Policyholders often embrace the notion that a single liability claim can arise from multiple occurrences. For example, in environmental claims, policyholders sometimes contend that each release of a hazardous substance constitutes a separate occurrence with the consequence of triggering a separate per occurrence policy limit for each such occurrence. When there is a self-insured retention, however, it is more often the insurer who argues for multiple occurrences on the theory that each occurrence will trigger a separate self-insured retention.
Exactly how an insurer can use an argument for multiple occurrences to diminish the amount of available coverage through multiple self-insured retentions was vividly illustrated in Roman Catholic Diocese of Brooklyn v. National Union Fire Insurance Company of Pittsburgh. There, the Court of Appeals in New York in a plurality decision rejected the argument of the Policyholder, the Roman Catholic Diocese, (which had been supported by the dissent) that sex abuse by a priest over a period of years constituted a single occurrence. Instead, the Court, applying the “unfortunate event” test, held that acts of sex abuse by a priest were qualitatively different from manufacturing over many years that caused environmental contamination: “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 priest and choirboys. A priest is not a ‘condition’ but a sentient being.” Having found that a pattern of sexual abuse constitutes multiple occurrences, the Court went on to find that each occurrence triggered a separate self-insured retention. The upshot of this ruling was to provide virtually no coverage to the Diocese.
Policyholders should be careful in buying policies with significant self-insured retentions to make sure that the policy contains a provision that expressly limits the circumstances in which multiple occurrences might be found. Specifically, it may be prudent for a policyholder who is agreeing to coverage with substantial self-insured retentions to make sure the policy contains a provision reciting that continuous or repeated exposure to substantially the same general harmful conditions will constitute a single occurrence.