There’s a famous (apocryphal?) story about Cato the Elder, one of the leaders of ancient Rome. Cato was obsessed with destroying Carthage (now Tunis), the Roman Empire’s rival. He would end every speech (and apparently most conversations) with “Carthago delenda est” – Carthage must be destroyed. The story goes that when Demosthenes (a prominent Greek orator) would speak, the people would say, “What a pretty speech!” But when Cato would speak, the people would say, “On to Carthage.”
One of my mentors in this business was kind of like Cato. His favorite – and frequent – saying was: “Occurrence is ambiguous.” And he managed to convince a lot of courts that he was right.
The insurance industry incorporated the term “occurrence” into its standard-form comprehensive general liability policies in 1966. You would think that, after 50 years of battles, we would now know what the term means. But new cases continue to come down the pike showing that we still don’t. And the answer to whether an “occurrence” has taken place is critical. In many liability policies, an “occurrence” is the triggering event; no “occurrence,” no coverage. Construction of the term is also important because if there’s more than one “occurrence,” then more than one limit of liability can apply.
So let’s take a look at a couple of recent decisions. Hollis v. Lexington Insurance (out of the Eastern District of Virginia) involved a fireworks display gone awry. A 3-inch mortar shell landed in the crowd of spectators, detonating inches from the underlying plaintiff Kathryn Hollis and her two sons. Kathryn and her infant son M.H. suffered terrible burns and brain injuries. Her other son Alexander was less seriously injured (and later recovered $45,000). A jury ultimately awarded Kathryn a verdict of $4,750,000 after finding that the fireworks company and its president were negligent. She and her husband then filed another lawsuit, this one on behalf of M.H. The court stayed the M.H. case, pending a determination of whether insurance coverage existed and to what extent.
The relevant insurance policy contained a familiar definition of occurrence: “[A]n accident, including continuous or repeated exposure to substantially the same harmful conditions.” The policy covered up to $1 million per occurrence and $2 million in the aggregate. Excess coverage also existed, in the amount of $4 million per occurrence and in the aggregate.
The plaintiffs argued that there were 19 occurrences in the case (!), corresponding with the number of duties that the defendants allegedly breached, which included negligently selecting and purchasing the fireworks; violating laws and regulations in importing the fireworks; failing to test the fireworks; failing to make sure that the crowd was at a safe distance; and so on. The insurance company, naturally, wanted there to be only one occurrence, if there was any coverage at all.
I’m a policyholder guy, but even I admit that the “19 occurrences” argument was a tough one to win. We’ve all seen plaintiff’s lawyers who draft complaints as though they were issue-spotting on a law school exam. (And even if the policyholder did win, there were only $6 million in aggregate limits, which may have been impacted by the prior judgments.) Making each alleged breach of duty a separate “occurrence” seems somewhat arbitrary, at least under the facts of this case. And, in agreeing with the insurance company on the number of occurrences issue, the Court wrote: “The allegations of negligence in this case are all associated with the exact same injuries, which occurred contemporaneously due to the explosion of the fireworks shell. Without any allegation of distinct injuries attributable to the 19 allegedly wrongful acts, the insureds’ negligence forms only a single cause. Therefore…the Underlying Complaint alleges only a single occurrence.” (Emphasis mine.)
The Court’s decision is silent on the question of whether Kathryn’s prior $4,750,000 verdict (or Alexander’s $45,000 verdict) was covered by insurance, and to what extent. An obvious question is: If all three plaintiffs had brought suit in the same case, would only one “per occurrence” limit apply to them collectively? This is why, when examining your company’s coverage package, you want to be sure how the “per occurrence,” “per claim” (if any), and aggregate limits work. If the worst happens, you could be left with a lot less insurance then you thought you had.
Now let’s look at a second recent case, Lee v. Universal Underwriters, from the 11th Circuit. A Ford dealer negligently repaired the brakes on a 2000 Ford Expedition. Years later, the driver (Lee) tried to stop while approaching ongoing traffic, but the brakes failed. Lee drove onto the grass shoulder to try to slow down, and the SUV flipped, killing him and injuring his passenger, Brenner. Lee’s widow and Brenner both sued the dealer, Terry Holmes Ford.
The policy defined “occurrence” as “an accident, including continuous or repeated exposure to conditions, which results in…INJURY…during the Coverage Part period neither expected nor intended from the standpoint of a reasonably prudent person.”
The dealer’s insurance carrier, Universal, denied coverage because the “occurrence” date, which Universal deemed to be the accident date of December 11, 2008, supposedly fell outside the policy period.
After Universal declined coverage, the dealer settled by admitting liability for all counts alleged in the lawsuits. The dealer then assigned to Lee’s widow and Brenner the rights to recover under any applicable insurance policies. With liability established, the case went to arbitration for an assessment of damages. The arbitrator awarded $4.2 million for Lee’s death and $1.2 million for Brenner’s injury. Lee’s widow and Brenner then sued Universal directly to recover.
Universal again argued that there was no coverage because the “occurrence” hadn’t happened during the policy period, but the Court disagreed, writing: “The policy’s plain text is ambiguous about what type of ‘occurrence’ triggers coverage. The policy does not clearly state that it applies only to injuries that occur within the policy period, nor does it state specifically what type of ‘accident’ during the policy period might trigger coverage. The policy also identifies an ‘injury’ as a distinct concept from an ‘occurrence’ or ‘accident’ for coverage purposes, suggesting that the ‘occurrence’ trigger for coverage is not the same as the time of injury…The policy could reasonably be interpreted as requiring either that the accident – here, the negligent repair – occur during the policy period, or that the injury resulting from the accident – here, the car crash – occur during the policy period.”
Since the policy was ambiguous, the Court construed the against the carrier as drafter.
Takeaways from the policyholder’s perspective: Whether an “occurrence” has happened is often a matter of heated debate. (In fact, in the context of long-tail claims, such as asbestos claims, the New Jersey Supreme Court, finding standard-form insurance policy language unequal to the task, has created a legal fiction that a separate “occurrence” happens in each policy year of the triggered time period. Owens-Illinois v. United Ins. Co., 138 N.J. 437, 478 (1994)). If you can offer a reasonable theory for how your set of facts fits into the “occurrence” definition, and how many “occurrences” took place, you can often win. Part of the reason that the policyholder lost in Hollis is that the Court likely felt that the idea of 19 occurrences was arbitrary and unreasonable.