Insurer moved for summary judgment in dispute with insured with the issue revolving around the each occurrence limit of liability versus the aggregate limit. This case is Republic Underwriters Insurance Company v. Moore, 2010 WL 4365566 (N.D.Okla.).

The insurer argued that the e.coli claims resulted from one, uninterrupted and continuing occurrence and so, the each occurrence limit of $3 million applied. The insurer argued further that if the court determines that there is more than one occurrence, the $2 million products-completed operations aggregate limit and not the general aggregate limit applies. The insured countered that the claims resulted from multiple occurrences and that both the general aggregate limit and the products-completed operations aggregate limit apply.

The District Court noted that the definition of occurrence in the policy is unambiguous. The court also noted that the majority of courts have held that the number of occurrences is determined by looking to the cause or causes of the resulting damage, rather than to the number of individual claims or injuries. In this case, the insurers argued that the cause of the e. coli outbreak and resulting injuries was the preparation, handling, or storage of contaminated food during a discrete time period; therefore, the was only one occurrence. The insured contended that the deliberate sale and service of food that was contaminated was due to negligence in failing to either prevent, discover, or eliminate the contamination and this serving of the food was the immediate cause of each person's injury and thus, each a separate occurrence.

After reviewing the facts of the incident, the court said that there were distinct places of injury and thus, two separate occurrences.

The facts established that at least two separate occurrences of e. coli-induced illness resulted from the negligent contamination of food prepared and served: one location was at the Country Cottage restaurant and the other location was at the Free Will Baptist Church tea. Moreover, no persons classified as a primary outbreak case attended both the restaurant event and the tea. Therefore, because the court found more than one occurrence, the amount of liability under the policy must be determined under the aggregate and not the each occurrence limit provision.

As for the product-completed operations aggregate versus the general aggregate, the court said that the illnesses resulted from products that were sold, handled, or distributed in connection with the insured's business. This was in accord with the definition of products-completed operations hazard as it appeared on the policy, so, all the injuries are covered under the products-completed operations aggregate.

Editor's Note: The United States District Court in the northern district of Oklahoma offers another decision in the continuing dispute about one occurrence versus multiple occurrences. As the court noted, the majority of courts today hold that the number of occurrences is determined by looking to the cause or causes of the resulting damage, rather than to the number of individual claims or injuries, that is, the effect of the damage. It is interesting then that this court found multiple occurrences since the cause of the illnesses was the contamination of food at one restaurant. This court said that since the food was eaten at two separate locations and at separate times, the fact that the food was prepared at one location did not mean only one occurrence.

Another point made by the court: the time of an occurrence is not the time when the wrongful act was committed, but the time when the complaining party was actually damaged.

Claims Arising out of Auto Accident due to Alcohol Consumption

The passenger and passenger's father brought an action against the insured bar that served alcoholic beverages to a patron who later collided with a vehicle in which the passenger was riding. The dispute arose over whether the insured knowingly sold beer to an intoxicated patron in violation of a state statute. This case is Hartfield v. The Getaway Lounge & Grill, 697 S.E.2d 558 (2010).

After visiting a number of bars one night, Helton drove his vehicle across the center line and struck a car in which Hartfield was a passenger. Helton died at the scene and a South Carolina Law Enforcement Division toxicologist recorded Helton's blood alcohol content (BAC) at .212. Hartfield and his father filed lawsuits against three bars that Helton visited that night. The insured, The Getaway Lounge and Grill, was one of them.

Facts established that Helton's second stop was The Getaway and that he stayed there about 2 hours. There was conflicting testimony as to whether Helton was drinking at The Getaway but the accident occurred approximately 50 minutes after Helton left the lounge. His blood alcohol content after the accident was recorded as .212. A toxicologist used a method called “retrograde extrapolation” to determine how many beers Helton would have to have consumed over the hours preceding the accident to reach a .212 BAC. The toxicologist testified that, based on his calculations, Helton's approximate BAC during the time he was at The Getaway would have been between .18 and .20 and that Helton would have been grossly intoxicated and exhibiting symptoms of intoxication.

In the lawsuit against The Getaway, a verdict was returned in favor of Hartfield and his father in the amount of $10 million. This appeal followed.

One of the issues on appeal was that the plaintiffs did not meet their burden to establish that the employees of The Getaway knowingly sold beer to an intoxicated person. The Supreme Court of South Carolina disagreed. The court said that, in the present case, the plaintiffs established a timeline of Helton's actions and that Helton had a .212 BAC only fifty to ninety-five minutes after leaving The Getaway. The facts would lead a prudent man to believe that Helton was intoxicated. Moreover, the court said that state law does not contain a requirement that the intoxicated person be visibly intoxicated, only that a person knowingly sell beer or wine to an intoxicated person.

Therefore, a prudent man would know Helton was intoxicated and if served alcohol, the bartenders should have known this. The verdict of the trial court was affirmed.

Editor's Note: There is no mention of a dispute in this case between an insured and an insurer. However, it is presented to show how one state ( South Carolina ) addresses liquor liability lawsuits. The states differ in their attitudes toward liability for the liquor vendor.

Some states do not allow a cause of action against one who supplies, furnishes, vends, or sells liquor to an intoxicated person who causes injuries; other states impose moderate liability for the liquor vendor, that is, they allow a cause of action under certain circumstances. South Carolina allows an action against the vendor if the vendor knows or should know that the person is intoxicated.

In this instance, facts showed that The Getaway bartenders knew or should have known that Helton was intoxicated, and using a prudent man or reasonable person standard, the bartenders should not have served alcohol to Helton.

The liquor liability exclusion in the standard CGL form prevents coverage for injury or damage for which any insured may be held liable by reason of causing or contributing to the intoxication of any person. So, the insured bar or tavern needs the liquor liability coverage form to properly address its liquor liability exposures.

