Filed Under:Claims, Education & Training

Splitting Hairs

Although it has been well over a decade since Bill Clinton famously stated, "It depends on what the meaning of the word 'is' is," comedians and late night talk show hosts still use the quote as a punch line. While we at FC&S do have senses of humor, we have to agree with the former president that sometimes you have to split hairs over the definitions of certain words.

One word that can make insureds and insurers alike want to pull out their hair is "occurrence." Can two events separated by time really be considered an occurrence? Is repeated exposure to a peril an occurrence?

Finding Meaning

The current CGL forms define an occurrence as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Although bodily injury and property damage usually result immediately upon contact with someone or something, the phrase, "continuous or repeated exposure," eliminates the necessity of proving the exact moment when damage is sustained. Injury and damage from gradual exposure are included in the definition. Thus, the definition of "occurrence" cannot be interpreted as limiting coverage to a single event.

Even with this definition on the policy, there is still plenty of room for interpretation -- and litigation. In a case decided earlier this year, the Supreme Court of Wisconsin held that each individual's repeated exposure to asbestos-containing products constituted an occurrence. The court acknowledged that analysis of what constitutes an occurrence in asbestos-related claims produced a variety of results, with some courts holding that the actual manufacture and sale of the asbestos is the occurrence, and others stating that, regardless of the number of individuals involved, repeated exposure amounted to one occurrence. However, based on the language in the policies for this case, the court ruled that repeated exposure to asbestos fibers caused bodily injury. Without such exposure, there would have been no bodily injury, so the repeated exposure was the occurrence. (Plastics Engineering Co. v. Liberty Mut. Ins. Co., 759 N.W.2d 613 [Wis. 2009]).

In that same vein, an FC&S subscriber had a client who was a property manager and had a lead paint claim. A second claim was brought after the first one was paid, which was made by a different party living in a different location. Since both were lead paint claims, the insurer considered them to be one occurrence. The subscriber believed that there were two separate claims by two separate parties living in two different locations, and just because the claims dealt with the same type of loss, that did not meet the definition of "occurrence."

The insurer's view of the definition of "occurrence," was logical, considering the definition uses the phrase "continuous or repeated exposure to substantially the same general harmful conditions." However, the CGL policy's use of the phrase, "continuous or repeated exposure to the same general harmful conditions," means the same general harmful conditions at the same location happening over a period of time to the same claimants. In this case, if the claimants were all in the same family or lived in the same location and were exposed to the same harmful conditions over a period of time, then the insurer would be on stronger ground with its denial.

The occurrence question also arises with property claims, such as a reader who dealt with a commercial property claim due to a large snowfall. Snow accumulated on several insured buildings, and after the storm, the accumulated snow fell from one rooftop to another, damaging a condenser on the lower rooftop. Snow that had accumulated from the same storm also slid from a different rooftop, damaging another building. The carrier said the damage was caused by two separate occurrences. Because the snow accumulated from the same storm, were there one or two occurrences?

This time, the carrier was correct that these were indeed two separate occurrences. Since there were two disconnected and distinct snow slides, separated in time and place from one another, they should be individually adjusted. Remember, it was sliding snow that caused the damage, not the original snowstorm. The situation might have been different if, for example, snow slid simultaneously off two sides of the same roof or if snow slid from one roof to another, creating a chain reaction in which several pieces of property were damaged. This isn't the case here, however, as there was a definite break in both time and place of the occurrences.

Likewise, rain storms that caused damage over a three-month period could not be considered one occurrence. There was enough time between the storms for them not to be considered one weather event or a giant storm.

Crime Doesn't Pay

We also receive occurrence questions on crime forms. For example, the same individual broke into an insured's restaurant on several occasions and stole cash. Under the insured's crime form, "occurrence" was defined as "an act or series of related acts involving one or more persons; or [an] act or event, or a series of related acts or events."

Since the acts were committed by one person, the insured believed that the acts were a single related occurrence and that only one deductible should apply. But the insurer said that the deductible should apply to each theft, because in order to qualify as a single occurrence, the thefts had to take place on a single date.

It's possible the insurer took the approach that, since the thefts took place over a period of time, they cannot be one occurrence. But in two cases in which the definition of "occurrence" was identical to that in the insured's policy, courts determined that one occurrence took place. In Christ Lutheran Church v. State Farm Fire and Casualty Co., 471 S.E. 2d 124 (N.C. App. 1996), an employee embezzled several thousand dollars over a course of time. The court found that although 24 checks had been altered or forged by one person, there was still only one occurrence. Also, in Bethany Christian Church v. Preferred Risk Mut., 942 F. Supp. 330 (1996), the same conclusion, involving similar circumstances, was reached.

The crime form deductible clause states that the insurer will not pay for loss in any one occurrence unless the amount of loss exceeds the deductible amount indicated in the declarations, and then will pay up to the limit of insurance. But there is nothing in the form itself that states that a day's time frame -- or any time frame other than the policy period -- applies.

Because there is nothing in the policy definition of "occurrence" that refers to a date of loss, and because the thefts fit the definition by virtue of being a "series of related acts involving one...person," the insured is correct -- the acts are considered one occurrence.

As can be seen from these instances, even when the term is defined in policies, sometimes the difference between being covered or not comes down to, "It depends on what the meaning of the word 'occurrence' is."

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