The New Jersey trial courts remain split over the burden of proof that a policyholder must meet to obtain coverage under missing insurance policies. In Waste Management, Inc./WMX Tech., Inc. v. Admiral Ins. Co., the latest Superior Court judge to decide the issue ruled that the policyholder's burden of establishing the existence and terms of the missing policies must meet the heightened "clear and convincing" threshold.
In the context of gradual, pollution-related losses, proving coverage under missing policies became necessary following the New Jersey Supreme Court's 1994 decision in Owens-Illinois, Inc. v. United Ins. Co., which mandated that losses be apportioned among all insurance carriers providing coverage based on the amount of risk each assumed. Owens-Illinois precluded the prior practice of a policyholder pursuing any one of its carriers that provided coverage during the period that the environmental harm was occurring and requiring that carrier to sue the others for contribution.
In rejecting the less onerous "preponderance of the evidence" standard, the Waste Management court reasoned that "[w]hether there was liability [for the carrier] depends upon the terms of the policy, so that the court should be firmly convinced of the existence of the policy and of its terms before imposing liability on the defendant." According to the court, the terms that the policyholder must prove include the named insured, the type of coverage, the coverage period, the policy limits and proof that premiums were paid. If the insured is able to prove the essential terms of the policy, the burden shifts to the insurance carrier to prove the existence of any "inclusionary endorsements" by clear and convincing evidence.
The Waste Management court found that the policyholder would be unable to meet its burden as to most of the missing policies and, accordingly, granted summary judgment to the insurers. In granting summary judgment to one of the carriers, the court relied on testimony that showed that the missing policies could have been automobile liability, comprehensive general liability or both. As a result, the court concluded that the insured failed to meet the more stringent clear and convincing standard as to the type of coverage provided by the missing policies. For the other insurer/defendant, the court ruled that certain forms and the insurance broker's file were insufficient to prove the terms of the policy by clear and convincing evidence.
Because policyholders bear the burden of proving the existence and the terms of missing insurance policies, it is important that they retain copies of any policies that could be implicated by the future discovery of pollution. This is particularly true because, until the Appellate Division or Supreme Court clarifies the issue, any New Jersey court could require proof of the existence and terms by clear and convincing evidence, as the Waste Management court did.
