Number of occurrences is a critical issue in many insurance coverage disputes. In the World Trade Center coverage cases, it was a billion dollar issue. The dispute arises in everything from product liability coverage cases, to environmental coverage cases, to automobile and dog bite cases.
Number of occurrences cuts both ways in coverage litigation. In product liability cases, for example, insurers often argue that every injury caused by a defective product is a separate occurrence. The reason insurers argue it this way is that such injuries typically are small on an individual basis, and often do not rise above the per-occurrence deductible. Thus, if every injury is an occurrence, there may not be any insurance coverage at all, even if the defective product injuries thousands of people and causes millions of dollars in damage.
On the other hand, policyholders argue for multiple occurrences in situations where a liability policy’s per occurrence limit is insufficient to cover a loss. In that case, a policyholder would prefer multiple occurrences, even if that means it must pay multiple deductibles.
Whether a policyholder or an insurer advocates for multiple deductibles generally depends on three things: the size of the damage to each claimant, the per-occurrence limit, and the size of the per-occurrence deductible.
The recent decision in Maddox v. Florida Farm Bureau, Case No. 5D12-3577 (Fla. 5th DCA Sept. 13, 2013) demonstrates Florida’s approach to number of occurrences in insurance coverage litigation. Maddox is a dog bite case. The facts are simple. A dog bit a young boy. When the boy’s mom tried to release the dog’s grip on the boy, the dog bit the mom. Both the mom and boy sued the homeowner who owned the dog. The homeowner’s insurer argued that it only had to pay a single, per-occurrence limit, whereas the policyholder sought twice the indemnity coverage.
Florida follows the majority view on number of occurrences. Florida applies the “cause theory” to determine whether more than one occurrence has taken place. Under this approach, the inquiry is whether there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damages. The focus is on the immediate act that causes the damage.
The controlling case in Florida is the Florida Supreme Court’s decision in Koikos v. Travelers Ins. Co., 849 So.2d 263 (Fla. 2003). In Koikos, the Court held that, where a single gunman shot multiple people, each shooting was a separate occurrence.
The outcome in Maddox was dictated by Koikos. Both cases involved the same standard policy language defining “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Neither policy had a definition of the word “accident”. In fact, the policy language in both Maddox and Koikos is standard form language developed by the Insurance Services Office and used by a majority of insurance companies.
The court held in Maddox, as it did in Koikos, that the definition of occurrence was ambiguous. One reasonable interpretation of the clause is that each immediate cause of injury (in Koikos the gunshots; in Maddox the dog bites) was a separate occurrence. Another reasonable interpretation is that the more general cause or activity constitutes the occurrence (e.g., a shooting spree in Koikos or an out-of-control dog in Maddox).
What the courts concluded in Maddox and Koikos is that the “occurrence” definition in a standard general liability policy can be read either way. In other words, standard general liability insurance language is ambiguous when it comes to the issue of number of occurrences. This ambiguity finding is critical, because it means that the policyholder wins either way.
Suppose that the dog in Maddox was at the park and attacked 50 people who each suffered $10,000 in damage. If Maddox’s policy had a $1 million per occurrence limit and a $10,000 deductible, you can be sure that the insurer would argue that each dog bite was a separate occurrence, and Maddox would argue that it all resulted from a single occurrence. The result in this situation would be that the policyholder wins again, and the court would find a single occurrence.
How can it be that the policyholder wins either way? As explained by the Court in Koikos, the insurer wrote the policy. The insurer left the definition of “occurrence” unclear and failed to define “accident”. Therefore, the policyholder gets the benefit of the doubt, whichever way it wishes to present the issue.
The Koikos court pointed to one of the World Trade Center cases as an example of a situation where an insurer used a difference definition of “occurrence”. In that case, SR International Business Insurance Co. v. World Trade Center Properties LLC, 222 F.Supp.2d 385 (S.D.N.Y. 2002), the insurance policy defined occurrence as:
[A]ll losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur.
The Koikos Court noted that this policy language likely would direct a different result. But it also held that, so long as insurers use an ambiguous definition of occurrence in their general liability policies, they are going to lose number of occurrence cases in Florida. Koikos was decided 10 years ago, but no significant changes have been made to the standard general liability definition of occurrence in policies sold in Florida or elsewhere.
I recently wrote about the Florida Supreme Court’s decision in Washington National Ins. Co. v. Ruderman, Case No. SC12-323 (July 3, 2013), in which the Court reaffirmed the principle that ambiguous policy language is construed against insurance companies. This rule of contra proferentem (“against the drafter”) has been a bedrock principle of insurance coverage law in Florida and elsewhere for decades. In the insurance context, it means that policyholders win when insurance policy language is ambiguous, so long as they can present a reasonable interpretation of the language.
The rule of contra proferentem is a punishment to insurers that insist on using arcane and confusing language in their policies. It is a key weapon in the policyholder’s arsenal.
So keep an eye on those per-occurrence limits, and aggregate limits, and per-occurrence deductibles, and aggregate deductibles. There may be more coverage out there than you think, or at least more than what the insurer is willing to pay.