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One vs. Multiple Occurrences (Part 1 of 2)

Author: Bill Wilson

As we all know, the issue of "1 vs. 2" occurrences in the WTC disaster is currently front-page news. However, this issue has been debated for years. In this special article, we'll examine the WTC situation, along with several others, and give you our opinion along with that of the courts here and abroad.


IMPORTANT: The following article represents an analysis of one insurance issue (i.e., what constitutes an "occurrence") involved in the September 11, 2001 World Trade Center loss. Our intent is to make an objective examination of this issue from an educational perspective. The opinions expressed below do NOT reflect IIABA's position on this issue or any litigation currently underway, and IIABA has not taken a position on this subject.


If you've been following the trade press for the past few months, you're aware of the " 1 vs. 2" controversy surrounding the World Trade Center (WTC) terrorist attack(s). While there are factual disputes about the nature of the coverage and applicable contract wording, in this article, we'll take a look at the general issue of when losses result from one vs. multiple occurrences. Specifically, we'll focus on the WTC disaster, then we'll take a look in the second part of this article at other "1 vs. 2" examples.

With regard to the WTC loss, a binder had apparently been issued on a proprietary policy. While all parties seem to agree that the complete coverage details had not been finalized at the time the binder was issued, the insurer(s) alleged that the policy defines an "occurrence." According to a December 20, 2001 BestWire article, "occurrence shall mean all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur."

In addition, another policy allegedly defined "occurrence" to include "...any one loss, disaster or casualty, or series of losses, disasters or casualties arising out of one event." On the surface, all this appears to do is raise the issue of what constitutes "one event."

The insured claims that the proprietary policy was in the process of being superceded by another policy that does not define "occurrence." Clearly, there are material facts in dispute that will most likely require a jury determination. At issue is whether or not the proprietary policy was in force at the time of loss, what the wording means, and whether or not all parties had committed to a definition of "occurrence." These issues require that a jury decide the facts.

If the applicability of the proprietary policy, and its definition, is not supported by the facts, then the parties probably must rely on the common law definition of "occurrence" as established by case law. While New York case law may govern (see cases below), it is not uncommon to look at how other jurisdictions have defined this term. Since litigation is proceeding as this article is being written, we can't comment on whether or not the policy wording cited above will be upheld. We can, however, look at how the issue of one vs. multiple occurrences has been treated by the courts.

Most standard property policies do not define "occurrence" because most occurrences aren't contested and most policies are not written on multi-billion dollar properties. Most often, "occurrence" is defined when applied to a peril that can occur over time. For example, in earthquake and volcano coverage, an "occurrence" is typically defined to include all losses that occur within 72-168 hours or a similar time frame. For most other causes of loss, there is no definition of "occurrence."

More often, "occurrence" is defined in casualty (e.g., crime) and liability (e.g., CGL) policies, though such definitions can be vague and are rarely concise as to time frame, simply referring, for example, to an "occurrence" including "continuous or repeated exposure to substantially the same general harmful conditions." The origin of these definitions is founded on long-term conditions that contribute to a loss over time and sometimes across multiple policy periods. The intent usually is, along with aggregate limits, to restrict coverage limits and policy applicability to a single exposure over time.

According to one pundit, if this had been a partial loss with a huge per-occurrence deductible, insurers would be arguing that this was two occurrences and the insured would be arguing that this was one occurrence. As we all know, when you're dealing with the sometimes vague provisions of insurance contracts, it's often just as easy to take one position as another.

The issue of one vs. multiple occurrences is not a new one. This issue has been debated and litigated for years in weather-related claims (see Part 2 of this article). For example, for a windstorm or hail claim, one question is whether the entire storm constitutes an occurrence or whether each storm cell is a separate occurrence. You could even debate whether each hailstone was a separate occurrence, but that would seem to be stretching the issue.

According to one of our faculty members, a single hail storm may or may not be a single occurrence. The issue under a primary insurance policy has been held both ways. (Note: Reinsurance contracts often define "occurrence" with regard to when and for how much the reinsurance contract is triggered.) There must be a continuation of the storm cell for a single event according to some courts. If the storm is actually two separate cells, some courts have held separate occurrences.

To illustrate how common this issue is debated, here's just one of three weather-related occurrence questions handled by our "Ask an Expert" service in the past few months:

"A single storm front blows through town. One building on the policy suffers wind damage. Another building on the policy (located across town) suffers lightning damage during the same storm, within a few minutes of the other damage. For deductible purposes, is this one occurrence or two?"

Needless to say, and as described by one "pundit" above, the insurer has taken the position that this is two occurrences (despite it being one storm cell) because it would trigger two separate deductibles. The combined damages would exceed a single deductible, but by taking the position that this is two occurrences, each loss is within the per-occurrence deductible.

Unfortunately for the insured, our "expert" opinion was that this does, indeed, constitute separate occurrences. We based our opinion on the fact that the losses were physically separated by time and space, a condition often cited by the courts. In addition, damage resulted from two distinct perils under the policy, despite the fact that the originating source of the perils was the same storm cell.

For example, in one British case, the issue was whether damage by rioters was one (due to "riot") or more (due to "rioters") occurrences. The court felt that these were multiple occurrences. The case summary also included a citation of Mann v. Lexington where the court ruled that damages due to a tropical storm constituted separate occurrences.

