Pleading a lost-policy case: 1st circuit ruling offers guidance


25 No. 47 Westlaw Journal Insurance Coverage 1

Westlaw Journal Insurance Coverage


August 28, 2015


By Steven Plitt, Esq. Kunz Plitt Hyland & Demlong aa1

Copyright © 2015 Thomson Reuters.

Steven Plitt of Kunz Plitt Hyland & Demlong discusses a recent decision by the 1st U.S. Circuit Court of Appeals and its review of the sufficiency of evidence needed to establish the existence of a lost insurance policy.

Courts are split on the standard of proof required to establish the existence of the terms of lost insurance policies. Some courts have found that a party must prove the terms and existence of missing insurance policies by clear and convincing evidence. 1 Other courts apply a “preponderance of the evidence” standard, which is the norm in civil cases. 2

The burden of proving the existence and terms of a lost or missing policy falls on the party suing, which, in most cases, is the policyholder. 3 The opposing party, typically the insurer, will then have the burden of proving the substance of any policy provision that is essential to its defense. 4

“[N]early every lost-policy case … concerns what showing must be made to survive summary judgment.” 5 The 1st U.S. Circuit Court of Appeals recently issued a significant decision on the sufficiency of pleading a lost policy case.

In Cardigan Mountain School v. New Hampshire Insurance Co. the 1st Circuit considered what type of factual allegations in a lost-policy case were sufficient to raise a reasonable expectation at the pleading stage that discovery would reveal evidence of an actual policy. 6 The Cardigan Mountain School, a private middle school in New Hampshire, received a demand letter asserting a claim based on events that had allegedly occurred during the 1967-1968 school year.

The school submitted the claim to New Hampshire Insurance Co., believing that New Hampshire was the school’s comprehensive general liability insurer at that time. New Hampshire rejected the request, indicating it had not been able to locate a policy covering the school for the relevant time period and it was not the school’s insurance company during the 1967-1968 school year and so had no duty to defend against the claim. 7

The school could not find a copy of the policy in its own records and sued New Hampshire under the state’s declaratory judgment statute. 8 In the declaratory judgment action, the school sought a judgment “adjudicating and decreeing the existence of, and Cardigan’s rights under, any policy issued by” New Hampshire Insurance Co. 9

The insurer asked the court to dismiss the suit for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). New Hampshire contended that it was not obligated to cover the claim and, more significantly, that the school’s complaint should be dismissed because it failed to make a plausible case that such a policy ever existed.

*2 The school could document that it had a policy with New Hampshire at some point, but could not find a copy of the policy for the year in question. The court dismissed the suit, concluding the school’s complaint did not plausibly show the existence of the policy. The school appealed.

The 1st Circuit began its analysis with a discussion of the pleading requirements under Federal Rule of Civil Procedure 8(a)(2), which say a complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” To meet that standard, the appeals court noted, a plaintiff’s complaint need only include enough factual detail to make the asserted claim facially plausible. 10

The court then set out the methods courts needed to apply in lost-policy situations to evaluate the sufficiency of a complaint under Rule 8. First, courts need only consider the complaint’s factual allegations and need not credit its conclusory legal allegations. Next, courts need to see if, based on these facts, the complaint sufficiently alleges the defendant is liable. To complete this two-step analysis, the lower court must proceed with clarity on the legal issue that is in dispute, the 1st Circuit said. 11

In a lost-policy situation, the insured seeks to prove that the insurance company is required to cover a claim. For purposes of Rule 8, though, the sole legal question in dispute is the existence of the policy, not whether the policy (if it exists) covers the claim. 12 This is because, when the complaint is challenged under Rule 12(b)(6), the dismissal is sought solely on the ground that the complaint does not make a plausible case that the policy was ever in place.

Thus, the court must first focus on the complaint to determine what facts the complaint sets forth on the existence of the policy. Then, the court must address whether, accepting the truth of those facts, the complaint makes out a plausible case that the policy does in fact exist.

