The Meaning of “Occurrence”
“Occurrence” is defined in the standard Insurance Services Office (ISO) commercial general liability policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” But it is not defined in many first policies, such as commercial property, commercial crime, and fidelity policies. In such policies, the term “occurrence” is not central to the coverage provided as it is in the general liability policy. Yet the term is used in those types of policies in deductible provisions.
Most states have adopted the cause approach for determining whether multiple instances of property damage should be treated as arising out of one occurrence or should be considered multiple occurrences. The general rule is that an occurrence is determined by the cause or causes of the resulting injury. This test is used in both first-party and third-party cases. The focus of this analysis is on the underlying cause of the injury, not the injury or claim itself.
This issue affects coverage where limits of coverage are provided based upon the number of occurrences, or where coverage is subject to deductibles or self-insured retentions calculated per occurrence. The effect can be tempered on the limits of coverage side where there are aggregate limits of liability and on the deductible or self-insured retention side where there are aggregates applicable to those deductibles or self-insured retentions. And it can be tempered with definitions of “occurrence” that address some of the circumstances addressed in the cases.
The definition of “occurrence” has been examined most recently in a case involving an email spoofing scheme, but it can also be seen in cases involving cardlock fuel facilities and fuel dispensaries and in cases involving merchant theft and forgery losses.
AIMS: Three Separate Occurrences, Not One
AIMS Insurance Program Managers, Inc. v. National Fire Insurance Co. of Hartford addresses the issue of whether wire transfers fraudulently induced by a “spoofing” attack constituted three separate occurrences under the computer fraud endorsement policies of National Fire Insurance Company or whether the three transactions constituted a single occurrence. The superior court held that the policy’s computer fraud endorsement covered the loss but ruled that the underlying events constituted just one occurrence, thereby limiting AIMS’s recovery to $10,000, the applicable per-occurrence limit under the policy. On appeal, AIMS argued that the superior court erred because the series of fraudulent emails constituted three separate occurrences.
The computer fraud endorsement at issue insured against “loss . . . resulting directly from the use of any computer to fraudulently cause a transfer” from inside an AIMS building or its bank to a person or place “outside those premises.” The policy limited recovery under the endorsement to $10,000 “in any one occurrence” but did not define “occurrence” for purposes of the endorsement.
AIMS contended that each distinct “act of fraud”—i.e., each of the three counterfeit demands for payment that caused AIMS to execute a wire transfer—constituted a discrete occurrence of covered fraud under the endorsement. National contended that there was just one occurrence under the policy because the cause of AIMS’s loss was a single “fraudulent scheme.”
In arguing that the wire transfers were a single occurrence, National relied upon EOTT Energy Corp. v. Storebrand International Insurance Co. and Patterson v. American Economy Insurance Co. (These cases are discussed below.) The court of appeals in AIMS found that both of these cases were distinguishable.
As in AIMS, the policy in EOTT did not define “occurrence,” but in EOTT the policy specified that “all claims for loss, damage or expense arising out of any one occurrence . . . shall be adjusted as one claim.” No such language was found in National’s policy.
National argued that under Patterson the wire transfers should be treated as a single occurrence. In Patterson, a thief stole several items from a merchant’s off-site storage facility over a 12-day period. The Patterson court likened “occurrence” to an “incident or event” and concluded that it was more reasonable to conclude that the “incident or event” was the removal of the items, even over time, “by the same person (with or without help), without interruption from the proprietor or change in the circumstances of the property.”
The court of appeals in AIMS declined to apply the “incident or event” analysis of Patterson. Instead, it applied the standard discussed in Arizona Property & Casualty Insurance Guaranty Fund v. Helme. Under that principle, “if a cause is interrupted or replaced by another cause, the chain of causation is broken and more than one occurrence has taken place.” Under Helme, because National’s policy failed to define the term “occurrence,” the court had to determine “whether there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damages.”
