Chapter Three
| Jurisdiction | New York |
Chapter Three
Single or Multiple Occurrences
Kevin T. Merriman, Esq.*
* Stephanie S. Gelber, Esq. previously updated this chapter. Kevin T. Merriman, Esq. gratefully acknowledges the contributions of his Ward Greenberg colleague, Amanda Burns, Esq., in this chapter update.
I. Introduction
Most general liability policies provide defense and indemnity coverage for bodily injury or property damage arising out of an “occurrence” and provide limits of liability coverage on a “per-occurrence” basis. For those policies without an aggregate limit, the question of whether one or multiple occurrences have taken place can impact an insurer’s ultimate exposure for the costs of defense and loss indemnity. Where per-occurrence deductibles exist, the number of occurrences also can affect an insured’s ultimate exposure for payment of multiple deductible amounts for complex losses. Consequently, courts have been called upon to determine whether specific and seemingly complex claims situations involve single or multiple occurrences. Courts’ rulings regarding “number of occurrences” depend upon the language contained within a given policy, distilled through several theories developed by the judiciary to analyze standard policy language. This chapter discusses reported cases from courts that have considered the issue of “number of occurrences,” as it applies to relatively complicated claims.
II. Policy Language
Commercial general liability (CGL)546 policies typically provide coverage for bodily injury or property damage caused by an “occurrence.” CGL policies typically define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Most CGL policies also specify in the insuring clause that “[t]his insurance applies to ‘bodily injury’ and ‘property damage’ only if: . . . (2) The ‘bodily injury’ or ‘property damage’ occurs during the policy period.”
Generally, CGL policies provide for an “each occurrence” limit of liability, usually subject to a “general aggregate” limit. CGL policies that contain per-occurrence deductibles largely adopt the definition of an occurrence contained within the main policy provisions as applicable to the per-occurrence deductible.
III. Theories Used to Analyze Number of Occurrences in Complex Cases
In 1966, the Insurance Services Office (ISO) drafters replaced the term “accident” with the term “occurrence,” “in order to provide clearly for coverage of gradual, continuous and prolonged events that might have been excluded by the instantaneous connotation of ‘accident.’”547 In 1973, the ISO form’s policy language expanded coverage for liability exposure based on “occurrence” to include coverage for continuous or repeated exposure to certain conditions. The expanded ISO-formatted coverage resulted in new issues for courts attempting to find whether there are single or multiple occurrences for gradual, continuous or prolonged events or for complex, multiple-party claims involving products. Nationwide, courts looked to the policy language and developed two general theories for determining whether one or multiple occurrences exist: the “cause” test and the “effect” test.
A. The Cause Test
The cause test, which was adopted in a majority of state and federal jurisdictions548 that have looked at the occurrence issue, considers the cause of the damages. It finds one occurrence where one proximate and uninterrupted cause results in the injuries or damages.549 One of the first courts to analyze the number of occurrences issue under the cause theory was the California Court of Appeals in Hyer v. Inter-Insurance Exchange of Automobile Club.550 At issue in Hyer was the number of occurrences resulting from a three-vehicle collision. The court appropriately ruled that a routine three-vehicle collision was only a single “accident” because, “as commonly used in liability insurance policies, the word ‘accident’ is predicated on an occurrence that is the cause of the injury.”551 Most jurisdictions nationwide have adopted this approach and find one occurrence under such circumstances, regardless of the number of items of damage.552
B. The Effect Test
A minority of the jurisdictions that have considered the occurrence issue adopted the effect approach, under which each claimed injury arising from the insured’s negligent act is considered an occurrence.553 For example, if 250 claims of bodily injury are made against the insured, regardless of how the claims arose and what caused them, a court applying the effect test would determine that 250 occurrences existed, thus triggering the policy per-occurrence limits (or per-occurrence deductible) for payment 250 times. Many of the jurisdictions that originally adopted this analysis have since converted to the cause test.554
IV. New York Case Law
A. Development of New York “Number of Occurrences” Theory—State Court Decisions
In response to situations where CGL policy language provided coverage for an “accident” without specifying that the policy included coverage for continuous or repeated exposure to substantially the same conditions, New York courts developed the “unfortunate event test”555 for both bodily injury and property damage claims to determine the number of acts that would trigger coverage. The first case to address this issue was Arthur A. Johnson Corp. v. Indemnity Insurance Co. of North America.556 In this case, a contractor erected two separate, temporary walls to protect two separate buildings under construction at the same location. Although the buildings were adjacent to each other on the work site, they were not connected, and water flowing into the basement of one building could not have flowed into the basement of the other. During a heavy rainstorm, a temporary wall collapsed on one building. Fifty minutes later the other temporary wall collapsed on the second building. The collapse of the first wall did not cause the collapse of the second.
