The World Trade Center Tragedy: Single or Multiple Occurrences?
Milton Thurm*
I.
Introduction
As in the
past, the occurrence of a major disaster (such as
In light of
the catastrophe of
Swiss Re, a
major excess insurer of the
It is
axiomatic that insurance policies are contracts governed by legal rules of
contract construction and interpretation.
Accordingly, courts will examine the language of the specific policies
at issue, their exclusionary limitations, and how they define key terms before
moving to analyze the occurrence question.
However, courts ultimately will be required to render decisions that
resolve the underlying question: were
the events of
Over the
past several years, federal and state courts have spoken on the “occurrence”
issue with increasing frequency.
Reviewing some of these decisions may provide insight as to how this
question will be treated in the future.
II.
The Occurrence Determination – General Parameters
One
commentator has defined an occurrence as a single uninterrupted cause that
results in multiple injuries or instances of property damage.[1] When one cause is somehow interrupted by
another, however, the “causal chain” is broken and more than one occurrence
exists.[2] Absent this break in causation, there can be
but one occurrence. Accordingly,
multiple losses that are completely indistinguishable in time and space, or
that are “causally related,” are considered to have arisen from one occurrence.[3]
Several
cases serve to illustrate this approach.
Most recently, the New York Court of Appeals was asked to construe
reinsurance treaties that obligated reinsurers to pay the cedant for “each and
every loss” incurred that exceeded the retentions set forth in the treaties.[4] The treaties defined “each and every loss” as
“all loss arising out of any one disaster and/or casualty under coverage of any
or all insureds of the Companies (reinsureds) . . . .”[5] The words “disaster and/or casualty” were
defined as:
each and
every accident, occurrence and/or causative incident, it being further understood that all loss
resulting from a series of accidents,
occurrences and/or causative incidents having a common origin and/or being
traceable to the same act, omission, error and/or mistake shall be considered
as having resulted from a single accident, occurrence and/or causative
incident.[6]
The cedant,
Travelers Casualty & Surety Company, had provided primary and excess
coverages to the Koppers Company over a period of several years. Travelers paid its insured approximately $140
million in settlement of a series of environmental claims emanating from
various sites. When presenting its claim
to the reinsurers, Travelers argued that the entire settlement was a “single
disaster and/or casualty” resulting from a “common origin” that was “traceable
to the same act, error and/or mistake,” i.e.,
Koppers’ universal method of waste disposal. Consequently, the reinsurance claim was
subject to but a single retention. The
court disagreed. It reasoned that in order to invoke the single “disaster/or
casualty” language, one must read the words, “series of,” into the treaty wording.
Thus, any series of “disasters and/or casualties” must be linked “spatially or
temporally,” having a common origin as well.
Because the incidents at the various sites were not so related, the
court dismissed Travelers’ claim against the reinsurers.[7]
Another
view of policies covering a series of somewhat related events was provided by
Judge Jack Weinstein in a coverage action arising out of the Agent Orange
litigation. [8] Home Insurance issued a series of policies
insuring Uniroyal, Inc., one of the herbicide manufacturers. After settling thousands of claims, Uniroyal
sought reimbursement from its insurer.
Home Insurance resisted payment, arguing that each injury was a separate
occurrence subject to at least a $100,000 deductible, thereby obviating any
recovery. The policy contained standard
language defining an “occurrence” to be “an accident or a happening or event or
a continuous or repeated exposure to conditions . . . .”[9] The court determined that New York law should
apply (as will no doubt be the case in many, if not all World Trade Center
cases) and referred to several New York
Court of Appeals decisions construing the terms “accident” and
“occurrence.” Citing to that court’s
earlier decision in Arthur A. Johnson
Corp. v. Indemnity Insurance Co.,[10] Judge
Weinstein noted that the New York court began its analysis by reviewing three
classes of decisions that had interpreted the word “accident.” These included decisions which found a
separate “accident” for each negligent act or omission that was the sole
proximate cause of the injury; those that found a separate “accident” for each
injury; and those that found a separate “accident” for each “event of an
unfortunate character.” The matter
litigated in Johnson involved water
damage to two separate building basements resulting from a rainstorm during
subway construction; the court resolved the issue by adopting the “unfortunate
event” analysis. The New York Court of
Appeals in Hartford Accident &
Indemnity Co. v. Wesolowski[11] later
extended the unfortunate event test to a policy insuring against an occurrence
in a case involving a multi-vehicle automobile accident.