In distinguishing EOTT and Patterson, the AIMS court of appeals explained that both EOTT and Patterson involved a string of thefts that occurred without interruption or involvement by the insured. Here, however, the thieves sent three separate counterfeit email packages to AIMS that induced the company to make three wire transfers in payment of three distinct invoices. In each case, the thieves intercepted a vendor’s email to which was attached a binder and an invoice, substituted their own email, and attached the binder and a new invoice directing AIMS to wire payments to the thieves’ account (opened at the same bank that the vendor used). Thus, the three fraudulent email packages were not “one proximate, uninterrupted, and continuing cause” that resulted in “all of the injuries and damages” that AIMS suffered. Rather, each fraudulent demand for payment of one of the invoices was a distinct “causative act” that constituted a separate occurrence under the policy.
No Definition Often Equates to Plain and Ordinary Meaning
Port Consolidated. In a 2020 case, a federal appellate court applied Florida law, which states that “when an insurance coverage term is not defined, the term should be given its plain and ordinary meaning.”
In Port Consolidated, Inc. v. International Insurance Co. of Hannover, PLC, the insured fuel distribution company (Port) made a coding error that incorrectly programmed its gasoline pumps. This error allowed gasoline to be dispensed from the pumps in excess of a trucking company customer’s card limit of 75 gallons. The excess amount was not billed to the trucking company. Word got around. The drivers of the company took advantage of the insured’s mistake to steal gasoline over the course of a year. The insured billed the trucking company for the excess fuel. The trucking company refused to pay. The insured then sought coverage from its commercial property insurer, InterHannover. That policy had a “blanket” business personal property limit of $23,015,224, subject to a $1,000 per-occurrence deductible.
At issue was whether this was a single occurrence relating to the coding error or whether there were multiple occurrences related to each theft of gasoline by a driver. The maximum quantity of gasoline taken was 100 gallons, and during the time in question the price of gasoline did not exceed $4.00 per gallon, so no single taking exceeded the $1,000 deductible.
The property policy did not define “occurrence” in its general definitions. It did have definitions of “occurrence” in three supplemental coverages: “Terminal Access Card,” “Money and Securities,” and “Employee Dishonesty.” For example, the Terminal Access Card coverage defined “occurrence” as “an unauthorized use or series of unauthorized uses involving one or more persons.”
The district court found that “absent contrary language in the policy, each act of fuel theft was a discrete occurrence for insurance purposes.” It followed the holding in the Florida Supreme Court’s decision in Koikos v. Travelers Insurance Co. It was undisputed that Port’s losses from each individual act of theft did not exceed the deductible. The district court found that InterHannover was not required to cover the insured’s losses and granted summary judgment in favor of InterHannover on Port’s breach of contract claim. Port appealed.
The U.S. Court of Appeals for the Eleventh Circuit gave the undefined term “occurrence” its plain and ordinary meaning. The appellate court relied upon the “cause theory” discussed in Koikos, which looks to the cause of an injury in determining the number of occurrences under an insurance policy. In Koikos, the court concluded that consistent with the cause theory, in the absence of clear language to the contrary, “occurrence” is defined by the immediate injury-producing act.
Applying that standard, the court viewed each of the alleged fuel thefts by drivers from different fuel dispensers on different days over the course of a year as the “immediate injury-producing acts.” Each alleged fuel theft was an act separate and distinct in time and space. Therefore, the court found that each alleged act of fuel theft constituted a separate occurrence under the policy. Because the insured did not meet the applicable $1,000 deductible as to any single theft, as required by the policy, there was no coverage.
The court also rejected an argument that the definitions of “occurrence” in the supplemental coverages should apply to the policy generally, or that those definitions created an ambiguity in the meaning of “occurrence.”
EOTT. In EOTT Energy Corp. v. Storebrand International Insurance Co., the insured (EOTT) suffered a $1.5 million loss as a result of 653 thefts of the petroleum products it marketed. Specifically, after pumping a partial truckload of fuel, drivers would disable or disengage the meter. They would then fill the truck and then reenable or reengage the meter.
EOTT’s insurer, Storebrand, denied coverage on the basis that the loss was not covered under the policy when the value of the property taken in any single theft did not exceed the $100,000 deductible. The insurer contended that the term “occurrence” has a clear and explicit meaning, which should govern the outcome of this case. Relying on Webster’s Dictionary and Black’s Law Dictionary, it argued that the plain meaning to be given is that of an “incident” or “event,” and therefore those 653 thefts were separate occurrences.
