A. PETER PRINSEN, Esq., CPCU, RPLU, ASLI, AIC, vice president and general counsel at The Graham Co., a Philadelphia-based insurance brokerage and risk management firm
Most companies have instituted records retention policies that run the gamut from the simple to the exceedingly complex. Records retention policies are important for three main reasons: to ensure that you do not have liability for the regular destruction of documents, to ensure that certain documents are retained to meet your specific business needs, and to comply with specific statutes requiring specific documents be retained for specific timeframes.
The general rule is that if documents are destroyed pursuant to a consistently maintained and applied records retention policy, the company will not have liability for the destruction of those documents even if needed by others at a later time.
No specific statutory obligations exist for companies to retain insurance policies other than an unclear obligation to maintain accident and health insurance policies for a period of six years pursuant to ERISA. Still, it might be wise for risk managers to follow a policy on when they should retain and when they can destroy insurance policies. The following are some general recommendations on how this strategy should be set up, based on the type of insurance policy involved.
OCCURRENCE-BASED LIABILITY INSURANCE
Occurrence-based liability insurance policies such as commercial general liability and business auto can be triggered far after the expiration dates of the policies. This is because of case law developed for these long-tail-type claims. These claims would include asbestos and silicosis claims, as well as pollution claims (i.e., landfill claims).
The commercial general liability policies a company purchased in the 1960s could still be called upon to provide coverage by way of both defense and indemnification if, for instance, individuals possibly exposed to asbestos in the company's products in the 1960s made a claim today.
In light of the long-tail exposures faced by many companies, these occurrence-based liability policies should be retained forever and not be destroyed.
Property policies provide first-party coverage for insureds for loss to owned, rented or leased property (and may be extended to cover property of others as well) that occurs during a stated policy period. Generally, property losses are known shortly after they occur and, as such, the need to retain property policies for long periods of time is far different than that involving occurrence-based liability policies. Furthermore, unlike CGL insurance, only a single property policy is generally triggered for any given loss.
It would not be unreasonable to retain property policies for a period of six years only.
Claims-made insurance policies (such as professional liability and directors' and officers' liability insurance) are triggered only by claims that are made against the insured during the policy period and during the existence of a "tail" following the expiration of the policy period. The determination of coverage under a claims-made policy is dictated by the date the claim is made and not by the date when the accident or acts occurred. A tail period permits the reporting of claims first made within the tail period related to acts or omissions that occur during the policy period.
It is the existence of the tail and the unusual feature in these policies that later-made claims related to any earlier covered claim would be covered under the earlier policy that complicate records retention matters for claims-made insurance policies. Because of this, retention periods for claims-made policies should begin not from the expiration date of the policies but rather from the expiration of the tail coverage.
A reasonable retention period for claims-made policies would be six years after the expiration of the tail period.
Employers can remain liable for employee injuries for an unlimited period of time. An example of a claim that may occur far in the past but give rise to a claim in the present is an asbestos claim, where the injured employee is exposed long ago and only now suffers the effects of that exposure. The policies in place when the employee was exposed may be triggered to provide coverage.
As such, workers' compensation policies should be retained forever.
The Employee Retirement Income Security Act of 1974 (ERISA) regulates employee benefit plans. Section 107 of ERISA contains a general records retention requirement that applies to essentially all ERISA plans, which provides that ERISA plans must maintain records for a period of six years after the filing dates of the documents in question.
Although not specifically addressing the insurance policies themselves, we believe it is prudent to comply with this six-year retention obligation for benefits insurance policies (which would include medical, dental and disability policies as well as stop-loss policies for self-insured companies).
Because there is virtually no statutory or regulatory guidance on retention periods for insurance policies, retention terms are dictated more by business need than legal requirement. The above recommendations are suggested as minimum retention periods, and the particular needs of your specific business should be evaluated when selecting a retention period for insurance policies that is right for you.
Furthermore, the retention period, as you can see, is driven more so by the type of insurance policy than the program under which it is written. Therefore, for example, insurance policies written in connection with captive insurance programs would follow the same retention guidelines as those under fully insured programs.
As a final note, insurance policies are like any other contracts and may be retained in hard copy or in electronic form. Electronically stored policies are also equally admissible at trial. As such, it is entirely reasonable to retain policies electronically only (with the caveat that you have sufficiently robust systems in place to ensure that these electronically stored documents are not lost).
Even if you are just starting out with retaining insurance policies, fear not. Generally, insurance brokers retain them for extended periods of time, and many times simple evidence of their existence (such as copies of certificates of insurance issued to customers) may be sufficient to demonstrate that the coverage was in force.
May 1, 2010
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