(April 2016)

INTRODUCTION

The word occurrence is fundamental in determining coverage in commercial and personal liability coverage forms and in commercial and personal umbrella liability policies. There is no coverage unless there has been an occurrence. However, the word also has a second purpose. It determines the amount of money available to pay claims once coverage is established.

DEFINITIONS

OCCURRENCE

The Insurance Services Office (ISO) Liability Coverage Forms define the term occurrence as follows:

• Commercial General Liability (CGL) and Commercial Liability Umbrella Coverage Forms

Occurrence means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

• Homeowners, Dwelling, and Personal Liability Umbrella Coverage Forms

Occurrence means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions which results, during the policy period, in a. “Bodily injury,” or b. “Property damage.”

ACCIDENT

The term “accident” is an important word in both definitions of “occurrence” but none of the coverage forms define it. Any term in an insurance coverage form that is not specifically defined within that coverage is subject to that term’s common definition. The following are definitions from dictionaries that might be used in court proceedings:

• American Heritage College Dictionary

Accident means “an unexpected, undesirable event, esp. one resulting in damage or harm. An unforeseen incident.”

• Black’s Law Dictionary

Accident means: “befalling a change; a happening; an incident; an occurrence or event; a fortuitous circumstance, event, or happening; an event happening without any human agency, or if happening wholly or partly through human agency, an event under which the circumstances are unusual and unexpected by the person to whom it happens; an unusual, fortuitous, unexpected, unforeseen, or unlooked for event, happening or occurrence; an unusual or unexpected result attending the operation or performance of a usual or necessary act or event; chance or contingency; fortune; mishap; some sudden and unexpected taking place without expectation, upon the instant, rather than something which continues, progresses, or develops; something happening by chance; something unforeseen, unexpected, unusual, extraordinary, or phenomenon, taking place not according to the usual course of things or events, out of the range of ordinary calculations; that which exists or occurs abnormally, or an uncommon occurrence.”

The word may be employed as denoting a “calamity, casualty, catastrophe, disaster, an undesirable or unfortunate happening; any unexpected personal injury resulting from any unlooked for mishap or occurrence; any unpleasant or unfortunate occurrence, that causes injury, loss, suffering, or death; some untoward occurrence aside from the usual course of events. An event that takes place without one’s foresight or expectation; an undersigned, sudden, and unexpected event”

• Merriam-Webster Dictionary

Accident means the following:

o    “A sudden event (such as a crash) that is not planned or intended and that causes damage or injury”

o    “An event that is not planned or intended; an event that occurs by chance”

o    “An unforeseen and unplanned event or circumstance”

o    “Lack of intention or necessity”

o    “An unfortunate event resulting especially from carelessness or ignorance”

Synonyms: “Casualty, mischance, mishap”

Related words: “Calamity; cataclysm; catastrophe; cropper; deathblow; disaster; tragedy; bummer; knock; misadventure; misfortune; collision; crack-up; crash; smashup; wreck”

• Oxford Dictionary

Accident is “an unfortunate incident that happens unexpectedly and unintentionally, typically resulting in damage or injury; an event that happens by chance or that is without apparent or deliberate cause”

Synonyms: “Chance; coincidence; twist of fate; freak; fluke; bit of luck; serendipity; fate; fortuity; fortune; providence; happenstance”

HISTORY AND BACKGROUND

Commercial Liability

The National Bureau of Casualty Underwriters and the Mutual Insurance Rating Bureau (precursors to the Insurance Services Office) introduced the defined word “occurrence” in the 1966 general liability coverage form edition change. The term “caused by an ‘occurrence’” replaced the term “caused by an accident” in this edition. The word occurrence was also added to the list of defined terms. The term occurrence was defined as “an accident, including injurious exposure to conditions.”

By 1973, the Bureaus had become part of the Insurance Services Office and a major revision of the liability coverage forms took place. This particular form edition is best known for changes made to pollution coverage. The definition of occurrence was changed at this time to mean “an accident, including continuous or repeated exposure to conditions.”

The current definition of occurrence has not changed since 1985. It is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Personal Liability

The term “occurrence” is in the 1973 homeowners policy edition. It is defined as “an accident, including exposure to conditions, which results, during the policy period, in: a. bodily injury; or b. property damage.” The definition was changed in 1991 to mean “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: a. "Bodily injury"; or b. "Property damage." This is the same definition in use today.

HOW THE TERM OCCURRENCE ESTABLISHES COVERAGE

COVERAGE LANGUAGE

The primary purpose of this word is to establish whether or not there is coverage under the coverage form.

1. The homeowners and dwelling personal liability coverage forms state that:

“If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:”

2. Similarly the personal liability umbrella states:

“We will pay damages, in excess of the "retained limit", for:

"Bodily injury” or "property damage" for which an "insured" becomes legally liable due to an "occurrence" to which this insurance applies”

3. The commercial liability and umbrella coverage forms state:

“This insurance applies to "bodily injury" and "property damage" only if:

The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"

There may be a bodily injury or property damage event and the insured may be liable for it but none of the above policies provide coverage if it is not caused by or the result of an occurrence.