Homeowners Coverage and Mold-Related Loss

The insured homeowner filed a complaint against its insurer seeking a declaratory judgment of coverage for a claim for mold-related loss caused by ice-damming. The insurer was granted summary judgment and this appeal followed. The case is Chadwell v. New Jersey Manufacturers Insurance Company, 2011 WL 31353 (N.J.Super.A.D.).

Chadwell discovered mold damage when he removed aluminum siding; the damage included mold, mildew, and water damage on the underlying wood siding of two exterior walls. According to Chadwell, the best of the many explanations for the condition was that ice filled the gutter along those walls and forced water to travel between the aluminum siding and the original cedar siding of those walls.

When the insured filed a claim with New Jersey Manufacturers, the insurer denied coverage based on the language of the mold endorsement attached to the homeowners policy. This endorsement provided coverage for property damage caused by fungi, wet or dry rot, or bacteria, but the coverage only applies when the loss or costs of repair are a result of a peril insured against. The insurer pointed out that the perils insured against under this policy did not include ice damming. The policy did cover damage due to the weight of ice and snow and damage due to accidental discharge or overflow of water from within a plumbing system or from within a household appliance; however, the listed covered perils did not include ice damming.

Chadwell contended that the mold endorsement misleads consumers. The court disagreed. The court found that the amendment clearly directs the consumer to the listed named perils and the policy language clearly allowed the average policyholder to discern the boundaries of mold damage coverage. Because the mold endorsement cannot be understood without reading the specific provisions in the homeowners policy that it modifies, the average policyholder would not attempt to read it as a free-standing document. The court said that Chadwell presented no argument to bring his mold condition, attributable to ice damming, within the basic terms of the policy covering a loss or costs that are a result of a peril insured against, and the court could not see any perils that applied. In the absence of a material dispute of fact that would bring the claim within the basic terms of the policy, the insurer was entitled to summary judgment, and the verdict in favor of the insurer was affirmed.

Editor's Note: The insured in this instance thought his mold endorsement provided coverage for the mold damage he discovered.

However, the protection he purchased under the endorsement plainly did not include this type of claim. There are at least two points to note from this decision. One, the insured should read the policy and the endorsements to understand what is covered and what is not covered. And two, courts will not automatically grant the insured coverage just because the insured claims the policy language is unreasonable or ambiguous. If the court finds the policy language understandable, and phrasing that “does not preclude the average policyholder from discerning the boundaries of coverage”, the insurer will prevail in its denial of coverage.

Duty to Defend against General Allegations

The insurer sought a declaratory judgment that it had no duty to defend its insured against a claim seeking setoff and damages for economic losses. This case is Amerisure Mutual Insurance Company v. Microplastics, Inc., 622 F.3d 806 (2010).

Microplastics manufactures insert molding components which are plastic pieces used to manufacture various mechanical devices. A customer, Valeo Security Systems, bought some of these parts and soon discovered that the parts were defective. Valeo sent a letter to Microplastics asserting that Microplastics had breached the quality and engineering specifications of the purchase orders. The letter stated that Valeo had chosen to terminate and cancel the purchase orders for cause and said that Valeo would apply a debit of about $1,300,000 to offset the damages incurred by Valeo. Microplastics sued for breach of contract and Valeo countersued. The countersuit sought setoff and damages for economic losses incurred by Valeo. Microplastics forwarded the lawsuit to its insurer, Amerisure, which declined coverage and said it would not defend the insured. Amerisure filed a declaratory judgment action which was granted by the district court. This appeal followed.

The appeals court noted that this case presented a recurring problem under Illinois insurance law governing an insurer's duty to defend under a commercial general liability policy. The specific problem here was whether the insurer had a duty to defend the insured when the claimant makes only general allegations for costs incurred as a result of the insured's defective products, without explicitly disavowing any claim for damage to property other than the defective products themselves. The insured contended that Valeo's claims potentially fell within the liability policies' property damage provision. However, the appeals court saw it differently.

The court said that the insured's arguments rely entirely on hypothetical situations rather than on any facts actually alleged in the lawsuit.

The court found that, under Illinois law, an insurer has no duty to defend unless the underlying claim contains explicit factual allegations that potentially fall within policy coverage. Because the Valeo claims contained no such factual allegations, and because the allegations were fully consistent with a simple claim for breach of warranty, the court said that Amerisure had no duty to defend.

The insured claimed that Valeo alleged that its customers charged Valeo for costs associated with the defects and that Microplastics is liable to Valeo for the costs charged to Valeo. Microplastics saw this as not logically foreclosing the theoretical possibility that Valeo's customers charged back costs resulting from potentially covered damage to property beyond the defective products, thus triggering the duty to defend. The court saw this as an attempt by the insured to fill in details in the vague allegations made by Valeo by hypothesizing situations which, if alleged or true, would bring the costs charged back to Valeo within the scope of property damage covered by the liability policies, and this interpretation went too far.

The court reiterated that the duty to defend applies only to facts that are explicitly alleged; it is the actual complaint, not some hypothetical version, that must be considered. Hypothetical factual situations are simply irrelevant. Therefore, the appeals court affirmed the district court's ruling and found that the Valeo claims did not trigger the insurer's duty to defend because they did not allege any facts that could even potentially fall within the scope of covered property damage.

Editor's Note: The duty to defend is, of course, broader than the duty to indemnify. However, as this court noted, that duty is not automatic. The insured's coverage and right to a defense depend not on the legal theories stated by the claimant or the possible coverage situations propounded by the insured, but on the factual allegations of the complaint. The duty to defend is premised on the facts the parties to the underlying complaint actually allege and if, as in this case, those facts do not specify allegations of actual property damage, no theoretical possibilities will actuate the duty to defend.