Occurrence and the Intentional Acts Exclusion

State Farm brought this action seeking a declaration that it had no duty to defend or indemnify its insured in an underlying lawsuit. This case is State Farm Fire & Casualty Company v. Yoel, 2014 WL 4182614.

Yoel struck Lee and this caused personal injuries that resulted in a lawsuit being filed by Lee against Yoel. Yoel was insured with State Farm and Yoel turned the lawsuit over to State Farm for defense and indemnity. The insurer defended under a reservation of rights and filed this declaratory judgment action. State Farm alleged that there was no occurrence, the intentional acts exclusion applied, and Yoel failed to comply with the notice provisions in the policy.

The United States District Court, Connecticut, noted that the Connecticut common law definition of an accident focuses on lack of intent. The Connecticut Supreme Court defined an accident as an unintended, unexpected, or unforeseen, unplanned event or condition. Moreover, the word “occurrence” encompasses actions taken by an insured in legitimate self-defense because acts of self-defense are unplanned and unintentional, and so, these actions are accidental.

In this instance, Yoel claimed that he acted in self-defense. State Farm alleged that the facts of the incident show that Yoel's claim of self-defense was not legitimate. The court said that, while the legitimacy of Yoel's self-defense claim would certainly be relevant to the determination of whether State Farm has a duty to indemnify Yoel against an unfavorable judgment, it was not relevant to the determination of whether State Farm has a duty to defend Yoel. The court ruled that because Yoel claimed self-defense and because an act of legitimate self-defense would constitute an occurrence under the terms of the policy, and because this would not implicate the intentional acts exclusion, State Farm had a duty to defend Yoel unless there was some other basis to deny the claim.

State Farm also claimed that it was entitled to summary judgment because there is no genuine issue of material fact that Yoel failed to provide notice as soon as practicable in that he failed to notify State Farm until over a year after the incident took place. State Farm noted that the fight took place on December 31, 2010 and Yoel did not notify State Farm until January 12, 2012. The insurer claimed this resulted in prejudice to the insurer. Yoel countered that State Farm offered no evidence that Yoel knew that Lee was going to file an action against him and that once Lee filed the lawsuit, Yoel gave State Farm notice within 14 days.

The U.S. District Court said that there is a genuine dispute of material fact regarding the severity of Lee's injuries and the extent to which Yoel knew of the injuries. Yoel testified that he did not know that Lee went to the hospital and that when he left after the fight, he saw Lee get up. So, the court could not determine whether as a matter of law, Yoel should have recognized that liability may have been incurred at the time of the incident. Since the notice requirement turns not an insured's subjective assessment of how likely a claim is to be brought, the court said that it must determine whether a reasonable person would recognize that liability may have been incurred. Doing so, the court determined that it could not grant summary judgment to State Farm based on the notice requirement.

The court also noted that even if it were to determine that Yoel did not give notice of the incident to State Farm as soon as practicable, State Farm would still have to show that it was materially prejudiced by the late notice. In this case, the court found that there is a dispute as to whether State Farm was materially prejudiced. State Farm said that it was unable to locate any witnesses to the fight because of the late notice. Yoel argued that there was a question as to whether an earlier notice would have allowed State Farm to locate Lee. The court found that State Farm presented no evidence regarding unnamed individuals that it has been unable to locate, explaining who those individuals are, why State Farm has been unable to locate them and why the inability to locate them has prejudiced State Farm. Therefore, the court ruled that there is a genuine issue of material fact as to whether State Farm has been prejudiced by Yoel's alleged late notice.

The motion for summary judgment by State Farm was denied.

Editor's Notice: The U.S. District Court, Connecticut, examined the facts in this case and ruled that the self-defense claim made by the insured could be an occurrence under the terms of the policy, and the intentional acts exclusion would not nullify that point to the extent that the insurer had no duty to, at the very least, provide a defense for the insured.

Defective Workmanship

The insurer brought a declaratory judgment action, asserting that it had no duty to defend the insured in an underlying lawsuit arising from the insured's construction of a house. This case is Westfield Insurance Company v. Miranda & Hardt Contracting and Building Service, 2015 WL 1477970.

Miranda & Hardt constructed a home pursuant to a contract with Fenwick Ventures. About six years after the construction, the homeowners complained about defects in the construction and filed a lawsuit. The lawsuit alleged that Miranda & Hardt deviated from the approved building plans, used inadequate building materials, and improperly installed building materials. Miranda and Hardt notified its insurer, Westfield Insurance Company, of the lawsuit and requested defense and indemnification. The insurer denied coverage and filed this declaratory judgment action.

The Superior Court of Delaware noted that the duty to defend is determined by the factual allegations of the underlying complaint. The test is whether the underlying complaint, read as a whole, alleges a risk within the coverage of the policy. Furthermore, if even one count or theory of the underlying complaint alleges a risk covered under the policy, the duty to defend arises. The court also noted that the parties to this dispute agree that there is an underlying lawsuit against the insured because of alleged property damage. The dispute is over whether that property damage was caused by an occurrence.

