New York Court Holds Incidents of Sexual Molestation Separate Occurrences

In its recent decision in Roman Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of Pittsburgh, PA, 2013 NY Slip Op 3264 (N.Y. May 7, 2013), the New York Court of Appeals – New York’s highest court – had occasion to consider whether repeated incidents of sexual molestation involving a single victim constituted multiple occurrences triggering multiple self-insured retentions.

The underlying suit alleged that a single priest molested a minor on numerous occasions during the period 1996 through 2002.  These incidents happened in several locations, including the rectory, office and other areas of a church in Queens, New York, the priest’s car, the plaintiff’s home, and another home.  The underlying action was settled for $2 million.  National Union issued three consecutive general liability policies to the Diocese that were potentially triggered by the underlying suit.  Each of the policies had a limit of liability of $750,000 and a per occurrence self-insured retention of $250,000.  National Union disclaimed coverage to the Diocese on the basis of a sexual abuse exclusion, and the application of the exclusion has not yet been determined by the lower court.  At issue before the Court of Appeals was the issue of whether the alleged acts of molestation could be considered a single occurrence triggering only a single retention, or multiple occurrences triggering multiple retentions.  The National Union policies defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”  Further, each policy only provided coverage for bodily injury that occurred during the policy period.

The court acknowledged that the issue of whether several acts of sexual molestation constitute multiple occurrences was an issue of first impression for it.  The court nevertheless found guidance in its prior decisions involving number of occurrence questions, in particular its decisions in Arthur A. Johnson Corp. v Indemnity Ins. Co. of N. Am., 196 N.Y.S.2d 678 (N.Y. 1959); Appalachian Ins. Co. v General Elec. Co., 831 N.Y.S.2d 742 (N.Y. 2007). These decisions, explained the court, relied on the “unfortunate event” test to determine the number of occurrences, as opposed to simply looking at the proximate cause of the injuries or the number of injured parties.  This test, explained the court, looks to “whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss, and whether the incidents can be viewed as part of the same causal continuum, without intervening agents or factors.” 

Applying this test to the alleged underlying incidents of molestation, the court concluded that there was no “close temporal and spatial relationship” among these incidents from which it could conclude there was only a single occurrence.  As the court explained:

Applying the unfortunate event test we conclude that the incidents of sexual abuse within the underlying action constituted multiple occurrences. Clearly, incidents of sexual abuse that spanned a six-year period and transpired in multiple locations lack the requisite temporal and spatial closeness to join the incidents … While the incidents share an identity of actors, it cannot be said that an instance of sexual abuse that took place in the rectory of the church in 1995 shares the same temporal and spatial characteristics as one that occurred in 2002 in, for example, the priest's automobile.

In so concluding, the court rejected the Diocese’s argument that the incidents of molestation could be considered part of a “single continuum” resulting from the single occurrence of the Diocese’s failure to supervise.  The unfortunate events test, explained the court, required that the focus be on the nature of the incidents giving rise to the alleged harm.  Likewise, the court rejected the Diocese’s argument that the incidents could be considered “continuous or repeated exposure to substantially the same general harmful conditions.”  As the court explained:

In our view, sexual abuse does not fit neatly into the policies' definition of "continuous or repeated exposure" to "conditions". This "'sounds like language designed to deal with asbestos fibers in the air, or lead-based paint on the walls, rather than with priests and choirboys. A priest is not a 'condition' but a sentient being" … The settlement in the underlying claim addresses harms for acts by a person employed by the Diocese. The Diocese's argument that the parties intended to treat numerous, discrete sexual assaults as an accident constituting a single occurrence involving "conditions" is simply untenable.  (Internal citations omitted.)

In light of its holding regarding the number of occurrences, the court concluded that the Diocese was required to satisfy a separate $250,000 self-insured retention for each occurrence transpiring within each of the National Union policies, but only to the extent the occurrence resulted in “bodily injury” in that policy year.

Pennsylvania Court Holds Drywall Claims Arose Out of Single Occurrence

In its recent decision in Cincinnati Ins. Co. v. Devon International, 2013 U.S. Dist. LEXIS 20659 (E.D. Pa. Feb. 15, 2013), the United States District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, had occasion to consider whether a series of Chinese drywall-related claims, arising out of the insured’s importation of a single batch of defective drywall, were properly considered a single occurrence, or multiple occurrences.

