Defining an occurrence in insurance

Going as far back as the 1973 policy’s insuring agreement, the insurer pledges to pay on behalf of the insured all sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage caused by an “occurrence.” The current CGL form employs simplified language to promise: “We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage…This insurance applies to bodily injury and property damage only if the bodily injury or property damage is caused by an occurrence…” Even the claims-made policy requires that bodily injury or property damage be caused by an occurrence.

“Occurrence” has been defined in generally consistent terms in all editions of the CGL, with the current definition being: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The provision requiring damage to be neither expected nor intended is contained in exclusion 2.a.: This insurance does not apply to bodily injury or property damage expected or intended from the standpoint of the insured. The standpoint of the insured is the key. If an event happens that is accidental, neither expected nor intended by the insured, that is an occurrence. In other words, the existence of an occurrence hinges on how the insured, not the insurer or others, views things.

Although bodily injury and property damage usually result immediately upon contact, the phrase “continuous or repeated exposure” eliminates the necessity of proving the exact moment at which 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.

A case in which an insurer attempted to deny coverage for gradual exposure claiming there had been no occurrence in spite of a definition containing the phrase “including injurious exposure to conditions,” is Boggs v. Aetna Casualty and Surety, 252 S.E.2d 565 (S.C. 1979). In this case, the South Carolina Supreme Court held that seepage of water over a period of time was a covered occurrence.

An insured contractor building a house had difficulty with water drainage at the home’s building lot. He agreed to correct the problem, but was unable to do so, resulting in the homeowners filing suit.

The builder’s insurer denied liability and refused to provide a defense. The insured settled the lawsuit and brought suit against the insurer for reimbursement. The court stated the pivotal question was whether the seepage of water into the house, allegedly caused by the builder’s negligent decision to place the home on that particular portion of the lot, was an occurrence within the meaning of the policy.

The insurer argued the word occurrence should be construed “as an accident referable to a sudden happening.” The court disagreed, holding the insurer’s construction of the word “occurrence” to be erroneous, and adopting an often-stated concept that occurrence encompasses a broader range of incidents than does the term “accident.” The phrase “injurious exposure to conditions” incorporated in the policy definition of occurrence “indicates an occurrence need not be sudden but may be produced over a period of time.”

The term “occurrence” encompasses more than just an accident because accident is narrower in scope than occurrence. This can be seen in those cases decided before the occurrence wording was adopted. Accident, according to these cases, did not include coverage for damage occurring over time. For example, in A.D. Irwin Investments, Inc. v. Great American Insurance Company, 475 P.2d 633 (Colo. App. 1970), a Colorado appeals court decided in the insurer’s favor when the insured became liable for damage to an apartment building resulting from the accumulation of condensation from an air conditioning system.

Another area where the question of what an occurrence is can be found is in construction liability disputes. For example, if the insured did faulty work or intentionally left a work site in an unfinished condition, is that an occurrence?

In Oak Crest Construction Company v. Austin Mutual Insurance Company, 998 P.2d 1254 (Or. 2000), the Supreme Court of Oregon handled a case where one of the issues was whether costs incurred by a general contractor during the construction of custom homes for repairing faulty painting work of a subcontractor arose from an occurrence. Occurrence was defined in the policy as an accident, including repeated exposure to similar conditions. The court acknowledged that, in some circumstances, property damage that results from the negligent performance of a contract can qualify as being caused by an accident; but, the court went on, an accident has a tortious connotation and exists only when damage results from a tort. In other words, although negligent performance of a contract might cause damage by accident, there is no tort and no accident (hence, no occurrence) when the damage results solely from the complete failure of performance of a contract.

Expected or intended?

The meaning of intent comes up often in cases based on wrongful termination. In these cases, some courts look to see if that state of mind is prevalent when deciding if an occurrence has taken place. For example, in Hartford Fire Insurance Company v. Karavan Enterprises, Inc., 659 F. Supp. 1075 (D.C. CA 1986), the U.S. District Court in California ruled that wrongful termination of an employee is not an occurrence under a general liability policy; the termination was intentional, and so it was an act that could not be included within the meaning of occurrence.

Courts of various jurisdictions follow one of three basic approaches in determining whether the act was expected or intended. The majority of courts find that if the insured acts with the specific intent to cause some kind of injury or damage, the exclusion applies. Other courts hold that the exclusion applies if the act itself is intentional, resulting in injury or damage that is a natural or probable consequence of the act, whether or not some harm was intended. A minority of courts determine the exclusion is inapplicable if the insured acts with intent, but does not intend to cause the specific damage that results.

FC&S holds the position that if the insured does not expect or intend the wrong result, the act is an occurrence.

Number of occurrences

The drafters of the liability policy apparently intended to limit liability for continuous or repeated exposure to the same general conditions to a single occurrence, rather than having each result or claim from the same incident counted as a different occurrence. As such, the cause of the alleged damages should be looked at as to whether one occurrence or several occurrences took place. This cause theory holds that the number of occurrences must be determined by referring to the cause of the damage, not to the number of injuries or claims arising out of the incident.

This limiting language is contained in the definition of occurrence. An occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Christine G. Barlow, CPCU, (cbarlow@alm.com) is the executive editor of FC&S Expert Coverage Interpretation, the authority on insurance coverage interpretation and analysis for the P&C industry.

 Related:

2023 P&C Outlook: Assessing the impact of higher rates & greater underwriter scrutiny

 Judge says insurer must defend builder accused of violating ‘tree-cutting statute’