Can I Even Collect? - Insurance Policies and the Number of “Occurrences”

By: Matthew D. Quinn

The Problem

During the investigation of most civil actions, any plaintiff’s attorney worth their salt will ask the following question: Even if I get a judgment, will I be able to collect?

Or, perhaps the point is made more poignant—read: painful—if put in the following way: any plaintiff’s attorney who has been around the block a few times has represented a client in a high-damages case which was sidelined, or perhaps ended, by the lack of insurance coverage.  The merits of your case mean little if a judgment is not collectable, and as a general rule, collectability is obviously more realistic when there is insurance coverage for your claim.

When it comes to insurance coverage, there is a lot to discuss. For instance, does an insurance exclusion apply?  Can you “draft around” coverage issues via a carefully pled complaint?  What happens if you learn that a defendant is being defended under a reservation of rights? Etc., etc.  This single blog post cannot possibly address all these topics, but perhaps we will return to these subjects at a later date.

At the moment, I would like to focus on a common and interesting, yet frustrating, concept: how many “occurrences” are there under the policy?  As most lawyers know, in a multi-plaintiff case, many insurance policies tightly curtail coverage based upon how many “occurrences,” well, occurred.  This can be a very significant issue, as the extent of available insurance coverage will frequently hinge upon the meaning of the word “occurrence.”  This blog post will discuss how the case law has defined “occurrence” and why the concept is extremely important.

The Hypo

An example might illustrate the issue best.  Suppose, for instance, that a window washer is high up on the 20th floor of a high-rise in Raleigh.  Perhaps the window washer falls asleep, or perhaps the window washer had too much to drink at lunch, or perhaps the window washer simply fails to maintain control of his tools.  In any event, this window washer knocks his bucket off the platform, sending the bucket and several tools flying to the sidewalk who-knows-how fast.  Sadly we need to further suppose that, on the way down to the earth, the washing tools strike and kill two pedestrians. 

And the tragedy continues.  The family of both pedestrians may have just lost a breadwinner, and the families desperately need compensation for the sudden loss of their loved one.  As a prudent lawyer, you request information on the window washer’s insurance policy, and you discover that the policy language might define this incident as a single “occurrence,” thereby limiting your client’s recovery to the amount of coverage “per occurrence” instead of the overall larger policy limits.  What is to be done?

The Law in North Carolina

Most lawyers have seen an insurance declarations page, which is frequently referred to as a “dec page.”  The dec page is extremely important, as it will identify most or all of the following information: the insurance carrier, the policyholder, any additional insureds, the coverage types, and the coverage limits per type.  Most dec policies, although admittedly not all, provide two types of coverage limits: (1) the amount of coverage “per occurrence,” and (2) the overall amount of coverage for the relevant policy term irrespective of the number of occurrences.  The overall coverage limits will typically be substantially higher than the “per occurrence” limit.  Hence, in our working hypo, we need to figure out whether the window washer’s striking of two pedestrians constitutes a single occurrence—thereby subjecting the pedestrians to the lower “per occurrence” limit—or instead constitutes multiple occurrences.

As always, you need to review the actual policy.  For instance, the policy might define the word “occurrence” favorably.  Alternatively, the insurance policy might be a claims-made policy, which may avoid this entire issue.  But assuming the policy provides no guidance on the definition of “occurrence,” we need to consult the case law.

Nationwide, the definition of “occurrence” is measured using one of two alternative tests: the “cause” test and the “effects” tests.  Under the “effects” test, an “occurrence” is determined by focusing on the number of injured persons.  The “effects” test is the minority approach.

North Carolina, like the majority of states, uses the “cause” test.  In Christ Lutheran Church v. State Farm Fire and Cas. Co., the N.C. Court of Appeals adopted “the general rule that an occurrence is determined by the cause or causes of the resulting injury.” 122 N.C. App. 614, 617, 471 S.E.2d 124, 126 (1996) (internal quotations omitted).  In a subsequent case, the N.C. Supreme Court determined that when “the accident that causes an injury-in-fact occurs on a date certain and all subsequent damages flow from the single event, there is but a single occurrence . . . .”  Gaston Cnty. Dyeing Machine Co. v. Northfield Ins. Co., 351 N.C. 293, 303-04, 524 S.E.2d 558, 565 (2000).

An illustrative case is Mitsui Sumitomo Ins. Co. of Am. v. Duke Univ. Health Sys., Inc., 509 Fed. Appx. 233 (4th Cir. 2013) (not reported), which, while issued by the Fourth Circuit Court of Appeals, applied North Carolina law.  In that case, elevator hydraulic fluid was mistaken for surgical detergent at an in-state hospital.  Surgery was performed on several patients using instruments contaminated with the hydraulic fluid. The Fourth Circuit determined that, because these surgeries stemmed from a single act of negligence—washing instruments in hydraulic fluid—there was only one “occurrence” for purposes of insurance coverage. 

Naturally, you should consult the applicable insurance policy, which may alter these rules.  But if you are working on a civil action involving multiple plaintiffs, you need to think about insurance coverage and the number of “occurrences.”