Judge
Weinstein then undertook a rather complex analysis of how an “unfortunate
event” could be one of several events contributing to an injury. He concluded that the “unfortunate event” in
the Agent Orange case could be any one of several contributing causes:
defective manufacture of the chemical; delivery of the substance to the
military; spraying the herbicide in Viet Nam, and touching the skin of those
affected. Determining that the term
“occurrence” was ambiguous as used in the Home Insurance policy, Judge
Weinstein specifically found that the occurrence at issue was the delivery of
herbicides by Uniroyal to the military.
He noted that this was the last act performed by Uniroyal in which it
exercised any control over the chemical.
He also found that although there were many deliveries, they
“constituted a single continuous occurrence, [and] a ‘continuous or repeated
exposure to conditions.’”[12] Having
thus determined that there was but one occurrence, he concluded, among other
things, that Uniroyal was entitled to be defended and indemnified by Home
Insurance on the basis that the unfortunate event was a single occurrence.
As noted,
the “unfortunate event” analysis was first discussed by the New York Court of
Appeals in Johnson. Construction contractors there had agreed
with the City of New York to construct subway platforms. During excavation for the job, a heavy
rainfall resulted in the collapse of two cinder block walls, each of which
occurred some fifty minutes apart from the other. Indemnity Insurance, the construction
company’s general liability carrier, paid its per occurrence limit but refused
further payment, notwithstanding the fact that settling the various actions
brought against its insured involved amounts that far exceeded the per
occurrence limit. Indemnity Insurance
claimed that the collapse of the two walls was caused by one occurrence: the
heavy rainfall. Not surprisingly, the
contractor argued that two occurrences had transpired, thereby resulting in two
collapses. [13]
The court
initially addressed the occurrence question by summarizing the three approaches
mentioned above. According to this “causation test,” a separate occurrence
existed for each negligent act or omission that transpired. However, this method for determining the
occurrence question proved impractical when applied to factually complex cases. The so-called “effect test” determined the
number of occurrences by counting how many parties had been injured by the
particular event. Accordingly, when
using the “effect test” to resolve the occurrence question, a separate
occurrence would be found for each injury suffered. Finally, the court discussed the “unfortunate
event” test which indicated an occurrence for each “event of unfortunate
character” that transpired.[14] The court adopted this last test since it
“correspond[ed] most closely with what the average person anticipates when he
buys insurance” and determineed that two
occurrences had transpired.[15]
While
courts may have found a practical aid for addressing the occurrence question in
the “unfortunate event” test, unique and complex facts invariably arise that
withstand the application of a rigid, bright line test. Because policies of insurance contain
differing definitions of an “occurrence,” if the term is defined at all, the
uniquely attending facts tend to compound the situation and further limit the
simple application of any single rule.
III.
Classification Based Upon Facts and Policy Definitions
A. Continuous Exposure to Conditions
A bright
line test may offer direction in the analysis of the occurrence question, but
the facts and policies covering each specific incident ultimately will affect
the result in greater measure. Certain
fact patterns generally can be classified, witness the “continuous exposure”
case at issue in Uniroyal. Thus, while the relevant policies and their
accompanying definitions will affect the determination of how many occurrences
took place, analyzing analogous facts allows one to sharpen the focus.
In Foust v. Ranger Insurance Co.,[16]
landowners were damaged by a crop duster’s errant application of
pesticide. The application occurred over
the course of several flights separated by different takeoffs and landings,
reloading the plane, and refueling the plane.