The insurer claims that there is no occurrence because the only allegations in the underlying lawsuit are for defective workmanship. The insured countered that it was entitled to an inference that there was no defective workmanship based upon its denial of the allegations, and argued that defective workmanship was not yet proven. The insured also argued that the structural issues pertain to the pilings and the insured is not liable for the alleged defects because the pilings were in place before the insured entered into the construction contract with Fenwick.

The court said that an occurrence requites an accidental or unexpected event and that an accident is an event happening without human agency, or if happening through such agency, an event that, under circumstances, is unusual and not expected by the person to whom it happens. The court decided that these definitions are in accordance with the principle that defective workmanship does not constitute an occurrence for purposes of a commercial general liability policy because such action is within the control of the worker and not a fortuitous circumstance happening without human agency.

The court went on to say that a commercial general liability policy is not intended to serve as a performance bond or guaranty of goods or services. As such, an allegation of defective workmanship does not constitute an occurrence. In this instance, the underlying lawsuit alleges defective workmanship and the policy does not provide the insured with coverage for property damage that results from its own defective workmanship since there is no occurrence as required in the insuring agreement.

Accordingly, the court ruled that there was no occurrence to trigger the insurer's duty to defend or indemnify the insured. Westfield was granted summary judgment.

Editor's Note: This case is presented to offer another court's ruling on defective workmanship as an occurrence. In this instance, the court found that defective workmanship was not an occurrence and so, the general liability policy offered no defense or indemnification for the insured.

Number of Occurrences and the Deductible

After 128 sooting claims were filed against the insured in connection with a design defect in one of the stoves it manufactured, the insured sought coverage for the claims under its general liability policy. This case is United States Stove Company v. Steadfast Insurance Company, 462 Fed.Appx. 912 (2012).

U.S. Stove manufactured solid fuel stoves and furnaces and was insured by Steadfast Insurance Company for liability claims arising from defective products. One of the insured's models had a design defect that resulted in 128 claims being filed against U.S. Stoves. These claims were separated in time, location, and the extent of the damages. The insured and the insurer agreed that the policy applied to the insured's liability for the claims, and that no material facts are in dispute. The disagreement between the insured and the insurer centers around what deductible applies to the 128 claims. The insured said that a single deductible applies to all sooting claims and the insurer countered that a separate deductible applies to each sooting claim. The insured filed a lawsuit to settle this dispute and the trial court sided with the insured. This appeal followed.

The United States Court of Appeals, Eleventh Circuit, noted that the policy applies to an occurrence which is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Moreover, the policy contained a deductible endorsement that set out a deductible of $25,000 on either a per claim basis or a per occurrence basis. The per claim basis reads that if the deductible is on a per claim basis, the deductible amount applies to all damages sustained by any one person as a result of any one occurrence. The per occurrence basis reads that if the deductible is on a per occurrence basis, the deductible amount applies to all damages as the result of any one occurrence regardless of the number of persons that sustain damage because of that occurrence.

U.S. Stove opted for the per occurrence basis for computing the applicable deductible.

The parties here advanced competing interpretations of the term “occurrence”. The insurer argued that case law required the court to look to the effect of an occurrence rather than its cause. Under the effects test, adopted by a minority of states, the number of occurrences is determined from the vantage point of the injured party. The insured favored the cause test, adopted by the majority of states, that says the number of occurrences is determined from the vantage point of the insured.

The court found that the Tennessee Supreme Court ruled in a previous case that a single act by the insured that resulted in two separate building collapses on opposite sides of the excavation site two days apart were separate accidents under the per accident limitation of liability clause. Steadfast argued that this meant the effects test had to be used to determine whether damages are the result of a single or multiple occurrences, and so, under the effects test, each sooting damage resulting from a single design flaw represents a separate occurrence for purposes of determining the applicable deductible. The circuit court did not agree.

The court said that to accept the insurer's position would eviscerate the deductible endorsement in that it would fail to give effect to the intention of the parties as reflected by the choice offered by the endorsement and the per occurrence option selected by U.S. Stove. The unambiguous purpose of the endorsement was to draw a distinction between claims and occurrences for purposes of determining the applicable deductible. The insurer elected to draft a policy that allowed the insured to select which deductible option would apply. U.S. Stove selected a per occurrence option and the plain and ordinary meaning of the endorsement, as well as the intent of the parties, supported a construction of the policy that imposes a single deductible for all claims from a single design defect occurrence.

The ruling of the district court was affirmed.

Editor's Note: The Eleventh Circuit Court of Appeals holds that pursuant to the per occurrence deductible selected by the insured, a single deductible applied to all sooting claims arising from a single design defect. This case discusses the per claim and per occurrence bases for determining the application of the deductible amount.