unfortunately, it isn’t always straightforward. Especially when a legislature revives liability exposure that had otherwise been extinguished for many decades, and the revived exposure turns on the essential terms and conditions of long-lost insurance policies. Add to that a bankruptcy involving nearly over 400 tort claimant-creditors (and many dozens of insurers and many more dozens of attorneys) and you have the case of In re: The Archdiocese of Saint Paul and Minneapolis and related coverage litigation. In this case, attorneys Deborah Eckland and Matthew Nelson negotiated a policyholder release, settlement, and buyback agreement to afford the settling insurer protection against third-party claims provided by the Bankruptcy Court’s channeling injunction.
The underlying cases involve claims against the Archdiocese of Saint Paul and Minneapolis (“ASPM”) and approximately 200 affiliated or allegedly affiliated parishes, orders, church schools, retreats, and other eleemosynary organizations or members within the ASPM’s geographic area. Some of these claims involved conduct alleged to have occurred 50-plus years ago. They were tendered by parishes to the insurer, but without any corresponding liability policies, or even policy numbers. Instead, the tenders were accompanied by contemporaneous internal financial reporting documents that purported to list various insurers, coverage types, and limits. This set the stage for participation in a series of mandatory mediation sessions ordered by the Bankruptcy Court.
Where an alleged policy has been inadvertently misplaced or destroyed, the law in Minnesota state (and federal) court allows an insured to establish prima facie entitlement to coverage through circumstantial evidence. Beyond this, Minnesota law is not settled as to precisely what an insured’s prima facie showing must include. It is clear an insured must present some circumstantial evidence that the alleged policy existed. In addition, there is Minnesota dicta suggesting the insured must also offer prima facie evidence of the essential terms and conditions of the lost policy. In either event, in cases involving lost policies, substantive insurance law overlaps with state and federal rules of evidence, and in particular the “secondary evidence” rule, which more generally allows litigants to prove the contents of original documents with circumstantial or secondary evidence, when originals have been inadvertently lost or destroyed.
Where an insured establishes prima facie coverage, the burden then shifts to the insurer to prove exclusions to coverage as affirmative defenses. And as in any coverage dispute, where the existence and terms of a lost or destroyed policy are proven circumstantially, the existence and terms of exclusions may be proven circumstantially, as well. What’s good for the goose is good for the gander.
In this case, the insureds marshalled the internal documentation as evidence of “existence” of purported policies, and eventually produced “specimen” standard form ISO-type policies during mediation as evidence of essential policy terms and conditions, to bolster their claim to coverage. Attorneys Deborah Eckland and Matthew Nelson negotiated a settlement agreement and buyback agreement at mediation, which was appropriately discounted to account for: (1) uncertainty in litigating the applicability of various exclusions (definitional and otherwise); (2) the uncertainty surrounding “lost policy” law in Minnesota; and (3) the fact that even if there were coverage, the circumstantial evidence on offer did not extend it to another, affiliated institution, where a large portion of the underlying conduct was alleged to have occurred. The settlement is pending as, under the agreement, the parties return to the status quo ante in the event a global settlement is not reached in the Bankruptcy proceeding. Beyond the terms of the contingent settlement, reaching early resolution in this way has saved the insurer ongoing litigation costs in this complex, “ripped from the headlines” dispute.