The landowners maintained that the damage to their crops resulted from
multiple occurrences, while the insurer claimed that the application of the
pesticide constituted “continuous exposure” to similar conditions, meeting the
definition for a single occurrence. The
relevant insurance policy contained limits of $100,000 per occurrence and
$200,000 in the aggregate. It also
defined an occurrence as “a sudden event or repeated exposure to conditions,
neither expected nor intended, that causes bodily injury or property damage to
others during the policy period.”[17] In a
declaratory judgment action, the trial court ruled that the claimants’ exposure
resulted from one occurrence and the appellate court affirmed, utilizing
reasoning similar to that adopted in Uniroyal. The appellate court noted that the number of
pesticide deliveries was happenstance; thus, the crop damage resulted from
continuous exposure to similar conditions.[18] It would seem, therefore, that this precedent
will guide “continuous exposure” cases.
When the relevant policy defines an occurrence and includes the “same
general conditions” provision, numerous or repeated exposures to such
conditions will be considered a single occurrence.
Another
application of the “continuous exposure” model can be found in Fireman’s Fund Insurance Co. v. Scottsdale
Insurance Co.[19] In that case, an excess carrier filed a
declaratory judgment action against a primary insurer likewise seeking to
resolve an occurrence question. The
dispute arose after one hundred people consumed Taco Bell food tainted with
Hepatitis. The primary policy offered
limits of $1 million per occurrence and $2 million in the aggregate. The excess carrier asserted that the
consumption of food by multiple customers constituted multiple occurrences
while, not surprisingly, the primary carrier claimed that contamination of the
food was but one occurrence. The court
agreed with the primary carrier since the policy contained a definition of
occurrence that included the “same general conditions” language. The court determined that the multiple sales
of food constituted a continuous exposure to one condition;[20] the
original contamination was the occurrence or “unfortunate event” that “caused”
the diners to become ill.
The fact
that the Arkansas court expanded the continuous exposure model to cases
involving sales is significant. One
might argue that the occurrence in a continuous exposure case involving sales
was the actual sale rather than the event that produced multiple defective or
injurious products. However, other
courts have reached conclusions similar to those found in Fireman’s Fund. For example,
in Champion International Corp. v.
Continental Casualty Co.,[21] a seller
of vinyl panels distributed some 1400 defective parts. The Second Circuit Court of Appeals held that
the sale of the parts constituted a continuous exposure to the condition (the
defective parts). It was therefore only
one occurrence.[22]
B. Hybrids of the Continuous Exposure Model
The
continuous exposure model has been expanded to include factual situations not
traditionally identified as “exposure” cases (e.g., asbestos or lead paint
disputes). One such example occurred in Transport Insurance Co. v. Lee Way Motor
Freight, Inc.[23] In that case, an insurer brought a
declaratory judgment action against its insured, a freight company, seeking to
determine the coverage owed under various excess umbrella policies. The freight company was found to have engaged
in a pattern and practice of racial discrimination in a prior suit for which it
was ordered to pay $1.8 million in damages to victims of the
discrimination. Constrained by the
familiar continuous exposure language of a relevant insurance policy, the court
ruled that the discriminatory conduct on the part of the insured constituted a
continuous and repeated exposure to a condition, i.e., the discriminatory
policies of the insured.[24]
In a
similar case, the Third Circuit Court of Appeals ruled that an insurance
company’s pattern of gender discrimination was a continuous condition to which
female employees were repeatedly exposed;
therefore, the discrimination constituted one occurrence for coverage
purposes. [25] The Third Circuit’s analysis, however, utilized
a hybrid of the “cause” test and the “effect” test previously discussed. Its reasoning further underscores the lack of
a single, bright line paradigm for determining occurrence questions.
Conversely,
cases exist where courts have found that the continuous exposure model did not
apply. In Lee v. Interstate Fire & Casualty Co.,[26] the
Seventh Circuit Court of Appeals held that repeated acts of negligent
supervision were not a continuous exposure to a condition; therefore, the
repeated acts constituted multiple occurrences.
