Courts continue to confront the question of the “number of occurrences” involved in mass-tort situations. The issue is important because policy limits are expressed in dollars per occurrence, with some policies having unlimited or uncapped retentions on a per-occurrence basis. For a policyholder with a large and uncapped per-occurrence retention, a ruling that each claim against the policyholder is a separate occurrence results in multiplying the amounts retained by the policyholder, oft times pushing insurance out of reach. On the other hand, for a policyholder with no or low retentions, a finding of multiple occurrences can multiply the available coverage.
The number-of-occurrences questions also will determine the responsibility of the primary- versus the excess-layer carriers. A single occurrence in a mass tort situation means that the primary will pay one policy limit (plus defense costs) and the remaining claims will be pushed up to the excess carriers. Sometimes, a single-occurrence ruling can result in the policyholder’s picking up the cost of loss in excess of the top line of its coverage. On the other hand, if more than one occurrence is found, the policyholder may be able to wring more money out of the insurance program, depending on the aggregate limits of the coverage it purchased.
Recent cases continue to reach divergent results, even though the courts involved all purport to apply the same “cause” test, that is, the number of occurrences is determined by the cause(s) of the loss. (Some courts from time to time have found that the number of occurrences is determined by the “effects” that is, how many victims there are; this is not the majority approach, and most jurisdictions for at least the past 80 years have employed the cause test. Hyer v. Inter-Insurance Exchange of Automobile Club, 77 Cal. App. 343 (1926)).
One case arises in the asbestos bodily injury context, Uniroyal, Inc. v. American Re-Insurance Co., No. A-6718-02T1(N.J. App. Div. Sept. 13, 2005). In that case, the policyholder had spent well over $300 million in responding to asbestos claims arising from its products. The court found that “occurrence” means an “unfortunate event,” and the question presented was whether each exposed-worker constituted a separate occurrence (in which event the excess insurer would have no obligation to perform in view of the large, uncapped retention borne by Uniroyal). The appellate court reversed the trial court decision and elected not a follow a decision by a federal court in prior case involving Uniroyal, dealing with Agent Orange, which held that the mass-liability injury claims there arose from a single occurrence. In a lengthy opinion construing New York law, the New Jersey court held that “the [defining] event is not the corporate decision to engage in the product line but rather it is the individual exposure of each claimant to the product that resulted in the injury.” (p. 30-31)
(The whole Uniroyal decision was a train wreck for the policyholder – or whatever its opposite is for the insurance carriers: (i) the court also ruled that only one per-occurrence limit is available under a three-year policy, whereas separate annual limits would have applied had the policyholder purchased successive one-year policies; (ii) the court held that an excess carrier owes no obligation to reimburse defense costs except as an incident to a covered indemnity claim, meaning that unlike primary policies potentially covered claims are not covered by the defense obligation but only actually covered claims are and that successfully defended cases are not covered at all; (iii) the court held that a “stub” policy did not afford separate policy limits but instead merely extended the policy period of the expiring policy; (iv) the court ruled that amounts should be allocated to Uniroyal as a self-insurer beginning in the mid 1970s because asbestos coverage was still “available” in theory and thus Uniroyal was deemed to have consciously self-insured its multi-hundred million dollar asbestos exposures and should therefore be allocated a share as if it were a commercial insurer; and (v) the court largely reversed the trial-court’s award of attorneys’ fees to Uniroyal, remanding for further evaluation and substantial reduction of the trial-court’s original award. Uniroyal lost every single issue on appeal in the court’s 65-page opinion.)
In contrast to the Uniroyal court’s multiple-occurrence ruling, the South Carolina Supreme Court recently addressed the number-of-occurrence question not in the context of asbestos bodily injury claims but in connection with another mass-tort: the exterior insulation finishing systems (EIFS) cases. EIFS is a fake stucco used to decorate the exterior of buildings, mainly houses; this finish was quite popular for a while last century, but many EIFS installations allowed water to penetrate in a manner where it was trapped, leading to rot and mold. Fixing buildings with faulty EIFS requires significant remediation and significant expense, spawning an entire mass-tort cottage industry and naturally follow-on insurance-coverage disputes.
The question presented in Owners Ins. Co. v. Salmonsen (S.C. Nov. 7, 2005), was whether a company that distributed Parex, one of the EIFS systems, was entitled to coverage for one limit only or whether it could collect for as many occurrences as the aggregate limit permits. The federal district court ruled that coverage applied generally, but certified the number-of-occurrences question to the South Carolina Supreme Court.
Reframing the question from whether state law applies the majority (cause) or minority (effect) rule for determining the number of occurrence, the South Carolina high court identified the issue as “Is each individual sale of a defective product an occurrence or is the general act of distribution a single occurrence.”
The court rejected articulating any single rule and instead focused “narrowly on the issue at hand.” The court characterized the facts as involving the “distribution of inherently defective goods” and not the “defective distribution of otherwise satisfactory goods.” In the latter instance, each defective distribution – or independent act of negligence – would constitute a separate occurrence (as in Michigan Chem. Corp. v. American Home Assur. Co., 728 F.2d 374 (6th Cir. 1984), where a distributor shipped the wrong product on several, unrelated occasion producing losses to its customers). Reasoning that “the distributor has taken no distinct action giving rise to liability for each sale, we conclude . . . . that placing a defective product into the stream of commerce is one occurrence.”
Accordingly, the insurer carrier was liable only for one per-occurrence limit of $1 million rather than being exposed to pay its entire aggregate limit.
In both the Uniroyal and Salmonsen cases, the courts reached opposite number-of-occurrence rulings but in each instance the ruling favored the insurance companies. The appellate decision from the Third Circuit earlier this year in Treesdale was a one-occurrence result for asbestos bodily injury claims and had the result, like the opposite holding in Uniroyal, of favoring the insurance company. In the World Trade Center litigation, the court concluded that there was but one occurrence, again a result favoring the insurance carriers. In these cases, the policyholder has already run the gantlet of coverage defenses and has proved that coverage applies — only to find no or little (or less-than-expected) coverage based on the court’s number-of-occurrences ruling. While I am not prepared to pronounce a trend that the carrier always wins, for many years the assumed result among insurance-coverage practitioners (both carrier-side and policyholder attorneys) was that the court would adopt the number-of-occurrence result that would maximize coverage for the policyholder. Surely that assumption can no longer be made so facilely.