The insurance company’s responsibility for bodily injury and property damage ends if it can establish that there was no occurrence. A very important reason for establishing that there was an occurrence is that defense costs, which can be very substantial, are not covered when there is no occurrence.

PERSONAL LINES COURT CASES

The following are three personal lines court cases where coverage rested on whether there was an occurrence:

Mutual of Enumclaw Ins. Co. v. Gutman. Court of Appeals of Oregon. Appeal decided February 21, 2001. 172 Or.App. 528, 21 P.3d 101 OrApp., 2001

In 1992, Mutual of Enumclaw issued two homeowner's policies to the Gutmans. Fawn and her children, Aaron and Heather, were living with the Gutmans when the second policy was issued. Because Fawn was related to the Gutmans and was living with them for at least part of the time that both policies were in effect, the parties agreed that she was an additional insured under each policy. In 1998, Mathew Carr, Fawn's former husband and the father of Aaron and Heather, brought an action against the Gutmans that claimed false imprisonment of the children. Carr essentially alleged that Fawn, with the Gutmans' help, removed the children from Oregon and confined them elsewhere so that Carr could not be with them.

The Gutmans asked Enumclaw to defend them. Enumclaw rejected the request and initiated this action for a judgment, declaring that it was not required to defend against Carr's action. The Gutmans filed an answer and counterclaim in which they sought a judgment declaring that Enumclaw owed a duty to defend them under each policy. On cross-motions for summary judgment, the trial court granted summary judgment in favor of the Gutmans and against Enumclaw. Enumclaw appealed.

On appeal, Enumclaw argued that the trial court erred in concluding that it was obligated to defend the Gutmans because of the following:

• The injuries the children allegedly suffered as a result of the defendants' conduct were intentionally inflicted and did not arise from an “occurrence” under the policies.
• The “penal act” exclusion contained in endorsements to the policies prohibited coverage.
• Public policy precluded coverage for the type of conduct that Carr alleged.

The appellate court stated that an “accident” as used in a liability insurance policy does not focus on the intentionality of the insureds' conduct but looks to intent to cause injury to the alleged victim. The question is whether the insured specifically intended the harm suffered or, alternatively, engaged in an act so certain to cause the particular kind of harm that the court will say that the insured intended the harm.

The court also found that the alleged false imprisonment of children by their mother and grandparents was an “occurrence” within the liability coverage of the Gutmans’ homeowners’ insurance policies. Carr sought damages for the children's emotional distress, anxiety, reduction in health, loss of services, companionship, and enjoyment with him. He did not allege that the mother and grandparents intentionally inflicted any of those injuries.

The Court of Appeals held that the alleged false imprisonment of the children was an “occurrence” and the penal act exclusion of liability coverage for injury caused by a violation of a penal law or ordinance did not apply. It affirmed the trial court’s decision.

Travelers Indemnity Co. v. Ward. United States District Court, E.D. Pennsylvania. Case decided September 20, 2002. 2002 WL 31111834

Stephen and Janet Ward held a backyard barbecue at their home on June 26, 1999 attended by their three children and a neighbor and her children. It was a hot day and the adults entertained themselves with water guns that they filled from a three-foot kiddie pool that the Wards owned. Stephen noticed his neighbor filling her water gun and believed she was going to get him wet, so decided to dunk her in the pool. He grabbed her, interlocked their arms, and threw her into the pool. Stephen landed on top of her and broke her left arm. He quickly took her to the hospital where she was admitted for emergency surgery. She suffered a permanent residual injury as a result of the event.

The neighbor sued Stephen who then filed a claim with Travelers, his homeowners’ carrier. The Ward’s policy covered personal liability claims for “bodily injury” caused by an “occurrence.” “Occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions which results, during the policy period, in bodily injury.” Travelers denied coverage, stating that the incident did not constitute an “occurrence.” Stephen stated that his unintentional breaking of neighbor's arm during playful scuffle was accidental and was an “occurrence” within the meaning of the homeowners’ policy.

Travelers filed a declaratory judgment complaint against both Stephen and his neighbor and moved for summary judgment. Stephen and his neighbor filed cross motions for summary judgment and sanctions. The trial court held that the injury was an “occurrence” within the policy’s meaning. Even if scuffling acts were intentional, the injury was an unintended consequence. It entered judgment in favor of Stephen and his neighbor and against Travelers.

State Farm Fire & Cas. Co. v. Ham & Rye, L. L. C. Court of Appeals of Washington, Division 2. Appeal decided October 16, 2007. 142 Wash.App. 6, 174 P.3d 1175 Wash.App. Div. 2, 2007

Chanel Chadwick and a friend started a fire that spread to the nearby Aldrich's Market building, damaging property of Ham & Rye, L. L. C. and Retail Services, Inc. State Farm insured Chadwick and her grandparents with homeowners' liability and personal umbrella policies. State Farm brought this action against the insured, the building owner, and the store operator for a declaratory judgment that its homeowners and personal umbrella policies did not provide coverage because Chadwick intentionally set fire to newspapers on the sidewalk outside the building. The building owner and the store operator filed counterclaims as assignees of the insured's claims. The trial court entered summary judgment in favor of State Farm.

