State Split Widened: What Constitutes One ‘Occurrence’ Under Liability Insurance Policies?

Per Am. Family Mut. Ins. Co. v. Wilkins, 2008 WL 818954 (Kan. Mar. 28, 2008)

This case is before the Kansas Supreme Court on certification from a federal district court. The point at issue concerns the meaning of occurrence in insurance contracts – as in a per-occurrence limit of liability – which is a matter of state law. Although several circuits have rendered decisions on the issue, they have done so as an application of state law in diversity cases. As such, there is no possibility that this will be resolved by the Supreme Court, but I found the possible interpretations interesting enough to share.

Occurrence could refer to (1) the cause of the injury, (2) the effects of the action, or (3) the event which triggered liability. Rather than relate the facts of this case, I will use a hypothetical example to explain the differences between these options. A restaurant owner serves one batch of poisoned bread at two different meals to three different customers each time. Given this situation, definition one would yield one occurrence – the baking of the bread. Definition two, on the other hand, yields six different occurrences, as six customers each felt the effects of the action. Finally, definition three might yield either one or two occurrences, depending on how the court looked at it. The event could be seen as the poisoning of the bread, or serving it to customers (twice). The Kansas Supreme Court also notes the interplay between definition one and three, stating “the liability-triggering event test, in certain circumstances, is a narrow class that can overlap with the cause test.”

Definition one is by far the majority school and the one chosen by the Kansas Supreme Court in this instance. For a full listing of the positions of various states in this split, see generally 64 A.L.R. 4th 668. Finally, note that Kansas has a statutory mechanism providing for an intermediate appellate court judge to sit in the place of a recused Justice – the lack of which at federal Supreme Court was recently discussed at SCOTUSblog.