The trial court agreed. It found the term “occurrence” to be unambiguous and applied the plain meaning to the term. Viewing the 653 thefts by different individuals at different times, the trial court held that Storebrand was not liable because no single theft loss exceeded the $100,000 per-claim deductible applicable to each “occurrence.” EOTT appealed.
The court of appeals reached the opposite conclusion. The appellate court relied upon the policy language, which provided that “all claims for loss, damage or expense arising out of any one occurrence . . . shall be adjusted as one claim.” The court looked to the party’s intentions when drafting the contract. It found that in the context of the policy’s promise to insure against all risks of loss occurring during the policy period, the term “occurrence” could also reasonably embrace more than one discrete event. The court also cited the umbrella liability portion of Storebrand’s package policy, which defined “occurrence” as
an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.
The EOTT court concluded that there may have been one occurrence. The court relied on a similar case, PECO Energy Co. v. Boden. There, the court found that thefts by one trucking company over a period of six years constituted a single occurrence. The U.S. Court of Appeals for the Third Circuit affirmed the jury’s finding that each theft was a part of a larger scheme to steal PECO’s products and that the scheme to steal was the proximate cause of each theft. The court concluded that “when a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses for liability insurance purposes constitute part of a single occurrence.”
The EOTT court remanded for further proceedings with this stipulation: “If EOTT can establish that its loss resulted from the operation of such a scheme, then Storebrand can only assert a single deductible and thus would not be absolved of liability.”
PECO Energy. In PECO Energy Co. v. Boden, an electric utility sustained losses over a six-year period as a result of multiple thefts of fuel oil by an independent trucking firm with which the utility had contracted to haul its fuel oil to various generating facilities. The insured electric utility presented a claim to its various insurers under a series of all-risk policies for losses it had sustained. Each of the policies covered the loss but were subject to deductibles ranging from $20,000 per loss or occurrence in the first year to $100,000 per loss or occurrence in subsequent years. The insurers argued that each of the thefts constituted a separate loss and was therefore subject to a separate deductible.
The case was tried to a jury, and the jury found that each theft was part of a larger scheme and that the scheme to steal was the proximate cause of each theft. In denying the insurers’ posttrial motions, the district court concluded on the basis of the jury’s finding that the thefts constituted a single occurrence and that only one deductible was owed.
The Third Circuit upheld the district court’s finding that the multiple thefts constituted a single occurrence and noted that in deciding the number of occurrences, a court should determine “if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.”
Courts rely on multiple factors. In addition to an organized and systematic scheme to steal, courts rely on other factors when determining if an event constitutes a single occurrence, including the language of the policy, the context of the loss, the dictionary definitions of “occurrence,” the reasonable expectations of the parties, and the interpretation of “occurrence” in similar situations.
Determining the Number of Occurrences
Liability insurance policies that contain per-occurrence policy limits can give rise to controversies regarding the number of occurrences that have taken place during a particular policy period, which in turn can have large implications for the total amount of coverage available.
In Patterson v. American Economy Insurance Co., the Pattersons’ business merchandise was stolen from their storage facility. A thief was convicted and sentenced for stealing the Pattersons’ property. The removal of the property “may have involved multiple trips over multiple days, and potentially additional people.” The insurance policy at issue provided that the insurer would pay for loss to business personal property up to $103,000 (subject to a $2,500 deductible) for “any one occurrence.” The insurer determined that the theft was a single occurrence under the policy and paid the Pattersons $103,000 (less the deductible) pursuant to the policy’s limits. The Pattersons filed suit, alleging that the theft constituted multiple occurrences so they were entitled to more coverage under the policy.
The Pattersons contended that the burglary should be considered multiple occurrences based on all the evidence relating to the loss, including admissions made by the criminal defendant, Christopher Ramage, during his sentencing hearing and the fact that at least two large moving vans would have been required to haul away the personal property items from the building. They contended that it was “clear that the loss had to involve multiple thefts, taking place on different occasions, using different tools, and would have involved multiple people.”