The building owner and the store operator appealed. They argued that the trial court erred in ruling that the Aldrich's Market fire was not an accident and resulted from Chadwick's willful and malicious acts.

The appellate court stated that, while setting the newspapers on the sidewalk was deliberate, the fire to the building was an accident. As a result, there was an occurrence within the meaning of liability coverage of the homeowners and personal umbrella policies if the building fire was not reasonably foreseeable.

To prove that an intentional act was not an accident, State Farm had to show that the act was deliberate, meaning that it was done with knowledge of the implications or consequences. The court stated that there were genuine issues of material fact as to whether the insured child knew or should have known that the fire would spread from the newspapers on the sidewalk to the building. This precluded summary judgment on whether the building fire was an accident. Furthermore, the homeowners and personal umbrella policies could provide liability coverage because the insured believed that she and her friend had extinguished the fire. Because reasonable minds could disagree whether the fire was an accident or whether Chadwick acted willfully and maliciously in causing the fire, the court reversed the trial court’s decision and remanded the case back to that court for trial.

COMMERCIAL LINES COURT CASES

The following are three commercial lines court cases where coverage rested on whether there had been an occurrence:

AES Corp. v. Steadfast Ins. Co. Supreme Court of Virginia. Appeal decided January 17, 2012. 283 Va. 609, 725 S.E.2d 532 Va., 2012

AES was a Virginia-based energy company that held controlling interests in companies that specialized in generating and distributing electricity in numerous states, including California. AES paid premiums to Steadfast for CGL policies from 1996 to 2000 and from 2003 to 2008.

In February 2008, the Native Village of Kivalina and the City of Kivalina (collectively Kivalina), a native community located on an Alaskan barrier island, filed a lawsuit (the Complaint) in the United States District Court for the Northern District of California against AES and numerous other defendants. The suit alleged that AES damaged the village by causing global warming through emission of greenhouse gases. AES requested that Steadfast provide a defense and insurance coverage for the claims alleged in the Complaint, pursuant to the terms of the CGL policies. Steadfast provided AES with a defense under a reservation of rights and filed a declaratory judgment action in the Circuit Court of Arlington County, which was the subject of this appeal.

In the declaratory judgment action, Steadfast claimed that it did not owe AES a defense or indemnity coverage for damage allegedly caused by AES's contribution to global warming based on three grounds:

• The Complaint did not allege “property damage” caused by an “occurrence,” which was necessary for there to be coverage under the policies.
• Any alleged injury arose prior to the inception of Steadfast's coverage.
• The claims alleged in the Complaint fell within the scope of the pollution exclusion stated in AES's policies.

The parties subsequently filed cross-motions for summary judgment. Both claimed that whether Steadfast had a duty to defend AES against the Complaint could be decided by examining the “eight corners” of the Complaint and the CGL policies. The circuit court denied AES' motion for summary judgment and granted Steadfast's motion for summary judgment. It held that the Complaint did not allege an “occurrence” as the CGL policies defined that term and they did not cover the allegations in the complaint.

The Circuit Court, Arlington County, entered judgment in Steadfast's favor and AES appealed.

The appellate court examined the evidence and stated, among many items, that:

“Damage to the Alaskan barrier island that made the native village uninhabitable allegedly as a result of global warming was not caused by an “accident” and, as a result, was not caused by an “occurrence” within the meaning of AES’ CGL policy. This was the case even if the damage was unintentional and even though the company allegedly knew (or should have known) the damage that electricity-generating activities would cause, was negligent if it did not know, and was negligent in acting in concert with others in creating the nuisance. The damages were the natural and probable consequences of the company's intentional emissions of carbon dioxide and allegations of negligence were not synonymous with allegations of an accident.”

The appellate court held that damage to the Alaskan barrier island that made the native village uninhabitable allegedly as result of global warming was not caused by an accident and, as a result, was not caused by an occurrence within the meaning of the CGL policy. It affirmed the trial court’s judgment.

Lucterhand v. Granite Microsystems, Inc. United States Court of Appeals, Seventh Circuit. Appeal decided April 28, 2009. 564 F.3d 809 C.A.7 (Wis.), 2009

Granite Microsystems, a Wisconsin corporation, made custom-integrated computers and computer-related products. Daniel Armbrust was its president and Mark Lucterhand was its Director of Global Operations. In the fall of 2004, Lucterhand ruptured his quadriceps while walking down a flight of stairs at work. Armbrust witnessed the injury but, despite Lucterhand's obvious agony and inability to walk on his own power, Armbrust “forcibly transported” him “against his will” to a scheduled business meeting where he endured excruciating pain for two hours. Several hours after his injury, Lucterhand was finally transported to the hospital where he underwent surgery and received postsurgical care for five days. Armbrust called him at the hospital “at least twice” to “hasten his discharge.” When Lucterhand returned to work, Armbrust accused him of “milking” his injuries and fired him.