The insured, Devon, was a U.S.-based sourcing agent for Chinese manufactured products.  In 2006, it was retained to procure drywall manufactured in China.  Devon subsequently made a single purchase of drywall from Shandong – a Chinese manufacturer – and then shipped the drywall to Florida for use in construction.  The majority of the drywall was shipped to Devon’s initial customer; however, Devon also sold a portion of the drywall to other individuals and entities in Florida for use in construction.  In 2009, Devon received a letter from its initial customer seeking a defense and indemnification in connection with a “multitude” of Chinese drywall claims filed in several jurisdictions.  These underlying plaintiffs alleged damage in late 2008 and throughout 2009.

Cincinnati Insurance Company insured Devon under consecutive general liability policies, the first of which was issued for the period November 20, 2008 to November 20, 2009, and the second for the period November 20, 2009 to November 20, 2010.  The policies provided coverage for property damage arising out of an occurrence, but only to the extent the property damage occurred during the policy period.  Cincinnati and Devon disputed whether the underlying claims should be considered multiple occurrences, thus potentially triggering coverage under both of Cincinnati’s policies, or a single occurrence triggering coverage only under one of the policies.

The court looked to the Pennsylvania Supreme Court decision in Donegal Mutual Insurance Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007), which it observed was the seminal Pennsylvania decision regarding number of occurrences.  The Baumhammers court adopted the “cause” test for determining number of occurrences, as opposed to the “effects” test, which it described as the minority approach.   Under this test, explained the Devon court, all of the underlying property damage claims would be considered a single occurrence if all such claims arose out of a single “proximate cause” over which Devon had control.   The court found this test satisfied, explaining:

Here, all the injuries to the underlying plaintiffs and claims against Devon originate from a common source: Devon's single purchase and shipment of defective drywall from Shandong. Moreover, Devon "had some control" over the cause of the injuries, in that it chose to purchase and distribute the defective drywall. Therefore, the Court finds that there is only one "occurrence" for purposes of insurance coverage.

Further relying on Pennsylvania law regarding trigger of coverage, the court explained that the property damage happened when the damage first manifested itself in a manner that a reasonable person would observe an injury.  Noting that the property damage first manifested itself while Cincinnati’s first policy was in effect, the court concluded that the single occurrence happened during the first policy period and could not be considered as also happening during the second policy period.  As such, only the earlier of the Cincinnati policies was triggered.

10th Circuit Holds Food Poisoning Claims Arose Out of Single Occurrence

In its recent decision in Republic Underwriters Ins. Co. v. Moore, 2012 U.S. App. LEXIS 14907 (10^th Cir.), the United States Court of Appeals for the Tenth Circuit, applying Oklahoma law, had occasion to consider whether numerous incidents of food poisoning was the result of a single occurrence or multiple occurrences.

The coverage dispute related to a ten-day period in 2008 during which the insured, The Country Cottage Restaurant, prepared and served E. coli-contaminated food, causing 341 persons becoming sickened, one of which resulted in a fatality.  Notably, The Country Cottage prepared and served a portion of this food  away from its restaurant at a church function.  This event resulted in 21 persons becoming infected.  All other affected individuals were sickened as a result of having eaten food prepared at Country Cottage’s restaurant.

The Country Cottage had primary coverage through Republic Underwriters, with limits of liability of $1 million per occurrence and $2 million in the aggregate, with a separate $2 million aggregate limit applicable to products/completed operations.  The Country Cottage also had an excess policy through Southern Insurance Company with limits of liability of $2 million per occurrence and in the aggregate.   The insurers filed an interpleader action and argued that the various bodily injuries all happened out of a single event; namely, “Country Cottage’s preparation, handling or storage of food that purportedly became contaminated with E. coli.”  Thus, insurers, argued, all injuries arose out of a single occurrence, and as such, only $3 million in total insurance proceeds were available for the losses ($1 million per occurrence limit under the Republic Underwriters’ policy and $2 million under the Southern policy).  The individual claimants argued on the other hand that the E. coli outbreak could have resulted from a number of factors, such as contamination by the food handlers and cross-contamination from various sources.  Given these uncertainties, they argued, the court must find multiple occurrences based on the number of possible causes.  Certain claimants also argued that each individual sale of contaminated food constituted a separate occurrence.

