Many companies at this time of year are preparing to renew their product liability coverage, which is supposed to provide security for products lawsuits. The insurance policy that a company is considering for its products liability coverage, however, may leave the amount of coverage for product liability losses up to chance because of an issue that arises in insurance coverage litigation, particularly those involving product liability claims, known as the number of “occurrences.” Simply put, the number-of-occurrences issue asks whether product liability claims arise from one occurrence or more than one occurrence. Because the amount of coverage or any deductible is typically stated as a dollar amount “per occurrence,” the answer to that question can leave a policyholder with an abundance of coverage, or leave it essentially self-insured.
The number-of-occurrences issue can have a particularly profound effect on insurance coverage in the product liability context because of the potential for numerous claims. If, for instance, a policy has a per-occurrence deductible, and each product liability claim is deemed to be a separate occurrence, the total amount of deductibles could exceed the total amount of coverage. Alternatively, if product liability claims are grouped together as one occurrence, then only one deductible would have to be paid, thus preserving coverage.
Unfortunately, the number of occurrences issue can be unpredictable. Courts apply different tests to determine the number of occurrences if the terms of the policy are insufficient to permit a determination. Some courts look to the cause or causes of the injury, rather than the individual claims or injuries. See, e.g., Ware v. First Specialty Ins. Corp., 2013 IL App (1st) 113340, P23 (Ill. App. Ct. 2013) (“Illinois courts, as well as courts in a majority of other jurisdictions, will apply the ‘cause theory’ to determine the number of occurrences . . . .”). Other courts focus on the differences or similarities in circumstances surrounding each injury. Mt. McKinley Ins. Co. v Corning Inc., 946 N.Y.S.2d 136, 137 (1st Dept. 2012) (“. . . New York courts apply the unfortunate-event test to determine whether a set of circumstances amounts to one occurrence or multiple occurrences”). A minority of courts look to the effect or injury. Even those courts that purport to apply the same test, especially the cause test, can reach radically different results. Thus, for instance, similar injuries alleged by claimants in different locations caused by the use of the same defective product could constitute one or multiple occurrences, depending on a court’s approach and the particular facts:
- A court that looks to the cause of the injuries might conclude that the injuries constitute one occurrence because the injuries arose from the manufacturer’s decision to manufacture the defective product.
- A court that looks to the effect might conclude that each injury constitutes a separate occurrence.
- A court that looks to the differences or similarities in the circumstances of the injuries might conclude that the injuries constitute multiple occurrences because, for instance, the injuries involved different claimants in different locations or, alternatively, the court might determine that some of the claims should be grouped into an occurrence because the injuries were similar in nature and happened in the same location during the same time period.
Some insurers offer policies that provide product liability coverage with specific language that is designed to mitigate against the uncertainty surrounding the number of occurrences issue. For example, some policies contain “batch” or “integrated occurrence” clauses or similar language intended to group multiple claims as one occurrence, such as those arising out of the same product defect. Some policies offer the option of choosing, for example, whether a deductible will apply on a “per occurrence basis,” “per event basis,” or “per claim basis.” Still other policies define “occurrence” to avoid uncertainty by including all instances of bodily injury or property damage that is attributable to the same condition, defect, or failure to warn as one occurrence, irrespective of the period or area over which the instances occur or the number of instances.
The policy that a company selects for its products liability coverage during the renewal process could have an important impact on the number-of-occurrences issue. Selecting a policy that specifically addresses the number of occurrences issue could minimize potential uncertainty and maximize coverage in the event of product liability claims.