One or More? The Number of Occurrences Under a CGL Policy

CGL policies occurences

The Policy and Why This Matters

Resolution of insurance coverage questions begins with a review of the plain language of the insurance policy as bargained for by the parties. CGL policies typically provide that the insurer will pay those sums that the insured becomes legally obligated to pay because of bodily injury or property damage to which the policy applies. The policy applies to bodily injury or property damage only if they are caused by an “occurrence,” which is typically defined in Section V as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The Declarations page of the policy contains a “Limits of Insurance” section, which provides an “each occurrence” limit and a “general aggregate” limit. Section III typically provides that the Limits of Insurance shown in the Declarations page is the most that the Insurer will pay, regardless of the number of insureds, claims made or suits brought, or persons or organizations making claims or bringing suits. Lastly, CGL policies typically have a deductible or self-insured retention (“SIR”) amount that applies on a “per occurrence” basis. 

The number of occurrences has a significant impact on both the amount of coverage that is available to the insured and the amount that must be paid by the insured in the form of deductibles or SIRs. If there are multiple occurrences, the insured’s deductible may apply to each occurrence, and if the deductible is large, the result may be to eliminate any recovery. On the other hand, a finding of multiple occurrences means that more total insurance coverage may be available. The law in North Carolina is not entirely clear, providing ample room for disagreement between insureds and insurers.

The “Cause” Test – But How to Apply It?

At least three tests or approaches have been used by various courts to determine the number of occurrences: (1) the “cause” test, under which courts look at the cause or causes of the resulting injury; (2) the “effects” test, under which courts look at the number of effects, or injuries; (3) and the “unfortunate events” test, in which courts identify the incidents giving rise to the insured’s liability, then consider the temporal and spatial relationship between the incidents to determine if they can be viewed as a single unfortunate event. Most jurisdictions, including North Carolina, use the “cause” test.  That test is much easier stated than applied, however, as virtually any act, event or injury can be said to have any number of “causes.”

There is little case law in North Carolina on this topic.  The first case to touch on it was Christ Lutheran Church v. State Farm Fire & Cas. Co., 122 N.C. App. 614, 471 S.E.2d 124 (1996), aff’d per curiam, 344 N.C. 732, 477 S.E.2d 33 (1996).  In Christ Lutheran, the plaintiff’s treasurer embezzled $32,760 of church funds by issuing twenty-four separate checks to himself over a period of slightly more than one year. The insurance policy provided that the defendant would pay up to $5,000 for any one occurrence of embezzlement. The plaintiff contended that the policy covered the entire $32,760, while the defendant argued that it was responsible for only $5,000.

The Christ Lutheran policy did not contain the typical definition of “occurrence” noted above. Rather, it defined “occurrence” as “all loss involving a single act, or series of related acts, caused by one or more persons . . ..”  471 S.E.2d at 125 (emphasis supplied). The plaintiff’s only argument on appeal was that this language was ambiguous, but the Court of Appeals disagreed. Relying on two federal cases, one from the Northern District of Illinois in 1993 and one from the Tenth Circuit in 1984, each involving embezzlement by an employee, the court found that there was one occurrence. “These checks were all written in furtherance of one employee’s dishonest acts. They do not constitute a new and individual act of dishonesty, as alleged by plaintiff, by are instead a continuum of wrongful actions. This was the cause of plaintiff’s loss.”  471 S.E.2d at 126. Notably Judge Wynn, now on the Fourth Circuit, dissented, arguing that the phrase “series of related acts” was subject to more than one reasonable interpretation, and therefore ambiguous, requiring a remand for a jury trial. 

Four years later, the North Carolina Supreme Court decided Gaston County Dyeing Machine Co. v. Northfield Insurance Co., 351 N.C. 293, 524 S.E.2d 558 (2000). That case involved pressure vessels used in the production of contrast media dyes for diagnostic medical imaging.  A pressure vessel ruptured on a date certain (June 21, 1992), and leaked for over two months until discovery, contaminating some sixty tons of contrast media dye valued at more than $20 million. Though the number of occurrences was not at issue, in the context of which policies were triggered, the Supreme Court stated that “[i]n determining whether there was a single occurrence or multiple occurrences [for purposes of determining which policies were triggered] we look to the cause of the property damage rather than to the effect.  . . .  In this case, the rupture of the pressure vessel caused all of the ensuing property damage, even though the damage continued over time, contaminating multiple dye lots and extending over two policy periods. Therefore, when, as in this case, the accident that causes an injury in fact occurs on a date certain and all subsequent damages flow from a single event, there is but a single occurrence; and only policies on the risk on the date of the injury-causing event are triggered.”  524 S.E.2d at 565. 