American Economy argued that the acts of the thief were a single, albeit continuing, proximate cause of the thefts of the Pattersons’ property. American Economy argued that the cause of the Pattersons’ loss was Ramage’s scheme to break into their building to steal property, which resulted in a single occurrence under the policy. According to American Economy, it made “no difference whether Ramage entered the building 3 times or 653 times over the course of 13 days, as the loss of property resulted from a single cause.” Further, it made “no difference whether Ramage worked alone or was part of a larger group of people, as long as they worked together as part of a single scheme to carry out the theft.” Accordingly, American Economy asserted that, “as a matter of law, all of the thefts gave rise to no more than a single occurrence under the Policy.”
In finding that the thefts constituted a single occurrence, the Patterson court examined several California cases, including EOTT. That case had looked to the objectively reasonable expectations of the parties and concluded that “EOTT’s objectively reasonable expectation [standard] would embrace the conclusion that multiple claims, all due to the same cause or a related cause, would be considered a single loss to which a single deductible would apply.”
The Patterson court, in interpreting the party’s intentions at the time the policy was drafted, found that the reasonable expectations of the parties provided “greater insight” to the court “when evaluated in the context of deductibles.” Notably, the term “occurrence” was the same for both coverage and deductible. In other words, the plaintiffs were required to pay a separate deductible for each “occurrence.” The court found that
it would be more reasonable for an insured to expect to pay a single deductible for Plaintiffs’ losses here than multiple deductibles. To hold that the insured would need to pay additional deductibles based on the number of trips made by a thief (and potentially associates) to complete the process of emptying a building would not comport with a reasonable expectation of the parties.
Applying the standards discussed in EOTT above, the district court viewed the combination of alleged thefts as a single occurrence. Although the parties disputed whether the thief, Ramage, had a scheme in mind, it was undisputed “that Ramage was involved, perhaps solely, in all of the taking of property; that it took place over a short period of time; and that it was uninterrupted by the proprietor.”
The Patterson court distinguished the facts of B.H.D., Inc. v. Nippon Insurance Co. of Europe, Ltd., discussed below, which found that each jewelry theft was separately occurring. The B.H.D. court focused on whether the losses would be charged as one or separate crimes. In Patterson, the parties did not submit evidence sufficient to determine whether Ramage was charged with one or multiple crimes.
The thief in B.H.D. stole a few items each time she visited the store over three months. The thief in [Patterson] (with or without help) stole a large amount of property over a short period of time. In B.H.D., the thief interacted with the sales people and used the window of their distraction to purloin goods. The thief in [Patterson] stole goods without any personal interaction during one large window of time when the building was unoccupied. In B.H.D., the thief developed a method to steal whatever jewelry she could when a sales person looked away, and then repeated that method over and over when the circumstances were ripe again until she was caught. Whereas the thief(s) in [Patterson] made one large attempt to take as much property as possible over a short period of time before the plan could be detected.
These factual differences supported the court’s conclusion that while the thief in B.H.D. committed multiple occurrences of burglary, the thief in Patterson committed only a single occurrence.
Lastly, the court in Patterson looked at the language of the policy to see if occurrences were intended to cover multiple claims. The court noted that the deductible clause in the EOTT policy provided that “all claims for loss, damage or expense arising out of any one occurrence . . . shall be adjusted as one claim.” In contrast, the court in B.H.D. “relied in part on the fact that the policy lacked the language of the EOTT policy and instead applied the deductible to each loss ‘separately occurring.’” Turning to the language of the policy in Patterson, the limits of insurance provision stated, “The most we will pay for loss or damage in any one occurrence is the applicable Limit of Insurance of Section I”; and the deductible provision stated, “We will not pay for loss or damage in any one occurrence until the amount of loss or damage exceeds the Deductible.” Noting that the policy language did not contain the language in the EOTT policy or the B.H.D. policy, but rather spoke of “loss or damage,” not the number or separateness of claims, the court found that the language did not guide it toward either interpretation.
Based on “the language of the Policy, the context of the loss, the dictionary definitions, the reasonable expectations of the parties, and the California courts’ understanding of the word occurrence in similar situations,” the Patterson court concluded that the plaintiffs’ losses were not covered by the policy because they constituted a single “occurrence.”
