Many businesses protect themselves from lawsuits based on allegations of bodily injury or property damage by purchasing commercial general liability insurance. A commercial liability policy covers damages an insured business is legally obligated to pay for bodily injury or property damage caused by an occurrence.
What Does Occurrence Mean?
An accident, including continuous or repeated exposure to substantially the same general harmful conditions.
An occurrence includes a single event and any harm that is repeated or continues as a result of that event.
What's An Accident?
While accident isn't defined in the policy, this word generally means a fortuitous, unexpected, or unforeseen event. It's a circumstance that happens without intention or design. Many events that result in liability claims are clearly accidental. Here are some examples:
- A tree on your business premises suddenly falls over and crushes a vehicle owned by one of your customers.
- A waiter at your restaurant is serving coffee to a customer when the glass carafe suddenly breaks. Hot coffee spills on the customer, burning her arm.
- A plumber installs a pipe in a motel but fails to weld the pipe properly. The pipe bursts the following day, causing serious water damage to a motel room.
Expected or Intended Injury
Liability policies are designed to cover injuries that occur unexpectedly, not those caused intentionally. For this reason, the standard policy specifically excludes bodily injury or property damage that's expected or intended from the standpoint of the insured. Note that the exclusion applies to "the insured," which generally means the insured party who's seeking coverage for a claim or suit. The following example demonstrates how the exclusion applies.
Bill and Joe are working at a construction site. Bill is employed by Earth Movers, an excavation contractor, and Joe works for a plumbing contractor. One day, Joe makes a rude comment and Bill responds by slugging Joe in the head with a wrench. Joe is injured and sues Bill for bodily injury. If Bill seeks coverage for the claim under Earth Movers' liability policy, the company's insurer will deny coverage. The claim won't be covered because Bill caused Joe's injury intentionally.
Is An Intentional Act An Occurrence?
An intentional act may qualify as an accident if the act was intentional but the consequences of the act were not. In the previous example, suppose that Joe asks Bill if he can borrow Bill's wrench. Bill agrees, and Joe assumes that Bill will walk over and hand Joe the wrench. Instead, Bill tosses the wrench in Joe's direction. Joe isn't aware the wrench is flying through the air and moves into its path. The wrench strikes Joe in the head, causing an injury.
If Joe sues Bill for the injury, Earth Mover's liability policy should cover the suit. Bill committed an intentional act (throwing the wrench) but he didn't intend to injure Joe, nor did he expect the injury to occur. His intentional act resulted in an accidental injury.
As noted above, an occurrence includes continuous or repeated exposure to substantially the same general harmful conditions. This means an event may be considered a single occurrence even if it results in multiple injuries or claims.
For example, Fantastic Farm Supplies makes and sells its proprietary organic herbicide and liquid fertilizer. Fantastic dispenses the two products in bulk. Farmers bring their own receptacle and fill up at the shop. Fantastic is insured under a standard liability policy.
One day, a store employee accidentally fills the fertilizer tank with herbicide. Eight local farmers buy the "fertilizer" and apply it to their crops. When the herbicide kills their crops, all eight farmers file a property damage claim against Fantastic Farm Supplies.
Did all eight claims result from one occurrence or did each claim result from a separate occurrence? The answer depends on the state. In a majority states, courts determine the number of occurrences based on a "cause" theory, meaning they look at the underlying cause of the injuries or claims. In the scenario outlined above, all of the claims resulted from one negligent act (putting the herbicide in the fertilizer tank). According to the cause theory, all resulted from a single occurrence.
In some states, courts determine the number of occurrences by considering the number of injuries or claims rather than the cause. In these states, each claim or injury is considered a separate occurrence.
Each Occurrence Limit
In the standard liability policy, the Each Occurrence limit is the most the insurer will pay for damages under Coverage A and medical expenses under Coverage C because of bodily injury or property damage arising out of one occurrence. The meaning of the term occurrence impacts the amount of coverage that's available under the policy.
In the Fantastic Farm Supplies example described above, eight claims have resulted from an employee's negligent act. Depending on the state in which Fantastic is located, the claims might be considered one occurrence or eight separate occurrences. If the claims are treated as a single occurrence, Fantastic's liability insurer won't pay more than the Each Occurrence limit for all eight claims combined. If the claims are treated as separate occurrences, each will be subject to the Each Occurrence limit individually.