Seven years later the Eastern District of North Carolina squarely faced the issue of single or multiple occurrences in Western World Ins. Co. v. Wilkie, No. 5:06-CV-64-H(3), 2007 WL 3256947 (E.D.N.C. Nov. 2, 2007). In Wilkie, the insured defendant ran a petting zoo for nine consecutive days at the 2004 North Carolina State Fair. Numerous minors were exposed to E. coli at the petting zoo, resulting in injuries. The policy definition of “occurrence” was “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” It had a limit of $1 million per occurrence and a $2 million general aggregate limit.  The insurer argued that the E. coli outbreak was a single occurrence, while the defendants argued there were multiple occurrences. The court noted that the question before it was “if not an entirely novel question under North Carolina law, one that lacks substantial precedent upon which to base a decision.”  2000 WL 3256957 at *2. 

The parties agreed that the court should use the cause test, relying on Christ Lutheran, but differed as to its application. The defendants asserted that the petting zoo’s various acts of negligence (e.g., failure to properly clean the zoo area, failure to use a barricade to separate the animals from the children) were separate causes, while the plaintiff characterized the insured’s action as a single continuum of negligent acts. The court noted that in this case, it was impossible to determine exactly how each individual was exposed, and the most that could be reliably known was that each was exposed as a result of their visits to the petting zoo. “The presence of E. coli at the petting zoo is the general harmful condition to which [the minors] were exposed, and the cause of this condition was [the defendant’s] ongoing negligence.”  Id. at *4.  Accordingly, the court concluded that there was a single occurrence.

The most recent decision addressing the number of occurrences issue, and the most thorough, is Mitsui Sumitomo Ins. Co. v. Automatic Elevator Co., Inc., No. 1:09-CV-00480, 2011 WL 4103752 (M.D.N.C. Sept. 13, 2011), aff’d, 509 Fed.Appx. 233, 213 WL 491942 (4th Cir. Feb. 11, 2013) (unpublished). In that case, Duke University Health System, Inc., hired Automatic Elevator Company to renovate two elevators in a hospital parking deck. After Automatic Elevator completed its work, it placed barrels containing used hydraulic fluid in a designated storage area at the hospital. Duke employees saw the barrels, mistakenly thought they contained surgical detergents and lubricants, and used the hydraulic fluid to wash surgical instruments. Over one hundred patients who may have come into contact with the tainted surgical instruments sued Duke, which settled the claims for over $6 million, and then sued Automatic Elevator. Automatic Elevator’s insurer, Mitsui, brought a declaratory judgment action, arguing that the hydraulic fluid mistake constituted a single occurrence, obligating it to pay $1 million under the applicable policy, which it had already paid to settle the patients’ claims against Automatic Elevator.

The policy at issue, like the CGL policies in Gaston County and Wilkie, defined “occurrence” as “an accident, including continuous repeated exposure to substantially the same harmful condition.” The per occurrence limit was $1 million, and the general aggregate limit was $3 million. Duke argued that the hydraulic fluid mistake involved multiple occurrences, entitling Automatic Elevator to more than $1 million under the policy.

The Fourth Circuit stated that “North Carolina courts have adopted a cause test to determine how many occurrences an event encompassed,” citing Gaston County. “Under this type of test, the number of occurrences is determined by the cause or causes of the resulting injury.”  2013 WL 491942 at *4, quoting Appalachian Ins. Co. v. Liberty Mutual Ins. Co., 676 F.2d 56, 61 (3d Cir. 1982). “Therefore, to determine how many occurrences stemmed from the hydraulic fluid mistake, we must evaluate the cause or causes of the incident rather than its effects.”  Id.

The Fourth Circuit noted that courts have adopted various formulations of the cause test, including (1) the “proximate cause theory,” under which courts consider an event to constitute one occurrence when there was but one proximate, uninterrupted, and continuing cause which resulting in all of the injuries and damage, and (2) the “liability event theory,” under which courts look to the immediate event or events that gave rise to liability to determine the number of occurrences. The Fourth Circuit observed that the district court had employed the proximate cause theory, finding that the “proper application of the cause approach . . . requires asking which negligent act, or continuum of negligent acts, on the part of the insured gave rise to liability.”  Id., quoting Mitsui Sumitomo, 2011 WL 4103752 at *13.

