What is an occurrence?
Disagreement over the meaning of “occurrence” has led to conflicts between insurers and insureds.
This is the final installment of previously issued articles on what is an “occurrence?” Even though the term “occurrence” is defined, disagreement over its meaning has led to conflicts between insurers and insureds; often resulting in litigation. This part discusses the meaning of occurrence in crime policies, in the discovery form and the loss-sustained forms.
Discover definition
Before we can look at the definition of “occurrence,” we must first look at the definition of “discover,” since coverage is predicated upon the insured first discovering that there is a loss. The definition of “discover” or “discovered” is identical in both the discovery form and the loss-sustained form:
“Discover” or “discovered” means the time when you first become aware of facts that would cause a reasonable person to assume that a loss of a type covered by this policy has been or will be incurred, regardless of when the act or acts causing or contributing to such loss occurred, even though the exact amount or details of loss may not then be known.
“Discover” or “discovered” also means the time when you first receive notice of an actual or potential claim in which it is alleged that you are liable to a third party under circumstances which, if true, would constitute a loss under this policy.
Analysis:
The forms take the position of a reasonable person standard to determine when a loss is discovered, which can be looked at as a common sense approach. For example, forgeries have become much more sophisticated today than in years past, and some can look very authentic. An insured may not know for certain that the check received is a forgery but have a suspicion this is the case. When the insured suspects the check has been forged is the time of discovery for purposes of an occurrence. If it is later determined that the check has not been forged, then it will cause the insured no negative consequences with respect to the insurance coverage for having reported his suspicions to the carrier.
It stands to reason that if the insured receives notice of a third-party action or suit that could be covered under the policy, the date that notice is received would be considered the date of discovery. An insured cannot be held to a discovery of a third-party action or suit that he has no knowledge is being filed.
Occurrence definition
The commercial crime policy, the discovery form CR 00 22, and the loss sustained form CR 00 21, each provide for the same seven insuring agreements: employee theft, forgery or alteration; theft of money and securities, inside the premises; robbery or safe burglary, inside the premises; outside the premises; computer fraud and funds transfer fraud, and money orders and counterfeit money. Computer fraud and funds transfer fraud have been combined. The insured chooses which of the agreements is needed, and provides coverage where designated with a limit shown for the coverage on the declarations.
Under the discovery form, the loss must arise from an occurrence and be discovered by the named insured during the policy period or during the extended period to discover loss, as provided for under condition E.1.j.
The loss-sustained form is worded differently because it also applies to loss that the named insured sustains resulting directly from an occurrence taking place during the policy period, except as provided in conditions E.1.k. or E.1.l.
The definition of “occurrence” is identical in both the discovery form and the loss-sustained form. The definition is divided into sections based on the different insuring agreements.
“Occurrence” means:
- Under Insuring Agreement A.1.:
(1) An individual act;
(2) The combined total of all separate acts whether or not related; or
(3) A series of acts whether or not related; committed by an “employee” acting alone or in collusion with other persons, during the policy period shown in the declarations, before such policy period or both.
- Under Insuring Agreement A.2.:
(1) An individual act;
(2) The combined total of all separate acts whether or not related; or
(3) A series of acts whether or not related; committed by a person acting alone or in collusion with other persons, involving one or more instruments, during the policy period shown in the declarations, before such policy period or both.
- Under all other Insuring Agreements:
(1) An individual act or event;
(2) The combined total of all separate acts or events whether or not related; or
(3) A series of acts or events whether or not related; committed by a person acting alone or in collusion with other persons, or not committed by any person, during the policy period shown in the declarations, before such policy period or both.
Analysis:
Insuring agreement A.1. applies to theft by an employee. Since, with respect to this agreement, “occurrence” means all loss caused by an employee, whether due to a single act or series of acts, if the employee has been stealing from the insured over a period of time — say, $100 here and $250 there — that is considered one occurrence. The deductible is on a per-occurrence basis, so the deductible is applied once to the total amount taken by the employee, and not to each time the employee took the money.
