The number of "occurrences" dilemma.

AuthorHarding, John T.

This article originally appeared in the May 2016 Insurance and Reinsurance Committee newsletter.

ISSUES concerning excess insurance are now at the forefront of 21st century coverage litigation. While the role of excess insurance was previously reserved for the truly "once in a lifetime" type of loss faced by a major corporation, the prevalence of class actions, "mass tort" claims (e.g., asbestos, medical device, pharmaceutical products), environmental, clergy abuse and other large-scale claims has greatly increased the potential significance of even high layer excess insurance policies. Further, as older primary CGL policies have become exhausted in responding to these claims, policyholders are increasingly looking to their excess insurers as a potential source of recovering the staggeringly large sums that can be involved. Not surprisingly, particularly in light of the relatively small premiums that were paid for this coverage decades ago and the dollars at stake, excess insurers are more willing now than in the past to contest these claims for coverage.

These modern-era coverage disputes have spawned a number of complex issues as to how a multi-layer insurance program is to function in responding to these new claim situations. Nowhere has this trend been more evident than in a multitude of cases that have examined the issue of the number of "occurrences." While the so-called "rules" for making such determinations--for example, the "cause" and "unfortunate event" tests--are not new, the ways in which these rules are being interpreted and used as strategic tools in coverage litigation are undergoing dramatic changes. In particular, the question of how many "occurrences" a given claim situation presents has created fertile ground for disputes not only between insurers and their policyholders, but among insurers within a policyholder's program. Where a particular insurer "sits" in the layers of coverage can have a significant impact on how the insurer assesses its course of action. The issue is particularly complex because there is no one "right" answer that fits every situation. The challenge that faces insurers is how to use the relevant legal rules to their financial advantage while not falling into traps that can come back to haunt them later. This issue is truly one that can put the insurer on the twin horns of an uncomfortable dilemma.

  1. The Sources of the Insurer's Dilemma

    As with most disputes arising from the application of insurance policies to claims, the source of the "dilemma" relating to how to measure the number of "occurrences" inheres in the policy language itself. While there are certainly variations to be found in the language of liability insurance policies, a typical example of the operative provision states that "occurrence" means:

    an accident, including continuous or repeated exposure to conditions, which results in bodily injury neither expected nor intended from the standpoint of the insured. For the purpose of determining the company's liability, all bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence. Apart from the policy language, the other major source of the "occurrences" dilemma is how coverage disputes have been shaped by the evolution of mass tort claims. For the "occurrences" issue to be significant and worth...

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