The condition at issue was deemed to be the acts of a person supervised
by the insured. Therefore, each time the insured breached its duty to supervise, a separate event or occurrence transpired.[27]
Another
such example where the continuous exposure analysis failed to apply can be
found in Maurice Pincoffs Co. v. St. Paul
Fire & Marine Insurance Co.[28] In that case a birdseed distributor sold
contaminated product on eight separate occasions, causing the death of a number
of birds. The insurance policy contained
continuous exposure language. A lower
court had ruled that there was but one exposure, applying the single policy
limit. The Seventh Circuit reversed,
however, ruling that the seed had been contaminated prior to the time it was
acquired by the insured. The
“unfortunate event,” as it related to the wholesaler, therefore occurred when
he made each and every sale of seed. The
court reasoned that there were eight occurrences for which the insurer had to
respond up to the per occurrence limit.[29]
C. Intentional Acts as Occurrences
The
September 11th attacks were certainly intentional acts emanating from a
conspiracy. Several recent decisions
addressing the occurrence question arguably offer facts that are more analogous
to the World Trade Center tragedy than the cases discussed to this point.
In Valley Furniture & Interiors v.
Transportation Insurance Co.,[30] for
example, a furniture company sued for declaratory judgment after its insurer
limited coverage on a claim based upon employee dishonesty. Over the course of relevant policy periods,
the insured’s employee embezzled funds and assisted others in obtaining such
funds in an amount that exceeded the policy’s per occurrence limit. The policy
defined “occurrence” in relevant part as, “all loss or damage . . . involving a
single act or series of related acts.”[31] The trial court ruled that the embezzlement
was a single occurrence and the appellate court affirmed, citing the policy
definition of occurrence. The appellate
court further ruled that the embezzlement was a “series of related acts;”
therefore, only one occurrence took place.
Likewise,
in State Farm Lloyds, Inc. v. Williams,[32] the
courts addressed the occurrence question as it related to the intentional
shooting of multiple victims. The trial
and appellate courts agreed that each individual gunshot was an independent
occurrence for purposes of the insurance policy. In its opinion, the appellate court cited a
similar “gunshot” decision which had also determined that each act (or shot)
constituted an occurrence. [33] It should be noted, however, that the policy
at issue in Williams did not define
an occurrence. The court’s ruling might have differed if the policy had
included language similar to that found in the Valley Furniture policy.
IV.
Conclusion
How the
courts will treat the “occurrence” issue in the aftermath of September 11 has
yet to be determined. Needless to say,
the ramifications of the tragedy will transcend any pending litigation between
Swiss Re and the World Trade Center lessees and operators. Claims and suits will likely be brought
against the owner of the buildings, the Port Authority of New York and New
Jersey, hundreds of manufacturers, as well as suppliers and installers of
building materials, wall coverings, furniture and fixtures. Entities which maintained the mechanical,
electrical and elevator systems within the buildings will be named along with
the architects and engineers who designed and erected the structures. The list of potential defendants is limited
only by the imagination and resourcefulness of the plaintiffs’ bar, which is
likely to witness a certain competition for lead counsel status in the relevant
class action litigation involving mass tort claims.
Potential
defendants will invoke hundreds if not thousands of policies to provide defense
and indemnification at the primary level, with hundreds more being summoned to
provide excess or umbrella coverage.
Issues can be expected to address notice, concurrent coverages,
indemnity agreements and, of course, whether the events constituted one or more
occurrences.
Will the
courts consider that the highjackings, the crashes and the tragic deaths and
injuries constitute “a series of accidents, occurrences and/or causative
incidents having a common origin and/or traceable to the same act, error and/or
mistake?” Will they correspondingly find
only one occurrence, notwithstanding that two airplanes crashed in New York,
one in Pennsylvania and one in Washington?
Were those events removed from each other by time and distance so that
each crash constituted a separate occurrence?
Or will the courts construe the series of acts to have been an
“unfortunate event,” thereby ordaining a single occurrence that affects per
occurrence limits, deductibles, retentions and a host of other policy
provisions?
If history
is the best teacher, the courts will construe the policies at issue to maximize
the amounts payable under those policies.