Lucterhand sued Granite and Armbrust in federal court for the retaliatory firing because he exercised his rights under the Family and Medical Leave Act (FMLA). Lucterhand also asserted state-law claims for intentional infliction of emotional distress and false imprisonment.

Granite submitted the lawsuit to its insurers, Federal Insurance Company and Vigilant Insurance Company, for defense and indemnity. Federal insured Granite under a CGL policy and a Workers Compensation and Employers Liability policy during the relevant time period. Vigilant insured the company under a Commercial Excess and Umbrella policy.

The insurance companies declined to provide coverage or to offer a defense. They sought a declaratory judgment from the court that the policies did not cover the damages that Lucterhand alleged. On cross-motions for summary judgment, the trial court agreed with the insurers. It concluded that there was no coverage because Lucterhand's lawsuit against Granite did not allege damages from an accident. Lucterhand appealed.

The appellate court reviewed the facts and the arguments on both sides and noted the following with respect to Wisconsin law:

• An “accident,” as used in liability insurance, is an unexpected, undesirable event or an unforeseen incident characterized by a lack of intention.
• Granite’s and Armbrust’s discharge of Lucterhand was an intentional injury, not an occurrence within the meaning of the liability insurance policies. The policies defined an occurrence as an accident but Granite and Armbrust intended for Lucterhand to lose his salary and benefits.
• Granite’s and Armbrust’s alleged intentional infliction of emotional distress was not an occurrence within the meaning of the liability insurance policies because Granite’s and Armbrust’s conduct was alleged to be intentional and unlawful.
• Granite and Armbrust allegedly acted intentionally in witnessing Lucterhand’s injury and then forcibly transporting him against his will to a business meeting despite observing his incapacity and extraordinary level of pain. As a result, Lucterhand’s injury was not an “occurrence” within the meaning of the liability insurance policies in Lucterhand’s action that sought to recover for false imprisonment and intentionally withholding medical treatment.

The parties also briefed the appellate court on a number of other issues, including whether the policies' “intentional-acts” or “employment-related practices” exclusions precluded coverage. However, given the court’s conclusion that none of the allegations could prove coverage under the policies' initial grant of coverage, it determined that it did not have to resolve these other issues. The appellate court upheld all of the trial court’s conclusions.

County Mut. Ins. Co. v. Carr. Appellate Court of Illinois, Fourth District. Appeal decided March 19, 2007. 372 Ill.App.3d 335, 867 N.E.2d 1157 Ill.App. 4 Dist., 2007

Ruth Rollings and Dana Bowyer filed a multiple count complaint against Carr, John Seevers, and Seevers Farm Drainage, Inc. because of damage to their home’s basement and foundation. The suit alleged that inappropriate backfill was placed in and around the basement walls and then heavy earthmoving equipment operated negligently near those walls resulted in the sudden movement of the basement walls. This movement then resulted in damage to the basement walls and to other portions of the residence.

In March 2006, Country Mutual, Carr’s insurer, sought a declaratory judgment that the homeowners' suit to recover for damage to the basement walls caused by earthmoving equipment did not allege an “occurrence.”

In May 2006, the trial court heard arguments on Country Mutual's motion for judgment on the pleadings. At the hearing, the attorney for Country Mutual stated:

“The cases I've cited in my various filings in support of my [m]otion for [j]udgment on the [p]leadings make it clear that under Illinois law, a construction defect resulting from improper workmanship or poor construction practices does not constitute an occurrence within the definition of a standard commercial liability policy. That's the basis of my argument, that there is no occurrence.”

Later, during the hearing, Country Mutual's attorney conceded the policy's “own-work” exclusion, on which Country Mutual had previously relied, was “negated by the allegation that the subcontractor may have performed the work.” The trial court agreed with Country Mutual's motion for judgment by finding there was no “occurrence.” Carr appealed.

The appellate court stated the following:

• Accident is ambiguous in the CGL policy because there is no definition of it in the policy and because different courts interpret it differently.
• The result of an insured's actions is the product of an accident within the meaning of a CGL insurance policy, if the person did not intend or expect the result.
• Alleged sudden movement of basement walls as a result of inappropriate backfill and use of earthmoving equipment was property damage within the meaning of Carr’s CGL insurance policy.
• Sudden movement of basement walls allegedly as a result of inappropriate backfill and negligent use of earthmoving equipment adjacent to the walls was caused by an accident. As a result, there was an occurrence within the meaning of the contractor's CGL insurance policy. There was no allegation made that suggested that the contractor, employees, or subcontractors intended or expected the movement.

The Appellate Court held that the sudden movement of basement walls allegedly as a result of inappropriate backfill and negligent use of earthmoving equipment adjacent to the walls was caused by accident and, thus, an “occurrence.” It reversed the trial court’s judgment and remanded the case to it for further handling.