The same is true of insuring agreement A.2. The total loss caused by any person is considered one occurrence and not a series of occurrences, no matter how many forged or altered instruments are involved.
Finally, with respect to the other insuring agreements, an occurrence is an act or series of related acts. This means that if the acts that cause the loss are numerous but related they are considered to be one occurrence. For example, if the same person commits computer fraud over a period of several months, that is one occurrence.
Let’s take a look at some actual losses to determine if the occurrence was a single occurrence, or multiple:
Example 1:
An insured picked up money from multiple business locations, and while in his possession the vehicle was broken into and the money taken. The policy has crime form CR 00 21, Commercial Crime Coverage Form (Loss Sustained). It includes crime outside of the premises, Agreement 5 with a $10,000 limit and a $2,500 deductible. This was a one-occurrence theft and we paid the limit of $10,000. The entire loss was over $76,000 and the insured is making a claim for the remaining $66,000. We believe as this was one occurrence, then one limit of $10,000 is owed for the entire loss as policy language indicates. The insured thinks there is a $10,000 limit for each location regardless of the single occurrence. What is the correct answer?
Answer:
The money was stolen one time from one location, even though the insured had gathered the money from various locations. The loss is one occurrence. Had there been a theft from each location that the insured was at every time he stopped, that would be considered multiple occurrences. You are correct in paying for one occurrence as that is what it was.
Example 2:
An insured runs a coin-operated laundry with two change machines. On the morning of the date of loss, one change machine and the control room were broken into and money was taken. The insured made temporary repairs. Later that day, the control room and the second change machine were broken into.
The policy states that “we will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the Deductible shown in the Declarations.”
It is our position that there were two occurrences at this property on the date of loss. There was a break of three to six hours between the occurrences.
What is your evaluation?
Answer:
Generally, courts have held that an occurrence is one proximate, uninterrupted and continuous cause that results in all of the injuries and damages. From what you describe, there were two separate thefts. As stated, the thefts — even if performed by the same perpetrators — were separated in time. Therefore, they would be two separate occurrences.
Example 3:
Our insured owns a pizza restaurant. The same individual broke into the premises and stole cash on many different occasions. The insured has crime coverage form CR 00 04 10 90 for theft, disappearance and destruction.
Under this form, “occurrence” is 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, our insured thinks that the acts were a single related occurrence and only one deductible should apply.
However, the insurer says the deductible should apply to each theft, because in order to qualify as a single occurrence the thefts should take place within a single date.
What do you think?
Answer:
Quite possibly the insurer is taking 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 your insured’s policy, the courts determined that one “occurrence” took place. In the case of Christ Lutheran Church v. State Farm Fire and Casualty Co., 471 S.E. 2d 124 (N.C. 1996), an employee embezzled several thousand dollars over the course of time. The court found that although some twenty-four checks had been altered or forged by one person, there was still only one “occurrence.” In the case of Bethany Christian Church v. Preferred Risk Mutual, 942 F. Supp. 330 (1996), the same conclusion, involving similar circumstances, was reached. In the one case that reached a different conclusion — that repeated thefts by one thief were not one occurrence, the policy language referred to “separately occurring events.”
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. Nevertheless, there is nothing in the form itself that states that a day’s time frame — or indeed, 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 appear to fit the definition by virtue of being a “series of related acts involving one…person,” we are of the opinion that the insured should be entitled to the benefit of the doubt, with one deductible applying.
Karen L. Sorrell, CPCU (ksorrell@alm.com) is the associate editor of FC&S Expert Coverage Interpretation, the authority on insurance coverage interpretation and analysis for the P&C industry.
Related:
Claims-made vs. Occurrence coverages – Part 1
Claims-made vs. Occurrence coverages – Part 2
What is an Occurrence? Commercial property questions answered