After reviewing Gaston County and Christ Lutheran, the Fourth Circuit stated that “North Carolina precedent does not strongly favor either Duke or Mitsui Sumitomo.  However, we believe the Supreme Court of North Carolina would find this case involves one occurrence . . ..”  Id. at *5. The Fourth Circuit provided three reasons for so holding:  (1) Fourth Circuit believed that North Carolina would apply the test articulated in Gaston County to determine the number of occurrences and contexts other than trigger of coverage; (2) Duke relied on Koikos v. Travelers Ins. Co., Inc., 894 So.2d 263 (Fla. 2003), in arguing that an occurrence is the most immediate cause of the injury, and the Fourth Circuit did not find that case persuasive; and (3) looking at the number of surgeries or instances of using hydraulic fluid to wash surgical instruments to determine the number of occurrences would turn the focus on the case from the negligence of the insured (Automatic Elevator) to Duke’s actions. The Fourth Circuit believed that it was more appropriate to focus on the acts of the insured that gave rise to its liability, which in this case was placing the barrels of hydraulic fluid in the designated storage area in the hospital parking deck.  

Circuit Judge King dissented, arguing that each instance of a waste-laden medical instrument being used to operate on an unsuspecting patient at Duke Hospital gave rise to an “occurrence,” and that in this case there were multiple occurrences. He noted that the majority primarily rested its decision on North Carolina’s adoption of a “cause test” to determine which event constituted the occurrence, but stated that “I am not convinced, however, that North Carolina has ever adopted such a test.” Id. at *9.


North Carolina law on the number of occurrences is sparse and not entirely clear.  The North Carolina Supreme Court has not squarely addressed the issue. North Carolina appears to follow the “cause test,” but exactly how that test is applied is open to argument.

The “cause test” has been criticized, and rightfully so, because it has been applied to very similar fact patterns with very different results. For example, in Dragas Mgmt. Corp. v. Hanover Ins. Co., 798 F.Supp.2d 758 (E.D. Va. 2011), defective drywall was installed in 74 homes. The defective drywall caused property damage to other property. The policy at issue contained the same definition of “occurrence” described above, and the court noted that Virginia follows the “cause test” for determining the number of occurrences under an insurance policy. The court decided that each installation of the defective drywall constituted a separate occurrence, and accordingly there were 74 occurrences, one for each affected home.  798 F.Supp.2d at 764.  In Liberty Mut. Ins. Co. v. Pella Corp., 631 F.Supp.2d 1125 (S.D. Iowa 2009), two underlying class actions alleged that Pella windows had been installed in an unspecified number of homes and that the windows were defective, causing damage to other property. The policies defined “occurrence” as above. The court applied what it called the “underlying cause” test and, focusing on the “continuous or repeat exposure to the same general harmful conditions” language in the definition of “occurrence” decided that the underlying lawsuits alleged damages arising from a single occurrence. See also, Murray, The Law of Describing Accidents: A New Proposal for Determining the Number of Occurrences in Insurance, 118 Yale L.J. 1484, 1500 (2009) (critiquing the causation theory).

In both Mitsui and Wilkie, the courts found a single occurrence because there was a single causative event or act:  in Mitsui, the placing barrels of hydraulic fluid in a designated storage area at the hospital, and in Wilkie, the presence of animal feces containing E. coli.  In Wilkie, if separate outbreaks had occurred at the fair in later years, the court presumably would have found multiple occurrences.  Based on the North Carolina cases to date, it appears that North Carolina courts will find a single occurrence when a single act or event can be isolated as the immediate cause of the damage, when viewed from the insured’s perspective, and/or the acts or events are continuous in time and space.  If, on the other hand, a case involves separate acts or events attributable to the insured as the immediate causes of damage, or the acts or events are separated by time or space, North Carolina courts would be more likely to find multiple occurrences. 

About the Author

Alan M. Ruley

Alan Ruley is a seasoned civil trial and appellate lawyer. He represents clients in a wide variety of disputes in federal court, state court, and the North Carolina Business Court, focusing primarily on business litigation, intellectual property, insurance coverage and recovery, banking and employment.
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