HOW THE TERM OCCURRENCE LIMITS PAYMENT

Limits of Insurance Language

Another limiting use of the word occurrence is defining how the coverage limits are applied to a particular loss situation.

The ISO Homeowners and Dwelling Personal Liability coverage states that:

“Our total liability under Coverage E for all damages resulting from any one "occurrence" will not be more than the Coverage E Limit of Liability shown in the Declarations. This limit is the same regardless of the number of "insureds", claims made or persons injured. All "bodily injury" and "property damage" resulting from any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one "occurrence."

Similarly the ISO Personal Liability Umbrella states:

“Our total liability under this policy for all damages resulting from any one "occurrence" or offense will not be more than the limit of liability as shown in the Declarations of this policy. This limit is the most we will pay regardless of the number of "insureds", claims made, persons injured, or vehicles involved in an accident.”

The ISO Commercial Liability and Liability Umbrella Coverage Forms state:

“The Each Occurrence Limit is the most we will pay for the sum of:

a. Damages under Coverage A; and

b. Medical expenses under Coverage C

because of all "bodily injury" and "property damage" arising out of any one "occurrence. "

The occurrence limitation is very important because the limit applies only once per occurrence instead of applying per claim or per party that claims damage. The only way to increase the available limit of insurance following a claim is to increase the number of occurrences.

JUDICIAL INTERPRETATIONS

Over time, courts have attempted to determine the number of occurrences by applying the “effects” test or the “cause” test.

Effects Test

Courts use this approach to examine the number of injuries (“effects”) to determine the number of occurrences. The few jurisdictions that have adopted this approach hold that, where several injuries result from a single underlying cause, each person injured or property damaged is a separate occurrence.

Cause Test

The vast majority of jurisdictions apply this approach. It resolves the issue by referring to the underlying cause or causes of the injury or damage instead of referring to the number of claims for injury or damage. In general, this test holds that a single, proximate, continuing, and uninterrupted cause that results in injury to persons or damage to property over a period of time is only one occurrence.

However, determining cause can be a slippery slope. Almost any event, act, or circumstance can have numerous interdependent contributory causes. Even assessments based on proximate causes often depend more on who is being sued and for what than external events. Courts have attempted to establish rules and directions to apply cause standards. However, these rules are also subject or susceptible to more than one interpretation or prescription such as that the occurrence must be viewed from the insured’s perspective or the definition of occurrence must be viewed in light of the subject matter or purposes the parties intended for the policies to serve.

PERSONAL LINES COURT CASES

The following four personal lines court cases are where a court determined the number of occurrences that took place.

Citizens Property Ins. Corp. v. Cook. District Court of Florida, Fifth District. Appeal decided July 20, 2012, 93 So.3d 479 Fla.App 5 Dist., 2012

The personal representatives of the estates of minors, who allegedly drank alcohol at a party at the insureds' home and then died in an automobile accident after leaving the party, brought a declaratory judgment action against the insureds and their liability insurer, seeking an interpretation of the policy. On cross-motions for judgment on the pleadings, the trial court ruled that there were multiple occurrences under the policy. Citizens appealed.

The provision in the homeowners' insurance policy stated that insurer's total liability for all damages that result from any one occurrence is not more than the limit of liability on the declarations. The automobile accident in which the minors were killed after leaving the party at the insureds' home after allegedly being served alcohol was the only “occurrence.” Each alcoholic drink the insureds allegedly served to the minors (or allegedly allowed to be served to them) was not a separate occurrence. The immediate cause of the minors' deaths was the motor vehicle accident, not the underlying activity of allegedly allowing the minors to consume alcohol. The appellate court held that the automobile accident was the only occurrence.

Crum v. Johnson. Supreme Court of Mississippi. Appeal decided March 7, 2002. 809 So.2d 663 Miss., 2002

On March 17, 1996, Tina Crum was attacked by two Rottweiler dogs while she was walking on a walking track in Vardaman, Mississippi. Tanya Langford, Tina's walking companion, was also attacked but by only one of the dogs. Tina, Tanya, and their husbands filed suit against Steve Johnson, the owner of the dogs, and the town of Vardaman, alleging that Johnson was negligent in allowing the two dogs to run loose knowing they were dangerous. There was no evidence to indicate how or why Johnson failed to confine the dogs.

Johnson's Farm Bureau Comprehensive Dwelling Package Policy provided personal liability coverage in the amount of $50,000 for each occurrence. The term occurrence was defined as “an accident, including continuous or repeated exposure to conditions.” The policy also stated that “regardless of the number of persons insured, injured persons, claims made, or suits brought, our liability is limited as follows: the limits of liability stated in the declarations for personal liability coverage is the total limit of our liability for all damages resulting from any one occurrence.”

Farm Bureau brought an action for a declaratory judgment that the injuries and loss of consortium resulted from a single occurrence. The trial court granted Farm Bureau summary judgment and the victims and spouses appealed.

