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Maximizing Coverage Under the 'Cause Test'
The determination of the number of occurrences that arise under an insurance policy can have a profound effect on the availability of coverage, from the perspective of the policyholder, or upon the limitation of coverage, from the perspective of the insurer. Although the stakes can be enormous, the math is fairly simple. Consider a policyholder that faces a large liability arising from a substantial number of small claims. If the policyholder has a coverage program that provides a low per-occurrence deductible or self-insured retention, or no per-occurrence deductible or self-insured retention, a judicial determination that there are many occurrences likely will have the effect of maximizing the policyholder's recovery. On the other hand, if that same policyholder has a coverage program with a high per-occurrence deductible or self-insured retention, which may exceed the amount of most if not all of the single claims, a judicial determination that the claims constitute a single occurrence likely will maximize the policyholder's recovery.
Because court decisions on the number of occurrences that arise from a particular event or series of events can have a great impact on insurers' coverage responsibilities, such issues often are litigated vigorously. These issues typically have arisen in high-dollar, multiple-claim cases such as those involving asbestos, lead paint, and contaminated food. The issues, however, can be of great importance in cases involving single, catastrophic events, as well. Following the World Trade Center attacks, for example, the insured property owner argued that the attacks constituted two occurrences, one for each tower, entitling the policyholder to recover its per occurrence limits two times. See SR International Business Ins. Co. Ltd. v. World Trade Center Properties LLC, 222 F.Supp.2d 385 (S.D.N.Y. 2002). Conversely, the insurers argued, and the court agreed, that only one occurrence had arisen under the policies. Id. (finding the attack constituted only one occurrence where policies defined 'occurrence' to mean 'all losses … that are attributable … to one cause or to one series of similar causes ' ') (aff'd by 345 F.3d 154). That decision had the effect of drastically limiting coverage for the losses incurred by the policyholder.
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