Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages

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On September 8, 2020 the United States Court of Appeals for the Eleventh Circuit issued its decision in Port Consolidated, Inc. v. International Insurance Company of Hannover, PLC, 2020 WL 5372281 (11th Cir 2020). The decision is notable for two reasons.  

First, the Court addressed whether definitions in an endorsement to a policy can be applied to coverage arising under different policy forms where that same term is undefined.  Second, the Court outlined the parameters of what constitutes an “occurrence” under occurrence based policies that do not define the term. 

In Port Consolidated  the Plaintiff operated an unattended fuel facility.   Approved customers with an agreement with the facility's owner received cards which could be used to pump fuel at the cardlock facility.   One of those customers had placed a fuel purchase limitation of seventy-five gallons per transaction on its cards. However, an incorrect setting at the Port Consolidated facility allowed drivers, who worked as independent contractors, to exceed the seventy-five-gallon limit by up to an extra hundred gallons.  The customer was only being invoiced for seventy-five gallons per transaction.  When the resulting shortage of fuel was discovered, Port Consolidated demanded reimbursement from its customer which refused to pay.  Port Consolidated then filed a claim with its insurer.

In its motion for summary judgment, the insurer asserted that each fuel theft was a separate occurrence that was below the policy deductible.  Port Consolidated disagreed, noting that there was a specific definition of “occurrence” used in three sections of the supplemental coverages endorsement that defined “occurrence” to include multiple or “a series” of either unauthorized uses or actions. However, the endorsement did not contain any language that applied its terms to other coverage forms.

The District Court disagreed, noting the term “occurrence” was not defined in the core property coverage segment of the policy and there was no language included in the endorsement stating that the definitions there were intended to modify anything in the core property coverage segment.  The Plaintiff asserted in the alternative that there was a disputed issue of material fact as to the definition of “occurrence” within the policy that precluded summary judgment in favor of the insurer.  The District Court granted the Insurer’s motion for summary judgment and Port Consolidated appealed. 

In rejecting the appeal, the Eleventh Circuit found no merit to the Plaintiff’s assertion that the definition of “occurrence” found in the policy endorsement applied to the other policy forms.  The Eleventh Circuit noted that courts may not rewrite contracts, add meaning that is not present, or otherwise reach results contrary to the intentions of the parties. In construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect.  According to the Court, the specific definitions of “occurrence” within certain supplemental coverages and the absence of that definition in the core policy's general definitions section were part of the contract reached by the parties.  Thus, a determination that the specific definitions of “occurrence” within certain supplemental coverages governed the entire policy would impermissibly render the parties apparent decision to omit that definition from the core policy's general definitions section meaningless. 

As a consequence, the Court found that the reasonable interpretation of the policy as a whole is that the parties specifically expanded the scope of “occurrence” to include a series of actions if, and only if, a claim was made under those specific supplemental coverage provisions. The decision not to define the term in the core policy's general definitions section and the fact that “occurrence” is defined in sections of the supplemental coverage endorsement, but not in the policy's general definitions section, did not make the term ambiguous. The Eleventh Circuit then applied the “cause theory” for occurrence in the Florida Supreme Court's decision in Koikos v. Travelers Insurance Co., 849 So. 2d 263 (Fla. 2003) to interpret the undefined term “occurrence” in the core policy.  The Court found that, under that theory, each theft was an individual occurrence subject to the policy deductible.  

The decision in Port Consolidated  is timely for its potential application to the property cases arising out of the Covid-19 pandemic.  Many of the complaints filed rest on the assertion that temporary loss of use (rather than specific damage to property) falls within the definition for the threshold requirement of “direct physical loss or damage” to covered property.  Some of those complaints point to the definition of property damage in the liability portion of the property that includes loss of use.  The Complaints argue the courts should apply the definition of property damage in the liability portion of the policy to the property portion of the policy where the term is undefined. The decision by the Eleventh Circuity in Port Consolidated rejects that argument.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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