The appellate court stated the following:

• Bites by two dogs in the attack on two victims were multiple “occurrences” subject to separate limits of liability under the owner's homeowners’ policy. The policy was ambiguous because:
• The medical coverage section entitled each victim to the protection of that section if the injury was caused by an animal in the insured's care.
• The policy limits applied regardless of the number of “injured persons.”
• The policy failed to state that multiple injuries could not result in multiple occurrences.
• The definition of “occurrence” in the homeowners’ policy as an accident including continuous or repeated exposure to conditions conflicted with the medical coverage section that entitled each victim to the protection of that section if the injury was caused by an animal in the insured's care. As a result, the policy was ambiguous as to the number of occurrences and the liability coverage limits for dog bites against multiple victims.
• Loss of consortium claims by spouses of dog bite victims were not separate “occurrences” within the meaning of the dog owner's homeowners’ policy.
• A factual issue of whether multiple acts are sufficiently related to constitute one occurrence of loss arises only where the applicable policy language unambiguously states that multiple acts may be so treated.

The appellate court determined that the two couples’ claims for loss of consortium were not separate occurrences. However, it found that the policy was ambiguous and reversed the trial court’s grant of summary judgment to Farm Bureau. It remanded the case back to the trial court for further proceedings consistent with this opinion.

Austin Mut. Ins. Co. v. Aldecoa. Court of Appeals of Arizona, Division 2, Department A. Appeal decided October 11, 2011. 2011 WL 4794936

Austin Mutual brought a declaratory judgment action against the parents of children who drowned in their grandparents' swimming pool. The action asked the trial court to declare there was only one covered occurrence for the grandparents' alleged negligence under their homeowner's policy. The trial court determined that the grandparents’ acts were two occurrences. The grandmother's act of leaving the pool gate unlatched and the grandfather's act of failing to watch the children, who then drowned, constituted two occurrences under the grandparents’ homeowners policy. The grandparents' actions were taken by separate actors on separate days, each presumably acting without actual knowledge of the other's act, and each act was necessary to produce injury that otherwise would not have occurred. Austin Mutual appealed.

The appellate court agreed with the trial court and determined that the repeated exposure clause did not apply to these facts and did not merge the grandparents’ acts into a single occurrence. In the absence of an applicable modifying clause, the acts of each grandparent constituted two separate causes of the deaths of the children. Because the policy language did not merge the two causes, the trial court was correct in finding that the grandparents’ acts constituted two occurrences, not a single “occurrence,” and the grandmother's alleged negligence was not superseded by the grandfather's alleged negligence. The appellate court affirmed the trial court’s decision.

Safeco Ins. Co. of America v. Fireman's Fund Ins. Co. Court of Appeal, Second District, Division 1, California. Appeal decided March 14, 2007. 148 Cal.App.4th 620, 55 Cal.Rptr.3d 844 Cal.App. 2 Dist.2007

Safeco, the excess insurer, brought a declaratory relief action against Fireman’s Fund, the primary insurer. It asserted that Fireman’s Fund covered, under four successive policies, $2 million of a judgment against the insured property owner for damages caused by a landslide that went unrepaired for four years. Fireman’s Fund cross-complained, alleging declaratory relief, equitable subrogation, and equitable indemnity. The trial court granted summary judgment in favor of Fireman’s Fund. Safeco appealed.

The appellate court stated that the “trigger of coverage” is a term used to describe what must happen in the policy period in order for the possibility of coverage to arise. When all injuries emanate from a common source, there is only a single occurrence, irrespective of multiple injuries or injuries of different magnitudes or that the injuries extend over a period of time. The court compared this to cases where the cause is interrupted, or when there are several autonomous causes, resulting in multiple “occurrences” for purposes of determining policy limits and assessing deductibles.

The landslide from the insured's property that took place during the first policy period that gave rise to both personal injury and property damage was a single “occurrence,” even though some damages continued through multiple policy periods. As a result, Fireman’s Fund was liable for only the $500,000 available in the first policy period. The rest of the $4 million judgment remained the insured’s responsibility. Continuation of any damage into subsequent policy periods did not give rise to multiple occurrences. The appellate court affirmed the trial court’s decision.

COMMERCIAL LINES COURT CASES

The following commercial lines court case is complicated but shows how difficult determining the number of occurrences can be.

Cincinnati Ins. Co. v. Devon Intern., Inc. United States District Court, E. D. Pennsylvania. Appeal decided February 15, 2013. 924 F.Supp.2d 587 E.D.Pa., 2013

Devon International, Devon International Industries, and Devon International Group were the named insureds under two Cincinnati Insurance Company policies. The first annual policy was issued effective on November 20, 2008 and its renewal was effective from November 20, 2009 through November 20, 2010. Both policies used the standard ISO wording described earlier.

On February 8, 2006, Devon International Trading (which was a predecessor of Devon International Industries and a sourcing agent for Chinese products) received an order from the North Pacific Group for Chinese drywall. The drywall was purchased from Shandong, a Chinese drywall manufacturer, and shipped to Florida. This was the only purchase and shipment of Chinese drywall.

