Insurance policies generally have different policy limits depending on the number of “occurrences.” For example, the amount of money recoverable under an insurance policy may be $5 million per occurrence with a $20 million aggregate limit. Therefore, when determining policy limits, deductible liability or considering settlement in a construction defect case, the parties should consider two questions. First, what constitutes an occurrence in the construction defect context? Second, how do courts determine the number of occurrences?
First, parties should be aware that what constitutes an occurrence typically will be defined by the applicable policy. In construction defect cases, insurance policies commonly define an occurrence as “an accident, including continuous or repeated exposure to the same or similar harmful conditions” which results in property damage. See, e.g., Safeco Ins. Co. of America v. Fireman’s Fund Ins. Co., 148 Cal.App.4th 620, 631 (Cal. App. 2007); Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., Inc., 6 Cal.App.5th 100, 107 (Cal. App. 2016). However, parties should look to the definition of an occurrence in the specific policy applicable to their project to determine coverage.
Second, parties should be aware that courts generally determine the number of occurrences under an insurance policy (and thus policy limits) based on the causes of damage, not the type or amount. For example, in Landmark American Ins. Co. v. Liberty Surplus Ins. Co., a subcontractor’s defective work caused water intrusion in several areas of a casino. 2014 WL 12558121, at *1 (C.D. Cal. Apr. 9, 2014). The California court found there were two separate occurrences—(1) improperly installed handrails and (2) defective installation of window systems and sliding doors. Id. at *6. The court explained that if a single injury, like water intrusion, has multiple causes, there have been multiple occurrences under an insurance policy. Id. at *5. If, however, widespread water intrusion had been caused by only the failure to apply sealant, that would likely have constituted a single occurrence. Id. at *6.
Similarly, in Liberty Mutual Fire Ins. Co. v. Bosa Devel. California II, Inc., a developer and insurance company were disputing how many occurrences arose under an insurance policy after defects were discovered in a condominium project. 2020 WL 1864645, at *1 (S.D. Cal. Apr. 13, 2020). The developer argued there was one occurrence—its negligent supervision of multiple subcontractors. Id. at *6. The court disagreed and held there were three occurrences: (1) the negligent installation of concrete flatwork, balconies, and waterproofing, (2) defective plumbing installation, and (3) selection of improper building materials. Id. at *8. The court struck down the developer’s argument, explaining that if a general contractor’s general negligent supervision constituted a single occurrence, “there would never be more than a single occurrence in the course of a single construction project, no matter how disparate the harms.” Id.
Accordingly, parties involved in a construction defect case should pay close attention to the cause of the alleged damages. If all damage arises from a single source or process, that may constitute a single occurrence for purposes of determining policy limits. Conversely, if there is a single type of damage caused by multiple failings, that may constitute more than one occurrence and trigger higher policy limits. Consultation with a knowledgeable insurance coverage attorney may be an appropriate first step.