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.

Even though the search for the two suspects in the tragic Boston Marathon bombings is over, and the portion of the Back Bay shuttered as a crime scene is reopening, many businesses in that area are left to wonder whether, and to what extent, their business losses will be covered by insurance. This question may prove challenging.

Although property insurance (often called “first-party” insurance) covers damage to property, most commercial first-party policies also provide coverage for “business interruption” as well as expenses incurred because of, or to mitigate the extent of, a loss. Particularly important here, where only a handful of businesses within the crime-scene area suffered physical damage from the bombings, is that first-party policies also typically cover losses that arise because civil authorities have limited employees’ or customers’ access to a policyholder’s business. This may also be relevant to businesses outside the area of the bombings, especially in areas forced to close last Friday in connection with the manhunt for the suspects.

But whereas coverage grants giveth, policy exclusions may take away. And many policies contain exclusions for terrorism. Under federal law, insurers are required to offer coverage for terrorism as part of policies that cover other losses. Stand-alone terrorism policies are also available. Due to cost, however, many policyholders opt for policies that limit terrorism coverage or exclude it entirely. Whether or not impacted businesses will be insured for losses arising out of the Boston Marathon bombings will turn on the specific policy language employed.

Even if it appears at first blush that coverage does not apply, however, any business impacted by the attack on Patriot’s Day would be well advised to notify their insurance carriers as soon as possible. Prompt notice minimizes the potential that an insurer will be able to claim late notice as a basis for reducing or rejecting an insurance claim. Policyholders should also take care to fully document their claims. Keeping complete and accurate records of losses, whether direct property damage, lost profits, or otherwise, is critical to getting fully compensated. Policyholders should carefully document in writing all communications with their insurance companies. In the event a dispute over coverage arises, policyholders may then consider what further steps they may wish to take to pursue coverage.

The claims handling pattern in Doe Run Corporation v. Certain Underwriters at Lloyd’s London will be immediately familiar to anyone who has sought coverage for an environmental claim under a Lloyds liability insurance policy — the denial of coverage absent a court determination requiring coverage, a claims file that has virtually nothing in it except the materials sent by the policyholder and the reservation of rights letter,  the contention that the property damage was expected by the policyholder, and the insistence that New York law applies with its unfavorable allocation rules.  While Lloyds has spent considerable effort over the past thirty years attempting to minimize and evade its coverage obligations for Superfund cleanup costs, its luck ran out in Missouri.

In Doe Run, the appellate court rejected Lloyd’s contentions one-by-one.   The court found that the policyholder had presented sufficient evidence that the property damage from its lead-containing milling waste was neither expected nor intended since those wastes were not understood to be hazardous at the time.  Using Missouri’s choice of law rules based on the Restatement (Second) of Conflicts, Sections 188 and 193, the court found Missouri where the waste site was located had a stronger interest in having its law apply than New York, meaning that Missouri’s ”All Sums” allocation rule would apply. Perhaps most significantly, the court affirmed the finding that Lloyd’s failure to pay the claim was unreasonable and in violation of Missouri’s Vexatious Refusal to Pay statute.  In affirming that finding, the court noted that (1) Lloyds had admitted that it had never paid an environmental claim except where it was required to do so in a court order or in a settlement and (2) Lloyds had failed to provide a coverage determination for many years even after receiving extensive information from the policyholder about the claim.

It will be interesting to see if Doe Run becomes a tipping point for bad faith claims against Lloyds.

Sometimes you read a decision and it’s hard to understand how there really were two plausible sides to the dispute.  Arrowood Indemnity Company v The Lubrizol Corporation is one such a decision. There, a policyholder sold back its liability coverage for claims “arising out of” certain named environmental sites. When the policyholder subsequently received a PRP notice letter for a site that included a property that had allegedly been contaminated by waste migrating from one of the named environmental sites, the policyholder contended that it was entitled to coverage since the PRP notice letter did not expressly mention any of the named environmental sites from the settlement agreement and because the insurer had incorrectly advised a reinsurer that the new PRP notice letter did not involve one of the settled sites.

