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Time is running out for dry cleaners who purchased their business insurance policies from subsidiaries of the Kemper Insurance Company in the 1970’s and 1980’s. While many state courts have ruled that the qualified pollution exclusions in these vintage general liability policies will respond to property damage claims occasioned by solvent spills, dry cleaners who have not yet filed claims may soon find that the value of these policies has dramatically diminished.

The Kemper Insurance Company, whose lead insurance unit, Lumbermens Mutual Casualty Company was the insurer of choice for tens of thousands of dry cleaners during the 1970’s and 1980’s, is reportedly soon to be placed in liquidation by the Illinois Department of Insurance. Kemper has been in what has been referred to as “voluntary run off” since 2004. Now however, with Lumbermens Mutual’s surpluses nearing depletion, insurance industry insiders expect that the Illinois Department of Insurance will be overseeing a “run-off” of Kemper’s assets, perhaps as soon as this summer.

In the next few months, the clock will be ticking on the ability of hundreds of dry cleaners, many of whom continued the businesses of their parents, to obtain defense or indemnity from Lumbermens Mutual for pollution claims made by landlords, neighboring landowners or environmental authorities for recently discovered contamination . Once Kemper has been officially placed into liquidation, claims will be paid only up to a certain date and even then, policyholders can only expect perhaps 10 or 15 percent on the dollar. Dry cleaners who need more money than this to address their environmental problems will probably have to dip into their own pockets. While Kemper’s liquidation is expected to lead to the largest run-off in American history, this will not be the first time that insurance companies whose policies were popular with dry cleaners have gone into liquidation. Many dry cleaners who had purchased Fremont Indemnity’s insurance policies in the 1980’s discovered later that their Fremont general liability insurance policies would not be responding to their long-tail property damage claims. Similarly, those dry cleaners who purchased the added protection of a Mission Insurance Company umbrella general liability insurance policy discovered in the late 1980’s that there would be no second tier of coverage for their groundwater contamination claims. Those relying on general liability insurance policies purchased from United Pacific Insurance Company discovered to their dismay that Reliance Insurance Company’s liquidation included their insurer as well. Further, dry cleaners insuring with Home Insurance Company found out in 2003 that their limits had diminished with Home’s liquidation and run-off.

Dry cleaners whose associations sponsored Lumbermens Mutual package policies for their memberships in the 1970’s and 1980’s will now be scrambling to locate their old policies and file property damage claims before the liquidation. This is expected to be especially so in California, where the California Fabricare Institute purchased master policies for its members during this era at discount prices. California courts have upheld coverage for pollution claims tendered under the qualified pollution exclusion featured in these policies. Now however, the window will be closing on coverage for these legacy California dry cleaning operations.

Environmental engineering companies, insurance archeologists and attorneys should be in demand in California and several other states where dry cleaners bought these policies. Dry cleaners who inherited family businesses from their parents and have never had a reason to sample the soil or groundwater beneath their plants may now see the wisdom in doing so before their long-tail insurance coverage essentially expires. Simultaneously, they will want to conduct searches for their old Lumbermens Mutual policies to respond to the claims for site investigation and clean up that will surely follow.

David A. O’Neill is the Director of Investigation at Policy Find, an insurance archeology firm. He has some 17 years of experience in searching for lost or mislaid insurance policies for policyholders. He has conducted over 200 policy searches for dry cleaners throughout the United States.

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