In July 2006, North Pacific accepted delivery of some of the drywall and Devon International Trading delivered the remaining undamaged drywall to other individuals and entities. Devon received notice on April 2009 from North Pacific’s counsel, requesting defense and indemnification for a claim alleging defects in the imported drywall. At this point, Devon first became aware that the imported drywall was alleged to contain an improper amount of sulfur.

Other lawsuits from other claimants followed. The general complaint was that sulfur that the drywall emitted damaged real and personal property. Injuries from the various lawsuits alleged injuries in both of Cincinnati’s policy terms.

Cincinnati brought an action that sought a declaratory judgment. Both parties filed cross-motions for summary judgment.

The trial court held that claims against Devon arose out of single “occurrence” and granted Cincinnati’s motion. Devon appealed.

The appellate court noted the following with respect to Pennsylvania law:

• An event is considered an occurrence only when injurious effects of a negligent act first manifest themselves in a way that would put a reasonable person on notice of injury, regardless of when the cause happens.
• If all injuries the underlying plaintiffs sustained stem from a single event over which the insured had some control, there would be a single occurrence under the CGL coverage.
• Claims against Devon that arose from defective drywall from China were a single occurrence under the CGL coverage. This applied even though the insured subsequently sold drywall to multiple parties, where the alleged defect was an excessive amount of sulfur in the drywall, and all injuries to underlying plaintiffs and claims against the insured originated from the insured's purchase of single shipment of defective drywall.

The appellate court stated the following:

• All claims asserted and suits filed against Devon that related to injuries or damages allegedly caused by the emission of sulfur or sulfide gases from Chinese drywall imported by Devon International Trading, Inc. arose out of a single “occurrence” as the policy that Cincinnati issued defined.
• The occurrence took place during the first policy period, between November 20, 2008 and November 19, 2009.
• There was no coverage for the November 20, 2009 to November 20, 2010 policy period for claims that arose from the emission of sulfur or sulfide gases from drywall that Devon International Trading, Inc. imported from China.
• Judgment was entered in favor of Cincinnati and against Devon.

“OCCURRENCE” AND CONSTRUCTION DEFECTS

There has been a major shift in handling Damage to Your Work claims commonly called either construction defects or faulty workmanship claims. Traditionally, these claims have been declined on the basis that such claims are the result of intentional actions on the insured’s part and do not fit the definition of occurrence. However, in certain courts and in certain states, changes are occurring in two ways:

1. State supreme courts have ruled that construction defects may be considered occurrences when a subcontractor under the insured’s supervision causes them.

2. State legislatures have modified the definition of occurrence to require including certain types of faulty workmanship.

In all cases, the only covered construction defects are the ones a subcontractor causes. One rationale is that the general contractor is responsible for supervising the subcontractor. If the subcontractor’s work is faulty, the general contractor’s covered occurrence is when that faulty workmanship is first noticed.

There is an argument that any faulty workmanship should always be considered an occurrence. The rationale is that ISO has a faulty workmanship exclusion in the policy because it believes there is coverage that must be excluded. The argument is that, if the term “occurrence” does not include faulty workmanship, why is an exclusion needed? This is very important because the exception for subcontractors work within the faulty workmanship exclusion can be accessed only after overcoming the first barrier to coverage, the term occurrence.

As debate over construction defects heated up, ISO introduced CG 22 94–Exclusion–Damage to Work Performed by Subcontractors on Your Behalf. This endorsement was supposed to eliminate the subcontractor exception within the Damage to Your Work (commonly called the faulty workmanship or construction defects) exclusion. In some states, it can represent a substantial reduction of coverage for certain insureds and should be accepted with caution and with a complete written explanation to the client.

The following are some recent construction defects court cases.

Zurich American Ins. Co. v. R. M. Shoemaker Co. United States Court of Appeals, Third Circuit. Appeal decided March 27, 2013. 519 Fed.Appx. 90 C.A.3 (Pa.), 20132

Monmouth County, NJ sued R. M. Shoemaker Company in New Jersey state court. The suit alleged that Shoemaker, a construction contracting firm, faultily constructed an addition to the Monmouth County Correctional Institution in Freehold, New Jersey. Among other things, Monmouth alleged that Shoemaker negligently supervised its subcontractor. This permitted the subcontractor to engage in willful misconduct that resulted in damage to both structural elements of the building and the County Correctional Institution’s personal property. Monmouth alleged that Shoemaker's negligence permitted water to intrude into the County Correctional Institution, reduced its structural integrity, and damaged interior property including electrical systems, suspended acoustic tile ceilings, and miscellaneous equipment.

Zurich American Insurance Company insured Shoemaker. It brought a declaratory judgment action to determine if it had a duty to defend and indemnify Shoemaker in the underlying lawsuit that alleged that Shoemaker negligently supervised the subcontractor. The trial court entered summary judgment in favor of Zurich and Shoemaker appealed.

