Superstorm Sandy devastated the east coast last October, causing more than $70 billion in damage to New York, New Jersey and Connecticut. Thousands of businesses suffered extensive property damage to their buildings, contents and inventory. Not all of the damage and losses, however, were directly caused by water. In fact, devastating losses also resulted from the loss of electricity, telephone/data and steam. In some instances, businesses were also prevented from accessing their property by damage or by civil authority.
Most property policies cover property damage (loss to an insured’s personal or real property) and time element losses (e.g., business interruption, loss of revenue and extra expense). On the surface, many policies appear to provide sufficient limits, giving the unwary policyholder a false sense of security because “sublimits” often significantly cap the available overall policy limits. However, many sublimits are “per occurrence,” which is an important distinction because if, for example, a business lost multiple services and could not operate various aspects of its business, multiple occurrences might help the business cover its losses (assuming that it has service interruption coverage).
Policy Language is Critical . . .
The policy language is the critical factor determining the number of occurrences that may have caused an insured’s losses. For example, in World Trade Center Properties, the court evaluated whether the attacks on the World Trade Center were one occurrence or two occurrences under two different forms. One policy defined occurrence as:
Occurrence shall mean all losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur.
Based on this language, the court found the attacks were a single occurrence. World Trade Center Properties, LLC v. Hartford Fire Ins. Co., 345 F.3d 154, 180 (2d. Cir. 2003).
The other form, however, did not include a definition of “occurrence.” As a result, the court concluded that it was an issue of fact whether there were one or two occurrences under that form. Id. at 190.
. . . Always Carefully Evaluate Causation and Number of Occurrences
Whenever a storm like Superstorm Sandy strikes, policyholders should carefully evaluate the cause of their loss(es) and the number of “occurrences” that caused the loss(es). In New York, for example, fact finders consider a multitude of factors, including the expectation of the parties; the circumstances under which the property damage occurred (e.g., the cause or causes); the period of time over which the damage occurred; and the spatial proximity of the damage. Understanding your particular policy language and your particular circumstances can give you an advantage when maximizing your recovery.
Consider the case of Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 130 (2d Cir. 1986), where the issue was whether two collapses of the same roof that occurred days apart, constituted one or two occurrences. The extremely large roof collapsed due to the weight of ice and snow. One section collapsed between March 1 and March 14, and the second section collapsed on March 17. The insurer contended that the collapse was one occurrence, since the collapses were the result of the same accumulation of ice and snow. The policy did not define the term “occurrence,” but did contain a definition for collapse: the “caving in or falling inwards or outwards of the building or structure . . . or material part thereof . . . .” At trial, the jury found that the collapses were two separate occurrences.
On appeal, the Second Circuit upheld the jury’s finding because:
- the two collapses occurred at least three, and perhaps as many as 17, days apart;
- the roof was built as two separate structures separated by a column;
- the first collapse did not cause or contribute to the second collapse, and the second collapse was not a continuation of the first; and
- temperature changes may have contributed to the second collapse.
Since the testimony at trial indicated that the second collapse was not a consequence of the first because each half was structurally distinct and capable of supporting a weight of ice and snow independent of the other, the court declined to overturn the jury’s finding that the two collapses were two occurrences within the meaning of the policies.
Similarly, in Arthur A. Johnson Corp. v. Indemnity Ins. Co., 7 N.Y.2d 222 (1959), the plaintiffs constructed subway platform extensions for the defendant. Plaintiffs excavated a trench that extended in front of premises located at 300 and 304 Fourth Avenue. Although the buildings were adjoining, they were separate, so that water in the basement of one would not flow into the other. A heavy rainfall (3.52 inches) flooded the excavation beyond the capacity of the pumps. One of the sections of the cinder block wall in front of 300 Fourth Avenue gave way, causing the sub-basement to be flooded and resultant property damage. Approximately 50 minutes later, the wall protecting 304 Fourth Avenue was breached, and similar damage occurred. However, the water level at 304 was 3.5 feet lower than that of 300 Fourth Avenue. Id. at 226.
The policy limit was $50,000 for each accident so the insurer paid $50,000, claiming that there had been only one accident within the meaning of the policy. The insurer argued that there was only one proximate cause of the damage to the several claimants – the heavy and unprecedented rainfall. Id. The policyholder, however, sought two occurrences – one for each wall that collapsed.
Adopting the “unfortunate event” standard, the Court of Appeals of New York agreed with the policyholder because there were two collapses of separate walls, of separate buildings, at separate times. “There is no suggestion that the collapse of the first wall caused the failure of the second . . . in addition, the catastrophe was not the rain that, in itself did no harm. It was the breach of the wall letting the rain water in.” Id. at 230. The court further stated, “[h]ere the proximate cause cannot be said to be the heavy rainfall but separate negligent acts of preparing and constructing separate walls which, for all we know, may have been built at separate times by separate groups of workmen.” Id.
Consider An Overall Coverage Strategy Before Submitting A Claim
Businesses currently asserting (or anticipating asserting) insurance claims should consider which coverage strategy will result in a more favorable recovery under their particular circumstances – before a claim is submitted. The policy language is one of the most important considerations, but so too are the facts. Consideration should also be given to what positions the insurer has previously taken with regard to number of occurrences. Our team of insurance coverage attorneys specialize in assessing and maximizing coverage and can help you determine whether you are entitled to more coverage than the insurance company is claiming you are entitled to.