In a decision handed down earlier this week in litigation between a primary-layer carrier and an umbrella carrier an Oregon federal court held that when a plaintiff brings a claim against a developer for negligence, the term “occurrence” in the developer’s policies means the negligent development, globally: in other words, the developer’s negligent work is one occurrence, despite the fact that the property damage may take multiple forms.
The case involves a high-rise condominium in Portland’s South Waterfront district. The condo association sued the developer (not the general contractor) over water damage arising from construction deficiencies that led to water problems in the garage, and elsewhere. The primary layer policy (from American Contractors Insurance Group or “ACIG”) had a $2 million per occurrence limit and a $4 million products-completed-operations aggregate limit. AIG, the umbrella carrier, insured over the same limits (called the “retained limit”). However, the Court noted that the AIG policy had its own definition of “occurrence” and provided coverage independently of the primary layer policy subject only to the retained limit – it was true “umbrella” coverage, not excess coverage.
Both the primary layer carrier and AIG contributed to a settlement. But AIG contended that the primary layer carrier should have been required to pay its $4 million aggregate before its policy was triggered, and so sued to gets its contribution to the settlement back.
The Court disagreed. The Court rejected AIG’s effort to rely on case law interpretations of “occurrence” and instead examined the AIG policy’s definition of “occurrence” on its own terms. The AIG provision included some standard language about an occurrence including multiple exposures to the same “conditions.” The Court found that the “condition” implicated by the condo association’s allegations, read strictly, was the negligent development overall of the project – not particular construction practices by the general contractor. The Court found it significant, in this regard, that the condo association had not brought the general contractor into the suit. The Court determined that there was therefore only one “occurrence” for purposes of the AIG policy’s retained limit condition.
Overall, this decision re-emphasizes for insurance professionals the importance of examining policy language on its own, without relying on court decisions that may or may not be applicable, and also carefully examining what is actually alleged in the underlying litigation rather than assuming things based on what is usually alleged in construction defect litigation.