Judge King of the federal district court in Oregon recently ruled on two insurers’ dueling arguments about counting the number of “occurrences” based on the same set of facts, a dispute that can have profound consequences for both insurers and their insureds.
Chartis Specialty Ins. Co. v. Am. Contractors Ins. Co. (Aug. 12, 2014) arose from a dispute between two liability insurers who had already paid to settle a construction-defect lawsuit. The first insurer, ACIG, had written a primary-layer liability policy with limits of $2 million per occurrence, and a $4 million aggregate (that is, for a total of two or more occurrences). The second insurer, Chartis, had written an umbrella policy with a “Retained Limit” that triggered coverage beginning at $2 million per occurrence, or $4 million aggregate.
ACIG contributed $2 million towards the settlement, and Chartis paid the remaining $1.6 million. But Chartis then brought a second lawsuit to recover its contribution from ACIG, arguing that there were multiple “occurrences” at issue, which meant that the entire $3.6 million loss should be paid from ACIG’s pockets. ACIG countered that there was only one “occurrence” based on the underlying facts, which meant that Chartis’s coverage kicked in after ACIG’s first $2 million was paid and, accordingly, the court should let sleeping dogs lie where they were after the settlement.
This internecine kerfuffle between insurers put Chartis in the shoes normally worn by insureds when a loss exceeds a policy’s “per occurrence” limit — arguing that the damages were really caused by separate accidents, putting the higher “aggregate” limit in play. There is no easy answer to how to count “occurrences” for this purpose. Case law from around the country on this issue, more than anything else, demonstrates that very similar facts can lead to very different answers about whether one, two, or even dozens of “occurrences” are involved. In this case, Judge King ruled that ACIG would win the day, finding that the “deficiently managed construction” was a single occurrence.
This uncertainty about counting “occurrences” urges careful tactical decisions by insureds and their lawyers. If Chartis had issued the primary-layer policy, I’ve no doubt that Chartis would have seen things more ACIG’s way. And in cases where the total loss is relatively low, but the insured has a high deductible per occurrence, the insured will often be the one arguing that even facially dissimilar events are so closely related that they should be treated as a single occurrence. Experienced coverage counsel should be on board even before a coverage dispute blows up, when the underlying litigation and discovery is already laying the groundwork for describing and characterizing facts that can be seen in very different ways once the insurers start fighting about who is going to pay up.
Related Post: Florida: Can payments made by a third party in settlement satisfy a self-insured retention premium? (article by my colleague, Molly Washington, about a case holding that one insurer’s settlement payment could satisfy the self-insured retention for a second policy).
Opinion reprinted from WestlawNext with permission of Thomson Reuters. If you wish to check the currency of this case by using KeyCite on WestlawNext, please visit www.next.westlaw.com.