The lower court concluded that there were two occurrences in light of the “geographical distinction” between the two places of food preparation: the restaurant and the church.  Citing to its decision in Business Interiors, Inc. v. Aetna Casualty & Surety Co., 751 F.2d 361 (10^thCir. 1984), however, the Tenth Circuit disagreed.  In Business Interiors, the court considered a situation in which a dishonest employee forged or altered forty separate checks.  The Tenth Circuit concluded that cause of the insured’s loss was the “continued dishonesty” of a single employee and could not be considered multiple, independent acts.  The court found this reasoning applicable to Country Cottage’s food preparation:

Here, all the injuries were proximately caused by the restaurant’s ongoing preparation of contaminated food.  Hence, there was but one occurrence.  It does not matter that the food was served with other food items prepared at another location because the contamination originated at the restaurant.  Nor does it matter that the precise underlying cause of the contamination is unknown because the fact remains that the contamination originated at the restaurant.   

Thus, finding that all injuries were caused by Country Cottage’s “ongoing preparation of contaminated food,” the court concluded that the number of locations at which the food was prepared or served was not a relevant consideration.  Instead, the injuries arose out of a single occurrence, thus triggering only a single occurrence limit under the Republic policy.

Alabama Supreme Court Addresses Coverage for Faulty Workmanship

In its recent decision Town & Country Prop., L.L.C. v. Amerisure Ins. Co., 2011 Ala. LEXIS 183 (Ala. Oct. 21, 2011), the Supreme Court of Alabama had occasion to consider whether an underlying suit for defective workmanship triggered coverage under a general liability policy.

The insured, a general contractor, had been hired to construct an automobile sales and service facility.  Shortly after completion of the project, the project owner discovered several defects.  Frustrated by the insured’s subsequent inability to repair the defects, the owner commenced suit, alleging various causes of action based on theories of tort and breach of contract.  Amerisure provided a defense to its insured under a reservation of rights.  The matter ultimately resulted in a judgment against the insured for approximately $650,000.  Shortly after judgment was rendered, Amerisure denied a liability to indemnify its insured on the basis that the suit did not allege an occurrence, and that even if it did, the policy’s exclusion applicable to property damage to “your work” barred coverage.  Plaintiffs in the underlying matter, standing in the shoes of the insured, contended that the allegations of faulty workmanship constituted an occurrence and that the exclusion was inapplicable because the property damage alleged was caused by the insured’s subcontractors rather than by work actually performed by the insured. 

The Court looked to its two prior decisions on the issue of what constitutes an occurrence in the context of faulty workmanship claims.  In United States Fid. & Guar. Co. v. Warwick Dev. Co., 446 So. 2d 1021 (Ala. 1984), the Court had held that an underlying claim did not allege an occurrence where the damage alleged was limited solely to faulty workmanship.  By contrast, in Moss v. Champion Ins. Co., 442 So. 2d 26 (Ala. 1983), the Court found an occurrence where the insured’s failure to properly construct a roof allowed for water intrusion to the plaintiff’s home, causing damage to plaintiff’s attic and ceilings.  The Court harmonized these two decisions by explaining that “faulty workmanship itself is not an occurrence but that faulty workmanship may lead to an occurrence if it subjects personal property or other parts of the structure to "continuous or repeated exposure" to some other "general harmful condition" (e.g., the rain in Moss) and, as a result of that exposure, personal property or other parts of the structure are damaged.”

The Court therefore held that to the extent that the underlying suit was limited to allegations of faulty workmanship, there could be no occurrence.  It nevertheless remanded the matter for further findings to determine whether the plaintiffs experienced any subsequent property damage, such as resulting damage to computers or furnishings.  In passing, the Court noted that if plaintiff did experience such property damage, it would necessarily follow that such damage was caused by an occurrence, and that the policy’s “your work” exclusion would not apply because of the exception applicable to work performed by subcontractors.

 

New York Court Addresses Number of Occurrences for Molestation Claim

In its recent decision Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2011 N.Y. App. Div. LEXIS 6432 (2d Dep’t. Sept. 20, 2011), a New York appellate level court had occasion to consider various coverage issues arising out of a sexual molestation claim; specifically, number of occurrences and allocation of loss.