Applying the above principles, the 1st Circuit turned to the school’s complaint, which did not include a direct allegation that the insurance policy existed. What the school did allege was that New Hampshire’s representative “has noted that she has searched for the policy and been unable to find it, but has assured the [school] that her search continues.” 13

In place of a direct allegation that the insurance policy existed, the school’s complaint relied on circumstantial evidence. The evidence relied upon was as follows:

• The school’s accounting firm allegedly prepared an audit report for the school dated September 1971 indicating that from September 1970 to September 1971 New Hampshire insured the school under a “special multi-peril” insurance policy. According to the auditor’s report, the policy included $1 million in “general liability” coverage.

• One of the auditors said that, if the school had changed carriers between the 1969-1970 school year and the 1970-1971 school year, the auditors would have noted the change in the report, and they did not.

• To establish that the New Hampshire policy was in place during the critical 1967-1968 school year, the school alleged its business manager was certain the school had insurance during his tenure. The business manager further asserted that he worked with a local insurance brokerage to secure the school’s insurance coverage and that he did not believe the school changed carriers while he acted as the school’s business manager between 1967 and 1970.

• The complaint alleged “upon information and belief” that the insurance brokerage the school used “had a close association with” New Hampshire and “advised most of its commercial clients like [the school] to place their commercial lines of insurance with” New Hampshire. 14

*3 The court found that the allegations in the school’s complaint were both specific and factual. The complaint referred to individuals, by name, who had relevant knowledge and said they recalled facts plausibly known to them. The 1st Circuit held that the school’s allegations and the “reasonable inferences” to be drawn from the allegations made a plausible showing that New Hampshire had issued an insurance policy to the school for the 1967-1968 school year. 15

“The school’s allegation of the existence of a New Hampshire Insurance Co. policy for the 1970-1971 school year [was] directly supported by the school’s audit report from that year,” the court said, “and the school’s factual allegations tending to show no change in coverage in the preceding three years [were] enough to plausibly support the existence of coverage in the 1967-1968 school year.” 16

Although these allegations were “circumstantial,” there was no requirement that there be direct evidence to support the allegations in the complaint. The court also noted there was no “probability requirement” at the pleading stage. According to the court, the factual allegations need only be enough to nudge the claim “across the line from conceivable to plausible,” thus “rais[ing] a reasonable expectation that discovery will reveal evidence of” the lost policy. 17

According to the court, the school had alleged “specific facts concerning an audit report that tend to show that it had an insurance policy from New Hampshire Insurance Co. as of 1971.” The court also noted that the school “linked that allegation to the recollections of specific individuals who were involved in the relevant events” and who were of the view “that the school had a general liability policy in the preceding years, including the crucial 1967-1968 school year,” and that there had been no change in carrier during that period of time. 18

The court concluded that the school’s complaint provided a plausible basis, beyond a mere possibility, for believing that New Hampshire issued the policy in question. The situation was “not one in which a plaintiff [had] selected an insurance company at random and filed a declaratory judgment action against it in the hopes that the plaintiff might get lucky and find a policy.” 19

At the pleading stage, the court said, it was not relevant whether the school could elicit the evidence that would be required to make the more-demanding showing that the school would need to make as the suit moved forward.

The decision in Cardigan Mountain School is important because it can be viewed as guidance for pleading a lost-policy case in order to avoid dismissal for failure to state a claim upon which relief can be granted.

The existence of an insurance policy can be shown in various ways, including:

• Testimony and/or affidavits from individuals involved in the procurement of the subject insurance policies or the presentation of claims thereunder.

• Internal business records, insurance ledgers, correspondence and other documents.

• Certificates of insurance.

• Binders.

• Declarations pages.

• Proof of premium payment.

• The insurer’s defense of the policyholder in other litigation where applicable.

• The existence of excess or umbrella coverage.

• The existence of reinsurance. 20

*4 All allegations should, to the best of the pleader’s ability, be linked to factual evidence of the existence of such documentation and the relevant persons who cannot only authenticate the documents but can tie them temporally with specific reference to the insurer in question.

The 1st Circuit’s decision in Cardigan Mountain School should be used as the roadmap for how to plead factual allegations sufficient to withstand a motion to dismiss based on thin and circumstantial documentation with a weak connection to proof of the existence of the policy at the relevant time.



See, e.g., Boyce Thompson Inst. for Plant Research Inc. v. Ins. Co. of N. Am., 751 F. Supp. 1137 (S.D.N.Y. 1990); Keene Corp. v. Ins. Co. of N. Am., 513 F. Supp. 47 (D.D.C. 1981), rev’d on other grounds, 667 F.2d 1034 (D.C. Cir. 1981); Hancock Labs. Inc. v. Admiral Ins. Co., 777 F.2d 520 (9th Cir. 1985).


