"Occurrences" And The First Party Policy
Despite the growing body of case law that has emerged in recent years construing the limits of coverage under CGL policies, there is still a surprising dearth of first party "occurrences" jurisprudence.
Although most of the original "occurrences" cases involved disputes between policyholders and insurers in which policyholders sought a finding of multiple "occurrences" to trigger additional limits, most of the recent cases have falled into two different areas: (1) disputes between primary and excess insurers over the applicable limits and (2) disputes with policyholders with respect to the number of SIRs for which the insured is responsible.
This latter type of claim was recently considered by a federal district court in Wisconsin. The case is an interesting illustration not only of problem that case precedents that help insureds in some cases can present in the SIR context but also of how case law that has arisen in the context of liability insurance may have little application with respect to first party claims.
At issue in Basler Turbo Conversions v. HCC Ins. Co., No. 08-C-732 (E.D. Wis. March 5, 2009) was a claim by an airplane parts manufacturer for products theft committed by an employee on 33 occasions over a six month period. As the insured's policy had a $5000 "per occurrence" deductible, Basler argued that the insurer owed it coverage, minus a single deductible.
In a considered decision, District Court Judge Griesbach rejected the insured’s contention that an employee’s “continuous and repeated theft of spare parts from its storage facility constituted a single “occurrence.” In keeping with the Wisconsin Supreme Court’s recent Plenco ruling, the district court declared that the 33 thefts occurring over a six-month period were not so closely linked in time and space as to be treated as a single “occurrence.”
The court also declined to give effect to wording in the policy that defined “occurrence” as involving exposure to conditions, noting that this specific definition of “occurrence” only applied to the term when it appeared in bold face in the policy, which it did with respect to liability provisions but not the first party insurance relied on in this instance. In any event, applying the liability definition of “occurrence” would negate first party coverage since a theft by definition is not an “accident.”
Applying the common and ordinary meaning of “occurrence” as “something that takes place,” the court held that each theft was a separate occurrence. The court rejected the insured’s argument that the thefts were the result of a common scheme noting that it was not the thief’s “modus operandi” or scheme that caused the succession of thefts but separate and independent human actions that were the product of human deliberation and choice separated by significant intervals of time.
While Judge Griesbach observed that this particular finding might prove harsh to the insured in this instance, it would not always result in a reduction of coverage in other cases, it nonetheless held that the finding might in fact reinforce the entire purpose of a deductible as giving the insured an additional incentive to increase security to prevent such thefts from occurring at all whereas limiting the insured’s exposure to a single $5,000 deductible no matter how many instances of loss occurred “would encourage laxness on the part of the insured that would make theft more easy to accomplish.”