The Court made short shrift of the policyholder’s position  saying that the erroneous notice to the reinsurer could not change the unambiguous wording of the settlement agreement which applied not merely to the named environmental sites themselves but also to claims “arising out of” those sites.  Parties entering into settlement agreements should expect courts to enforce them as they were written.

For the first time in CERCLA’s history, a court has concluded that a Superfund claim was barred by the ”act of war” defense.  In that case, In Re September 11 Litigation, the judge ruled that a property owner a block from Ground Zero could not recover the costs of cleaning up dust on his building from the collapse of the World Trade Center towers because the dust resulted from an act of war.   The judge had originally dismissed the case on statute of limitations grounds and the absence of a “release” within the meaning of CERCLA, but the Second Circuit remanded the matter for a determination whether the act of war defense would apply (why the Second Circuit focused on the act of war defense rather than the “third party” defense in Section 107(b)(3) is unclear).

To get to his conclusion that the terrible events of 9-11 were an act of war, the judge had to work hard to get around the significant body of cases holding that acts of terrorism are not acts of war and the long-standing requirement that acts of war are limited to the acts of uniformed military personnel.  In the end, one can question whether the contortions in legal reasoning by the judge were appropriate or even fair.  The end result is that a party which incurred significant costs in cleaning up contamination on its building has no claims against third parties and may not even have a viable insurance claim under its own policies since most insurance policies exclude coverage for acts of war.    Apparently, recognizing this possibility, the judge tries to limit the scope of his decision noting it should be understood as very narrow and not precedential in other areas, like insurance.  Nonetheless, it seems likely that a court deciding an insurance coverage issue involving a 9-11 loss would be hard pressed to circumvent the holding in the CERCLA case that the collapse of the World Trade towers was an act of war.  In trying to recharacterize a basic damages claim into a CERCLA cost-recovery claim, the owner of the building a block from Ground Zero may have done more harm than good.  Whatever the effect of the decision in  In Re September 11 Litigation with respect to insurance claims for 9-11 losses, that decision may not be of much consequence for post 9-11 insurance claims given that Congress enacted the Terrorism Risk Insurance Act in 2002.

Today we are pleased to offer a guest blog contributor, Michael A. Rodman, CPCU of Albert Risk Management Consultants.

It sounded like a no-lose proposition. The ambulance company’s CFO was assured by the insurance broker who was soliciting his insurance business that the Professional Liability policy he was promoting would provide the same terms, conditions and insurance protection as the current policy – but at a substantially lower premium. The proposal was put into writing and was accepted.

When the claim was received by the ambulance company, alleging that the death of a young man who had been transported by the company was due to the negligence of the ambulance attendants, the new insurer was put on notice according to the policy’s claim reporting provision. Much to the surprise and dismay of the company, the claim was denied. It seems that the policy was issued with its Retroactive (Retro) Date being the inception date of the (new) policy. The alleged wrongful act took place prior to the inception of the new policy and, thus, was not covered since a covered claim must not only be a claim made and reported during the policy period, but it must pertain to a wrongful act that occurred subsequent to the policy’s Retro Date.

In order for the CFO to have noticed this fatal flaw in the policy, he would have had to carefully review the policy when it was received and would have had to understand the meaning and critical importance of the Retro Date typed in the policy’s Declarations. We know that it is rare for a policyholder to read his/her policy and that it is even more rare for him/her to fully understand the concept of “claims-made” insurance, let alone the importance of the Retro Date.

In this case, the broker who sold the policy had been provided with a copy of the prior Professional Liability policy and had promised that his policy would match the terms and conditions of the prior policy. In order to recover its defense costs and any judgment or settlement in the case, the ambulance company must bring an action against its broker and endure the time, aggravation, and expense of pursuing its claim to a successful conclusion.

Lesson learned: Be very cautious about changing insurance carriers, particularly where claims made coverage is concerned, and be absolutely certain to compare each of the terms and conditions of the policies before making a move.