In its recent decision in Mitsui Sumitomo Ins. Co. of Am. v. Automatic Elevator Co., Inc., 2011 U.S. Dist. LEXIS 103165 (M.D.N.C. Sept. 13, 2011), the United States District Court for the Middle District of North Carolina had occasion to consider whether multiple injuries arising from the same act of negligence constituted a single occurrence, or multiple occurrences, for the purpose of a general liability policy.

The incident giving rise to the coverage dispute in Automatic Elevator involves particularly shocking and disturbing facts.  Automatic Elevator had been an elevator contractor for the Duke University Health System.  During the course of working on an elevator project, Automatic Elevator removed used hydraulic fluid from an elevator and stored it in a number of storage barrels made available by Duke.  The barrels had previously contained surgical cleaning and lubricating fluids and were marked as such. The barrels were then stored at Duke’s facility and intended to be picked up at a later date for disposal.  Before the barrels could retrieved, however, a Duke employee mistook the barrels for unopened barrels of cleaning fluid and had the barrels returned to the original vendor as overstock.  Sometime later, the vendor sold the barrels containing the hydraulic fluid back to Duke.  Duke, believing that barrels contained surgical cleaning fluid rather than spent hydraulic fuel, allowed its surgical equipment to be washed in the fluid and used for surgeries.  Duke subsequently identified over three thousand individuals who were operated on with contaminated surgical equipment.  Duke was sued by one hundred fifty individuals and ultimately settled with one hundred twenty-seven individuals for an amount in excess of $6 million.

Automatic Elevator’s insurer, Mitsui Sumitomo, and Duke subsequently engaged in coverage litigation as to Duke’s rights to coverage as an additional insured.  Among other things, the court was required to consider whether the underlying matter arose out of a single or multiple occurrences.  This issue had relevance in light of the fact that the Automatic Elevator policy had limits of liability of $1 million per occurrence and $3 million in the aggregate.  Mitsui argued that the underlying claims arose out of a single occurrence; specifically, Automatic Elevator’s negligence in failing to properly dispose of the used hydraulic fluid.  Duke, on the other hand, argued that the underlying suits arose out of the one hundred twenty-seven separate occurrences, viz., each individual surgery involving contaminated surgical equipment.

The court determined that for number of occurrences questions, North Carolina courts apply a “cause” test, but a question remained as to “which negligent act, or continuum of negligent acts, on the part of the insured gave rise to liability.”  Looking to all relevant North Carolina precedent on the issue, as well as case law from other jurisdictions, the court concluded that liability flowed from Automatic Elevator’s negligent handling of the hydraulic fluid, which in turn allowed for it to be mistaken as surgical cleanser.  The court rejected Duke’s theory as to multiple occurrences, explaining that “[a] finding that each of the 127 surgeries constitutes a separate occurrence would blur the line between the cause approach and the effect approach. Such a ruling thus would effectively ignore the North Carolina courts' explicit adoption of a cause rather than an effects standard, something this Court declines to do.”