In a similar case, the same issues are discussed. Several court cases are cited where the court ruled that events separated by space and time are separate occurrences even if due to the same general exposure to a peril. Although these are international examples, terrorism acts are international in scope and, while NY law may govern in the WTC case, it is helpful to review how other courts have considered these issues. Closer to home....

As reported in the May 16, 2002 edition of The Economist, in the case of Lexington Insurance Co. vs. Travelers Indemnity Co. (9th U .S. Circuit Court of Appeals), a judge in California coincidentally ruled on September 11th that four arson fires that occurred within 80 minutes of each other in four different county courthouses constituted four separate occurrences, despite the fact that they had been set by the same individual. According to the article, insurers had argued that the fires were one event, but the court would not concur with their argument that the fires arose out of "one scheme or plan."

In its decision, the court held that the single source of the fires was "of no consequence...[Who set the fires] could have no bearing on the fact that two fires distinguishable in space and time occurred and that one did not cause the other...[W]here there are two fires at two different places with two separate factors, there are two loss occurrences."

In the case of New Hampshire Ins. Co. v. RLI Ins. Co., 27 Fla. L. Weekly D377 (Fla. 3d DCA Feb. 13, 2002), the Florida Supreme Court upheld a lower ruling that three shots fired constituted three separate occurrences:

"The sole issue on appeal is whether the incidents which gave rise to this litigation constitute one occurrence, or multiple occurrences, as that term is defined in New Hampshire's policy. As the trial court properly found, there were three 'occurrences' here. The aggressor fired three shots, at separate times, and injured three separate persons, killing two. 'The act which causes the damage constitutes the occurrence.' Phillips v. Ostrer, 481 So. 2d 1241, 1247 (Fla. 3d DCA 1985). There were three separate acts of shooting, causing three separate injuries to three separate persons in three separate instances. This is not a case with one proximate, uninterrupted continuing cause resulting in the deaths and injuries, but rather three separate causes." [emphasis added]

The case most often cited by the "2 occurrence" position is Arthur A. Johnson Corp. v. Indemnity Ins. Co., 7 N.Y.2d 222 (1959) which appears to closely parallel the WTC loss. In the summary judgment action filed in the current WTC suit, the Johnson case was described as follows:

There, two adjacent buildings owned by a single property owner were damaged when walls protecting the adjacent basements collapsed fifty minutes apart as a result of a single rainstorm that flooded a construction trench in front of the buildings. The Court of Appeals held that even though there was a single rainstorm and a single flooded trench, there were two "accidents" – two walls collapsing – and hence two policy limits payable. The court explained:

"[D]uring a heavy rainfall, a protecting wall collapsed under the water pressure and destruction poured into a building. Almost an hour later, another wall gave way and water flooded another building. There is no suggestion that the collapse of the first wall caused the failure of the second...In addition, the catastrophe was not the rain that, in itself, did no harm. It was the breach of the wall letting the rain water in. Furthermore, if the walls were located blocks away from each other on different job sites but subject to the same rainfall, no one could contest that there were two accidents. For these reasons, we conclude that the collapses of separate walls, of separate buildings at separate times, were in fact separate disastrous events and, thus, two different accidents within the meaning of the policy."

This judicial logic would appear to apply to the WTC incident. Some have argued that both WTC losses originated from the same organization and/or mastermind and, therefore, were proximately caused by the "peril." We would tend to side with the opposite opinion. These losses were caused by two separate aircraft controlled by two separate groups that struck two separate buildings.

Even if these losses arose out of a single plan of attack, in our opinion, the originators of the plan are too remote for this to be considered a single occurrence for several reasons. As cited in briefs filed in the current litigation, the New York Court of Appeals unanimously opined in 1918 (Bird v. St. Paul Fire & Marine Ins. Co.), "Especially in the law of insurance, the rule is that 'You are not to trouble yourself with distant an action on a policy, the cause proxima is alone considered in ascertaining the cause of loss."

First, most insurance policies consider the proximate cause, the "occurrence," to be that which takes place at or close to the time of bodily injury or property damage.

Second, it is quite possible that the exact cause, perpetrators, etc. might never be known in attacks such as these, or might not be known for years. In the meantime, all one has to rely on are the physical and factual circumstances of the loss(es).

Third, if one were to apply this logic to the WTC disaster, current intelligence indicates that each of these terrorist cells were unaware of the other's plans. So, the immediate perpetrators of the losses were, relative to each other in the decision making process, acting totally independent of each other.

One of tenets of insurance is that a loss must be definite in time and place. As a result, it seems more proper to consider the direct perils that resulted in the losses (aircraft, arson, etc.) to constitute the "occurrence(s)." Otherwise, you open up a Pandora's Box of possible causes of loss that would require the services of an astrologer, not an adjuster, to resolve. In addition, if you take the position that the originators of multiple attacks constitute the "occurrence," then one could argue that ALL losses attributable to a master plan of a single terrorist group must be one occurrence, a result which seems not only illogical, but ludicrous.

So, if the court rules that no specific contractual definition of "occurrence" applies, our prediction is that the court will find that this was two occurrences. In our opinion, a "plan" is not a peril nor an occurrence as contemplated by most insurance policies.

Finally, for an interesting look at these issues, check out the following article:

     •  WTC Lawsuit


DISCLAIMER. As indicated at the bottom of each page in the Research Library, the views expressed in articles written by our faculty members and others do not necessarily reflect the views of IIABA.


Continue with Part 2...

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