If need be, the courts also will fashion new theories and postulates to
justify their conclusions. The insurance
industry should prepare to act in some unified fashion with respect to these
claims. Failing that, it will likely
repeat the debacle of the environmental scourge with companies espousing a
policy position in one case and arguing an opposing position in the other,
depending on whether they are primary, excess, cedant or reinsurer in a
particular situation. The results could
be equally disastrous.
ENDNOTES
* Mr. Thurm would like to acknowledge
Anthony Zupka and Lynette Sarno, who provided invaluable assistance in the
preparation and editing of this article. An earlier version of this article was
published in the Winter 2001-02 issue of Declarations,
the publication of the Excess/Surplus Lines Claims Ass’n and is adapted with
its permission. It is submitted by the
author on behalf of the FDCC Excess and Surplus Lines Section.
[1] 8 Appleman’s Insurance Law and
Practice § 4891.25 et seq.
[2] Id.
[3] Id.
[4] Travelers Cas. & Sur. Co. v.
Certain Underwriters at Lloyd’s of London, 760 N.E.2d 319 (N.Y. 2001).
[5] Id.
at 323 (parenthetical added).
[6] Id.
[7] Id.
at 328.
[8] Uniroyal, Inc. v. The Home Ins. Co.,
707 F. Supp. 1368 (E.D.N.Y. 1988).
[9] Id.
at 1372.
[10] 164 N.E.2d 704 (N.Y. 1959).
[11] 305 N.E.2d 907 (N.Y. 1973).
[12] Uniroyal,
707 F. Supp. at 1383.
[13] Arthur
A. Johnson Corp., 164 N.E.2d at 706.
[14] Id.
at 706-07.
[15] Id.
at 708.
[16] 975 S.W.2d 329 (Tex. Ct. App. 1998).
[17] Id.
at 333.
[18] Id.
at 335.
[19] 968 F. Supp. 444 (E.D. Ark. 1997).
[20] Id.
at 448.
[21] 546 F.2d 502 (2d Cir. 1976).
[22] Id.
at 506.
[23] 487 F. Supp. 1325 (N.D. Tex. 1980).
[24] Id.
at 1329.
[25] Appalachian Ins. Co. v. Liberty Mut.
Ins. Co., 676 F.2d 56 (3rd Cir. 1982).
[26] 86 F.3d 101 (7th Cir. 1996).
[27] Id.
at 105 (emphasis added).
[28] 447 F.2d 204 (5th Cir 1971).
[29] Id,
at 207.
[30] 26 P.3d 952 (Wash. Ct. App. 2001).
[31] Id.
at 953.
[32] 960 S.W.2d 781 (Tex. Ct. App. 1997).
[33] Id.
at 785 n.5.
(Author’s bio)
Mr.
Thurm, who is counsel to the firm of Molod, Spitz, DeSantis & Stark, P.c.
in New York City, has been associated with the insurance industry as a
practicing lawyer defending companies and their insureds for over 40
years. He is a graduate of Brooklyn Law
School (1958) and is admitted to practice in New York (1959) and Florida
(1975). He is also admitted to practice
before the Supreme Court of the United States, the United States Circuit Court
of Appeals for the Second Circuit and all four federal district courts in the
State of New York. He has actively
litigated a broad spectrum of insurance‑related matters including:
primary and excess policies; direct and reinsurance contracts and coverage
issues dealing with allocation of loss; late notice of claim and suit; and the
assault and battery exclusion. He has
defended dozens of municipal entities in all types of civil rights cases
including land use, excessive force and employment discrimination. He has been a member of the Federation of
Defense & Corporate Counsel since 1984 and is the immediate past Chair of
its Excess and Surplus Line Section. He
is an associate member of the Excess and Surplus Line Claims Association and
NAPSLO. He also holds membership in the
Defense Research Institute, the New York State Bar Association, the American
Bar Association and the International Association of Chiefs of Police (Legal
Offices Section). He is a frequent
speaker and contributor of articles on insurance‑related matters.