The claimant in the underlying suit alleged that she had been molested for a period of seven years “at different times during the day and week, and at multiple locations.” While the insured had primary general liability coverage available for each of these years, each of the policies had a sizable self-insured retention.  This prompted the insured to contend to the position that the underlying matter, which settled for $2 million, could be allocated solely to two of the triggered policy periods, based on a “joint and several” allocation theory.  The trial court held against the insured, holding that the loss was properly allocated among all triggered policy years, and that the insured was responsible to pay the fully retention amount in each of those years.

On appeal, the court agreed with the lower court, noting that a “joint and several” theory of allocation had long since been rejected by New York courts (see e.g., Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 746 N.Y.S.2d 622 (N.Y. 2002)) and was “inconsistent with the unambiguous language of the … policies providing coverage for bodily injury that resulted from an occurrence ‘during the policy period.’”  The court explained that it was not possible to isolate what extent of the underlying plaintiff’s injury happened during any single policy period, and as such, the appropriate method of allocation was on a pro rata basis across each of the policy periods.   Central to the court’s decision in this regard was its finding that the molestation could not be considered a single occurrence, but rather multiple occurrences since “it cannot be said that there was a close temporal and spatial relationship between the acts of sexual abuse.”  As such, the court concluded, each of the insured’s policies over the entire seven-year period was triggered and the insured was be responsible for satisfying a full self-insured retention in each of these periods.

North Carolina Court Holds Multiple Injuries Arose from a Single Occurrence

In its recent decision in Mitsui Sumitomo Ins. Co. of Am. v. Automatic Elevator Co., Inc., 2011 U.S. Dist. LEXIS 103165 (M.D.N.C. Sept. 13, 2011), the United States District Court for the Middle District of North Carolina had occasion to consider whether multiple injuries arising from the same act of negligence constituted a single occurrence, or multiple occurrences, for the purpose of a general liability policy.

The incident giving rise to the coverage dispute in Automatic Elevator involves particularly shocking and disturbing facts.  Automatic Elevator had been an elevator contractor for the Duke University Health System.  During the course of working on an elevator project, Automatic Elevator removed used hydraulic fluid from an elevator and stored it in a number of storage barrels made available by Duke.  The barrels had previously contained surgical cleaning and lubricating fluids and were marked as such. The barrels were then stored at Duke’s facility and intended to be picked up at a later date for disposal.  Before the barrels could be retrieved, however, a Duke employee mistook the barrels for unopened barrels of cleaning fluid and had the barrels returned to the original vendor as overstock.  Sometime later, the vendor sold the barrels containing the hydraulic fluid back to Duke.  Duke, believing that barrels contained surgical cleaning fluid rather than spent hydraulic fuel, allowed its surgical equipment to be washed in the fluid and used for surgeries.  Duke subsequently identified over three thousand individuals who were operated on with contaminated surgical equipment.  Duke was sued by one hundred fifty individuals and ultimately settled with one hundred twenty-seven individuals for an amount in excess of $6 million.

Automatic Elevator’s insurer, Mitsui Sumitomo, and Duke subsequently engaged in coverage litigation as to Duke’s rights to coverage as an additional insured.  Among other things, the court was required to consider whether the underlying matter arose out of a single or multiple occurrences.  This issue had relevance in light of the fact that the Automatic Elevator policy had limits of liability of $1 million per occurrence and $3 million in the aggregate.  Mitsui argued that the underlying claims arose out of a single occurrence; specifically, Automatic Elevator’s negligence in failing to properly dispose of the used hydraulic fluid.  Duke, on the other hand, argued that the underlying suits arose out of the one hundred twenty-seven separate occurrences, viz., each individual surgery involving contaminated surgical equipment.

The court determined that for number of occurrences questions, North Carolina courts apply a “cause” test, but a question remained as to “which negligent act, or continuum of negligent acts, on the part of the insured gave rise to liability.”  Looking to all relevant North Carolina precedent on the issue, as well as case law from other jurisdictions, the court concluded that liability flowed from Automatic Elevator’s negligent handling of the hydraulic fluid, which in turn allowed for it to be mistaken as surgical cleanser.  The court rejected Duke’s theory as to multiple occurrences, explaining that “[a] finding that each of the 127 surgeries constitutes a separate occurrence would blur the line between the cause approach and the effect approach. Such a ruling thus would effectively ignore the North Carolina courts' explicit adoption of a cause rather than an effects standard, something this Court declines to do.”