See, e.g., Remington Arms Co. v. Liberty Mut. Ins. Co., 810 F. Supp. 1420 (D. Del. 1992).


Glew v. Cigna Group Ins. et al., 590 F. Supp. 2d 395, 411 (E.D.N.Y. 2008); S. Union Co. v. Liberty Mut. Ins. Co., 581 F. Supp. 2d 120 (D. Mass. 2008).


See, e.g., Dart Indus. v. Commercial Union Ins. Co., 52 P.3d 79, 88 (Cal. 2002).


Cardigan Mountain Sch. v. New Hampshire Ins. Co., 787 F.3d 82, 87 (1st Cir. 2015) (quoting Bianchi v. Florists Mut. Ins. Co., 660 F. Supp. 2d 434 (E.D.N.Y. 2009); S. Union Co., 581 F. Supp. 2d 120; UTI Corp. v. Fireman’s Fund Ins. Co. et al., 896 F. Supp. 362 (D.N.J. 1995); Town of Peterborough v. Hartford Fire Ins. Co. et al., 824 F. Supp. 1102 (D.N.H. 1993).


Cardigan, 787 F.3d 82.


Id. at 84.


N.H. Rev. Stat. Ann. § 491:22.


Cardigan, 787 F.3d at 84.


Id. See also Garca-Catalán v. United States, 734 F.3d 100, 102 (1st Cir. 2013), and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).


Cardigan, 787 F.3d at 84. See also Garca-Catalán, 734 F.3d at 103; Morales-Cruz v. Univ. of Puerto Rico, 676 F.3d 220, 224 (1st Cir. 2012); Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011).


Cardigan, 787 F.3d at 85.




Id. at 87.


Id. The 1st Circuit found the allegations were like the allegations of actual events before the court in Iqbal, 556 U.S. 662, as well as the parallel conduct noted by the court in Twombly, 550 U.S. 544. Both of these Supreme Court decisions held that “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555. Iqbal illustrates the sort of “conclusory statements” that are “not entitled to the assumption of truth.” 556 U.S. at 678-79. In Iqbal the plaintiff was arrested and detained following the Sept. 11 terrorist attacks. The plaintiff was released, after which he brought suit against various federal officials asserting violations of his constitutional rights. Two of the defendants were John Ashcroft, the U.S. attorney general at the time, and Robert Mueller, then the director of the FBI. The Supreme Court found that the complaint’s “bald allegations” that both Ashcroft and Mueller were personally involved in unconstitutional conduct were “conclusory” and should have been disregarded by the trial court. Specifically, the Supreme Court held that statements that Ashcroft and Mueller “‘knew of, condoned, and willfully and maliciously agreed to subject [the plaintiff]’ to harsh conditions of confinement” based upon the plaintiff’s “religion, race, and/or national origin” were not factual allegations that must be taken as true. The court’s ruling was the same with respect to the plaintiff’s allegations that Ashcroft was the “principal architect” of the policy and that Mueller “was ‘instrumental’ in adopting and executing it.” According to the court, those types of allegations were “nothing more than a ‘formulaic recitation of the elements’ of a constitutional discrimination claim.” Id. at 681 (quoting Twombly, 550 U.S. at 555). However, the court in Iqbal did credit as being factual those allegations in the complaint that made reference to specific events.


Cardigan, 787 F.3d at 88.


Id. (quoting Twombly, 550 U.S. at 556, 570).




Id. at 88-89.


See Steven Plitt & Jordan R. Plitt, 1 Practical Tools for Handling Insurance Cases, § 1:29 fn. 29 (Thomson Reuters 2011 & Supp. 2015).


Steven Plitt is the current successor author of “Couch on Insurance 3d.” He is a founding partner of the coverage boutique law firm Kunz Plitt Hyland & Demlong in Phoenix, where he serves as chairman of the insurance practice group and maintains a national practice. He frequently testifies as an expert witness in insurance-related cases on subjects including bad faith, coverage issues, insurance agent errors and omissions, and legal malpractice. He can be reached at [email protected].

25 No. 47 WJINSC 1