The contract between Monmouth and Shoemaker stated that Shoemaker was responsible for the construction means, methods, techniques, sequences, and procedures associated with all portions of the Work under the Contract, and that it was obligated to coordinate, manage, inspect, and supervise all phases of that work.

Under Pennsylvania law, a construction contractor's alleged negligent supervision, which then permitted its subcontractor’s willful misconduct, was not an occurrence under the contractor's commercial general liability policies. As a result, Zurich did not have a duty to defend or indemnify Shoemaker in the owner's action against it, even though the subcontractor's misconduct led to the foreseeable act of water infiltration into the structure.

Because Pennsylvania law dictated the outcome of this case, the appellate court affirmed the trial court’s judgment and denied Shoemaker's motion for certification to the Pennsylvania Supreme Court.

Scottsdale Ins. Co. v. R. I. Pools. United States Court of Appeals, Second Circuit. Appeal decided March 21, 2013. 710 F.3d 488 C.A.2 (Conn,), 2013

R.I. Pools installed swimming pools. It used two different subcontractors to shoot the concrete that was purchased from another subcontractor. In 2009, 19 customers who had their pools installed during the summer of 2006 complained that the concrete was cracking, flaking, and deteriorating. This concrete damage was causing the pools to lose water. R.I. Pools submitted claims as it received them to its insurer, Scottsdale. Scottsdale investigated and provided defense costs for the first three cases but then declined all further coverage. Scottsdale also requested reimbursement of all defense costs it had paid out.

Scottsdale received a summary judgment on September 10, 2010 that there was no coverage and that the defense costs it had paid should be reimbursed. The court relied on Jakobson Shipyard, Inc. v. Aetna Casualty & Surety Co. 961 F.2d 387 (2d Cir.1992). The defects in R. I. Pools’ workmanship could not be considered “accidents” according to the court’s reasoning. This meant that the defects were not within the definition of “occurrence” in the policy. If there was no occurrence, there was no coverage. The court ruled that Scottsdale did not have a duty to defend or indemnify. To add injury to injury, the court further ordered R. I. Pools to reimburse Scottsdale for defense costs it had already paid. If the policy did not provide coverage, there was no duty to defend. R. I. Pools appealed.

The appellate court totally reversed the trial court’s decision. While the trial court stopped considering coverage at the definition of occurrence, the appellate court ruled that the trial court forgot to consider the exception for subcontractors in the Damage to Your Work exclusion. When that exception was considered, coverage applied as did all defense costs.

McBride v. Acuity. United States Court of Appeals, Sixth Circuit. Appeal decided January 7, 2013. 510 Fed.Appx. 451 C.A.6 (Ky.), 2013

Gary and Holly Holder (“Holders”) sued McBride Construction LLC (McBride) for damages in Kentucky state court in November 2009, alleging construction defects in their house in Paducah, Kentucky. According to a structural engineer, the house had a differential settlement, where the foundation of the house moved and caused cracks in its walls and floors. The property damage alleged was supposedly caused by the work of McBride's subcontractor, Jimmy Smith Concrete. McBride had a CGL policy with Acuity during the period when these damages occurred. McBride requested a defense under its CGL policy. Acuity refused and further refused to indemnify McBride for any damages it owed to the Holders.

In September 2010, McBride sued Acuity in Kentucky state court. McBride sought a declaratory judgment with regard to the extent of coverage in the CGL policy as well as to define Acuity's duty to defend McBride. Acuity then removed the case to federal court because McBride was a citizen of Kentucky, Acuity was a citizen of Wisconsin, and the amount in controversy exceeded $75,000.00. Acuity moved for summary judgment. It argued that faulty construction was not an “occurrence” within the meaning of the CGL policy and that it did not have a duty to provide a defense to McBride as a matter of law. The trial court agreed and granted Acuity its motion for summary judgment. McBride appealed.

For the purposes of the appeal, there was no genuine dispute as to the material facts. Both McBride and Acuity agreed that McBride constructed a house which was damaged due to the faulty workmanship of McBride’s sub-contractor. Both parties further agreed that Acuity insured McBride under a CGL policy. Additionally, both McBride and Acuity agreed on the basic legal framework for deciding this case. Kentucky law provided that faulty workmanship did not ordinarily constitute an “occurrence” within the meaning of the CGL policy. Despite this, McBride claimed that there was an exception to the general rule because a sub-contractor performed the faulty workmanship. This exception had been adopted in several states and would be adopted by Kentucky if its highest court were to rule on the issue. Acuity argued that the trial court was correct when it held that Kentucky law did not recognize the sub-contractor exception and that it correctly granted summary judgment.

The appellate court upheld and affirmed the trial court’s decision. It noted that the existence of a sub-contractor exception to a coverage exclusion did not necessarily imply a sub-contractor exception to Kentucky's definition of “occurrence.” Courts of other states have varying views, and there is not enough evidence to predict with confidence that the Supreme Court of Kentucky would adopt such an exception.