Based on these facts, the N.Y. Court of Appeals determined that the cause of the loss was not the rain, since the rain itself did no harm. The court said that “but for” the collapse of the walls, the accident would not have occurred. Using the unfortunate event test, the court held that each collapse was a separate accident and found that the contractor’s liability policy, which effectively provided coverage of $50,000 for each accident, would be doubled for payment of claims.
Over 13 years later, the Court of Appeals considered the number of occurrences issue in Hartford Accident & Indemnity Co. v. Wesolowski.557 Similar to Hyer,558 Wesolowski involved a three-vehicle collision, where the insured vehicle struck an oncoming vehicle, then ricocheted and struck a second vehicle more than 100 feet away. The accident likely occurred in only a few seconds. Both bodily injury and property damage claims were asserted. The court determined that for coverage purposes, only one occurrence existed and distinguished Johnson as follows:
Unlike Johnson in which there was a 50-minute elapsed interval between the collapse of the first and the second cellar walls, the two collisions here occurred but an instant apart. The continuum between the two impacts was unbroken, with no intervening agent or operative factor. We think in common understanding and parlance there was here but a single, inseparable “three-car accident.” 559
When standard policy language was later amended in 1986 to include coverage for continuous or repeated exposure to conditions, disputes naturally arose concerning the coverage that the revised language provided with regard to the number of occurrences. Only two New York state court decisions have construed this language with regard to the number of occurrences: Bethpage Water District v. S. Zara & Sons Contracting Co., Inc.560 and Nimey v. Hanover Insurance Co.561
In Bethpage, the Second Department held that, despite a contractor damaging a water main more than 250 times during the backfilling of sewer trenches, a single occurrence flowed from (i.e., was caused by) the contractor’s negligent operational technique in backfilling the sewer, and all the damages emanated from that single act of negligence. In Nimey, the Fourth Department held that where leakage of petroleum from underground storage tanks polluted groundwater, continuous leakage was considered a single occurrence for purposes of triggering coverage, despite the fact that two storage tanks leaked. The court apparently determined that the two storage tanks were part of a single underground storage system, the leakage from which “caused” the damages.
B. Development of New York “Number of Occurrences” Theory in Early Federal Court Decisions
The Second Circuit became the first federal appellate court to address the number of occurrences issue in Champion International Corp. v. Continental Casualty Co.562 In this case, Champion sold vinyl-covered paneling to installers for use in prefabricated housing and motor homes. Shortly after its installation the paneling began to delaminate. When homeowners began suing Champion en masse, demanding the cost of replacement or repair of the defective paneling, Champion sought coverage from its liability insurers, including Liberty Mutual. The Liberty Mutual multiple-year policies provided primary coverage of $100,000 “per occurrence” with a $5,000 per-occurrence deductible for property damage liability. In the declaratory judgment suit that followed, Liberty Mutual contended that the 1,400 damaged motor homes and prefabricated houses should be considered as separate occurrences for purposes of the per-occurrence deductible and the policy’s limits of liability. Liberty, in other words, wanted the Second Circuit to adopt the effect test to determine the number of occurrences in order to activate multiple deductibles. Champion argued that New York law required application of the cause test and contended that the delivery of the defective...
To continue reading
Request your trial