The “Single Cause” Theory
From thefts at freight yards and jewelry stores to employee embezzlement, the following cases look at the “single cause” theory, on which courts in California as well as courts across the country have relied. As explained in PECO Energy,when a scheme to steal property is the proximate and continuing cause of a series of thefts, the losses for liability insurance purposes constitute part of a single occurrence.
Budway: Lack of facts to prove more than one cause. In Budway Enterprises, Inc. v. Federal Insurance Co., the policy provided coverage of up to $100,000 per occurrence for loss or damage to freight being transported by the carrier. After two tractors and trailers filled with aluminum shipments were stolen from the freight yard, the carrier submitted claims totaling $150,679.43. It was unknown whether the thefts occurred at the same or different times.
The court relied upon PECO Energy and EOTT’s cause theory and looked at the underlying cause of the injury, rather than the injury or claim itself, in determining the number of occurrences under the insurance policy. Applying that standard, the court dismissed the plaintiff’s cause of action because the plaintiff failed to allege facts showing that there were at least two separate causes of the theft to support its claim that the defendants breached the insurance contract.
Business Interiors and similar embezzlement cases: Intent to continue dishonesty. In Business Interiors, Inc. v. Aetna Casualty & Surety Co., Business Interiors sued its insurer, Aetna, for denial of a claim for coverage under an employee dishonesty clause. Business Interiors’ loss resulted from an employee’s embezzlement that took place over six months. During that time, the employee wrote 40 checks, 31 of which were forgeries and nine of which were material alterations of the original instruments, totaling $53,036.86 in embezzled funds.
Aetna asserted that the insurance policy limited Business Interiors’ recovery to $10,000. Business Interiors disputed this maximum recovery, arguing that it had suffered 40 separate and independent losses because the employee accomplished the embezzlement through 40 separate checks. Because the policy provided no aggregate limitation on such losses and each separate loss was under $10,000, Business Interiors claimed coverage for the full $53,036.86.
The relevant portions of the insurance contract relating to covered property provided:
M. EMPLOYEE DISHONESTY CLAUSE: With respect to such insurance as is afforded under this policy for loss due to the dishonest or fraudulent acts of the insured’s employees, the following special conditions apply: . . .
3. As respects any one employee, dishonest or fraudulent acts of such employee during the policy period shall be deemed to be one occurrence for the purpose of applying the deductible.
Referring to these provisions, the district court held that Business Interiors had suffered only one loss and thus limited recovery to $10,000.
At issue on appeal was whether each of the employee’s 40 acts of forgery or material alteration constituted a separate loss and should be deemed a separate occurrence under the policy. For purposes of applying the deductible, the policy defined one occurrence as “dishonest or fraudulent acts of such employee during the policy period.” The court of appeals found that the continued dishonesty of one employee was the cause of Business Interiors’ loss. The court of appeals noted that the district court had found that “the probable intent of the employee with regard to the last thirty-nine checks [was] essentially the intent to continue the dishonesty, not to commit an entirely new and different act of dishonesty.” As such, the court of appeals held that the employee’s fraudulent acts constituted a single loss for Business Interiors. The court found that “an occurrence is determined by the cause or causes of the resulting injury,” and therefore the series of 40 acts of forgery by a dishonest employee was deemed a single occurrence.
A similar result was reached in Christ Lutheran Church v. State Farm Fire & Casualty Co., where an employee’s 13-month embezzlement of $32,000 across 24 checks was determined to have constituted one occurrence consisting of related acts. The court held that the employee had written the checks in furtherance of a continuum of dishonest acts, not a series of new and individual acts of dishonesty.
The court in Valley Furniture & Interiors, Inc. v. Transportation Insurance Co. reached a similar result. There, a payroll manager, over a period of six years, embezzled for herself and others amounts well exceeding the limit of liability per occurrence. The court held that this constituted one occurrence.
In Jefferson Parish Clerk of Court Health Insurance Trust Fund ex rel. Mouledoux v. Fidelity & Deposit Co. of Maryland, the court held that repeated withholdings of employee trust monies constituted one occurrence under a “commercial crime” policy as the “acts were integral parts of a scheme to deprive the Trust Fund of current premiums.”
