What is an Occurrence? Commercial property questions answered
This is part three in a series that discusses how to apply the deductible when there are multiples of loss, and more.
Editor’s Note: This is the third installment in a series of articles titled: What Is An Occurrence/? The first two articles discussed an occurrence as it is found in the ISO General Liability Coverage Form. This article looks at an occurrence with respect to the ISO commercial property and crime forms.
Defining an Occurrence
The Limits of Insurance the section of the ISO Building and Personal Property Coverage Form states that the most the insurer will pay for loss or damage in any one occurrence is the applicable Limit of Insurance shown in the Declarations. However, the word ‘occurrence’ is not defined in the form.
When terms are undefined, we look to the ordinary, plain usage of the word for its meaning, such as the court did in Western & Clay, LLC v. Landmark American Ins. Co., No. C09–1423 MJP, 2010 WL 4855879 (W.D. Wash. Nov. 22, 2010). The court stated that the word “occurrence” is not defined in the policies. Therefore, the court chose to analyze the plain, ordinary and popular meaning by consulting the dictionary. An occurrence is defined in the dictionary as something that takes place or comes about, and the court found this to be synonymous with an event or incident. Any temporal limitation can only be determined with regard to the specific occurrence and context of that occurrence.
That is a pretty broad definition. As the court noted, whether an event constitutes more than one occurrence is based on the specific facts of the event. Case law is a good place to look for how courts have interpreted the term and to find those definitions.
Occurrence deductible
The form states that for each occurrence of loss or damage, the loss payment will be reduced by the required deductible. If the amount of the loss is equal to the deductible, there will be no payment. If the amount of the loss exceeds the deductible, the loss payment will be the amount over and above the required deductible. The commercial property forms in use since 1986 apply the deductible after the calculation of the coinsurance penalty.
Where one occurrence causes loss at different insured locations, only the largest applicable deductible is used to reduce the insured’s recovery.
Multiple occurrences
By the questions we receive, there seems to be a bit of confusion in understanding how and when to apply the occurrence deductible, especially when there are multiples of damaged locations or multiples of occurrences.
ISO rules permit the purchase of insurance with higher deductible amounts. The rules allow for application of the optional deductibles on a per location basis, with different deductibles permitted for different locations. All property at one location is subject to the same deductible, even if divided between blanket coverage and specific limits, except that different deductible amounts may be provided at each location for windstorm-hail or theft through the Multiple Deductible Form (Fixed Dollar Deductibles) endorsement, CP 03 20 04 18
When there is more than one limit of insurance, the deductible is added to the applicable limit of insurance. If the amount of loss is less than this sum, then the deductible is subtracted from the amount of loss to obtain the loss settlement. If the amount of loss is greater than the sum, the amount paid is the limit of insurance.
Here are some Q&As illustrating how and when applying the occurrence deductible can become complicated:
Multiple fires, same location
We have an insured who suffered fire losses to the same location during a 5-month span. The first loss is a total loss with roughly a million-dollar limit. The second loss, which was to the area of the building not completely damaged prior, is also a total loss. When I say total loss, the building limits would be exhausted on both claims. It appears that they were severely underinsured. The repairs on the first claim had not begun and they have not informed the insurer of their intention to repair. Can the insured collect policy limits twice, even though the first loss will reach limits and no repairs had been made prior to the second claim?
Answer:
The policy pays per occurrence of loss, so there is nothing in the policy to indicate that the limit of insurance would not apply to the second fire loss. However, in order to answer this question accurately, we will need to know what valuation was used to insure the property. Does the coinsurance condition apply? If so, then the building would not meet the coinsurance condition and thus the limit of insurance would not be adequate to provide any additional limit of coverage. Also, would the vacancy provision apply at the time of the second fire loss? If so, then the vacancy penalty would also apply. But if the building is insured on an agreed value or replacement cost basis, then there will be coverage at the limit of insurance shown in the declarations for each of the loss occurrences.
One occurrence, or two?
There was a large snowfall, and snow accumulated on several insured buildings. After the storm, 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 insurance carrier says the damage was caused by two separate occurrences and that two separate deductibles should be applied. Since the snow accumulated from the same storm, was there one or two occurrences?
Answer:
These are two separate occurrences. Since there were two separate and distinct snow slides, separated in time and place from one another, they should be individually adjusted. Remember that the sliding of the snow 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.
Does deductible apply when only building glass is damaged?
The insured suffered vandalism damage to several glass windows on his building. He has the benefit of an ISO Commercial Package Policy with glass coverage (blanket) listed on its declarations.
The insurance company has informed the insured that the building deductible applies to his loss, although the glass coverage (blanket) on the declarations does not have a deductible listed.
Is the insurance company position correct?
Answer:
The property deductible applies to each occurrence of loss. Since glass is listed as a separate item of covered property in the declarations, then the insurance company is accurately applying the deductible to the occurrence of building glass breakage caused by vandalism. The commercial property deductible applies to all of the covered property unless a higher deductible is shown in the declarations for that specific property.
Which deductible applies when there are multiple causes of loss?
Commercial insured has a CP 0010 10 12, Special Cause of Loss form. There is a multiple deductible form with a $10,000 deductible on wind and hail and a $2,500 deductible for all other covered causes of loss.
There was a storm in which the insured suffered wind and lightning damage. Wind damage is $2,189.32. Lightning damage is approximately $3,123.57. Obviously, the wind deductible applies to the wind damage and the loss is under the deductible. We are having an internal debate here. There is one school of thought that says the $10,000 wind deductible applies to the entire loss which totals under about $5,300 (wind and lightning) and no payment should be made. There is another school of thought that the $10,000 deductible is applied to the wind aspect of the loss and that we should make payment on the lightning part of the loss with no further deductible. No policy language says the higher deductible applies.
Answer:
In this situation, there are two causes of loss — wind and lightning. The wind deductible applies to the wind occurrence; and the lightning is a separate cause of loss occurrence. Therefore, the wind deductible applies to the wind loss and the all other perils deductible applies to the lightning loss.
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