B.H.D.: Separate crimes, separate occurrences. In B.H.D., Inc. v. Nippon Insurance Co. of Europe, Ltd., wholesale jeweler B.H.D. was insured against theft and other casualty loss under a “jewelers block policy” issued by Nippon Insurance. In April 1992, a person representing herself to be Rosa Martinez and a buyer for Mexican-based jewelry stores purchased gold jewelry from B.H.D. She returned about two to three times every week until early July 1992. She always paid for her purchases in cash. Eventually, B.H.D. noticed that its inventory was dropping below the amount that might be expected from sales of merchandise. After conducting an inventory, it was determined that “Martinez” had stolen merchandise valued at about $117,280 during the course of her many visits. B.H.D. presented a single claim for that amount but admitted that it did not suffer a loss from theft of more than $10,000 on any one day during the policy period. Nippon Insurance ultimately denied the claim. B.H.D. filed suit.
The California Court of Appeals affirmed summary judgment for the insurer. It held that each theft counted as a separate occurrence under the deductible clause. The court explained:
While the thefts were similar, each was a completed crime that would have supported a separate count in a criminal proceeding and separate punishment. This is not a case in which the thief had a general overall plan to steal a particular item or amount, or where he or she took advantage of a position of trust to embezzle an aggregate amount over an extended period. “Martinez” clearly intended to steal jewelry from appellant, but each time she entered its store, purloined items displayed to her while the salespersons’ attention was distracted, and left the premises with the stolen merchandise, she completed a separate crime.
The appellate court in B.H.D. specifically distinguished EOTT on two grounds. First, in EOTT, there was evidence of a conspiracy and a systematic and organized scheme. In B.H.D., there was only one person involved in the commission of the thefts. Second, and more importantly, was a difference in the policy language. In EOTT, there was a provision that suggested aggregation of all thefts into a single claim (“all claims . . . arising out of any one occurrence . . . shall be adjusted as one claim”). However, in B.H.D., the policy specifically applied the deductible to each loss “separately occurring.”
The court in B.H.D. ultimately concluded that the trial court was correct in finding that “the plain meaning of the deductibility clause [was] to apply the $10,000 deductible to each completed theft. Since no theft resulted in a loss greater than that sum, respondent was not liable on the claim made by appellant.”
The Various Versions of the Cause Test
Most courts have used the cause test, or cause theory, to determine the number of occurrences. Cases employing this test are both first-party cases (the type of case discussed in this article) and third-party cases. One difference in actual application is that in first-party cases the courts are looking at the cause of the insured’s loss, whereas in third-party cases the courts are looking at which acts on the part of the insured gave rise to liability or are alleged to have given rise to liability.
If the jurisdiction in question follows the cause test, that is not the end of the inquiry because there are different flavors of that test. First, the proximate cause theory looks to see if one proximate, uninterrupted, and continuing cause caused the injury or damage. This test was used in AIMS. Second, the liability event theory looks to the immediate event or events that caused the loss. This approach was used in Port Consolidated.
Some courts do not consider policy language found in other parts of the policy. For example, Port Consolidated did not adopt the meaning of “occurrence” from a terminal access card coverage. Other courts do look at language in other parts of the policy to aid in analysis or to reinforce the conclusion. For example, the EOTT court interpreted the property coverage part of the policy but considered the definition of “occurrence” in the umbrella liability part of the policy.
The facts are important as is how they are characterized or argued by counsel. For example, multiple thefts of gasoline were separate occurrences not exceeding the deductible in Port Consolidated.However, multiple thefts of gasoline might be considered one occurrence, exceeding the retention, if the insured could prove a conspiracy, as the EOTT court noted.
Finally, some policies have language to address the issue. For example, the Business Interiors policy provided that dishonest acts of one employee would be deemed to be one occurrence.
Conclusion
The single versus multiple occurrence issue is a continuing source of contention and litigation. While most courts have adopted the cause test, or cause theory, the courts have struggled to apply that standard to a plethora of unique fact patterns. The above-cited cases indicate that this issue will continue to be decided on a case-by-case basis and be factually driven.
