An Analysis of the World Trade Center 'Two Occurrences' Decision

On Dec. 6, 2004, a New York federal jury determined that the 9/11 attacks on the World Trade Center involved two “occurrences” under policies issued to leaseholder Larry Silverstein. As a result, Silverstein could get up to $1.1 billion more than if the attacks had constituted a single occurrence.

The litigation originally involved 22 insurers. However, the obligations of 13 insurers were determined to be governed by a “WilProp” form that had specific language defining an “occurrence.” The WilProp form defined “occurrence” to mean:

All losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur. World Trade Center Properties, LLC v. Hartford Fire Ins. Co., 345 F.3d 154, 160 (2d Cir. 2003).

The Second Circuit concluded that “no finder of fact could reasonably fail to find that the intentional crashes into the WTC of two hijacked airplanes sixteen minutes apart as a result of a single, coordinated plan of attack was, at least, a 'series of similar causes.' Accordingly, we agree … that under the WilProp definition, the events of September 11th, constitute a single occurrence as a matter of law.” Id.

However, a different result was reached as to the remaining insurers. Silverstein contended that the governing terms were those terms in effect with Travelers, the primary insurer, whose policies did not contain a definition of “occurrence.” Those insurers also sought summary judgment.

Silverstein argued that each aircraft striking one of the World Trade Center's towers constituted a separate occurrence under the insurance program. The insurers argued that the attack was a single event that resulted from a single coordinated Al Qaeda plot. They also made the practical argument that with an integrated coverage program, it made no sense for insurers providing part of the program's coverage to pay a single loss, while the remaining insurers paid two losses.

Silverstein cited Arthur A. Johnson Corp. v. Indemnity Insurance Co., 7 N.Y.2d 222, 164 N.E.2d 704, 196 N.Y.S.2d 678 (1959). There, the court addressed a circumstance where a major rainfall flooded a construction site, giving rise to multiple claims of flood damage. The insurance carrier asserted a policy limitation of $50,000 per accident and claimed that because there had been only one proximate cause (the rainfall) there is only one “accident,” notwithstanding the fact that two separate walls collapsed. The court noted that other courts had reached varying conclusions in similar circumstances. The court then explained as follows:

[The] catastrophe was not the rain” that, in itself, did no harm. It was the breach of the wall letting the rainwater in. Furthermore, if the walls were located blocks away from each other on different job sites but subject to the same rainfall, no one could contest that there were two accidents. For these reasons, we conclude that the collapses of separate walls, of separate buildings at separate times, were in fact separate disastrous events and, thus, two different accidents within the meaning of the policy. 196 N.Y.S.2d at 684.

However, the court also made the following comment:

In the instant case, it cannot be said that one would allege but one act of negligence as the proximate cause of the injuries to the two separate properties. Here the proximate cause cannot be said to be the heavy rainfall but separate negligent acts of preparing and constructing separate walls which, for all we know, may have been built at separate times by separate groups of workmen. Id.

Thus, the court regarded the proximate cause not as the rainfall, but as separate negligent acts in preparing and constructing separate walls.

However, the Second Circuit rejected Silverstein's argument that Arthur A. Johnson supported the finding of multiple occurrences under the WilProp form. The court distinguished between first-party coverage, such as property insurance policies, and third-party liability insurance, which was at issue in Arthur A. Johnson. As the court explained, in the liability context, the cases “involved multiple liability claims filed against the insured by multiple parties,” while in the first-party property context, “the insured's negligence is not at issue; rather the policy insures against external perils such as fires, floods, and intentional acts that cause damage to the insured's property, and against which a property interest holder can take adequate measures to protect his investment in advance of any loss.” World Trade Center, 345 F.3d at 188. The Second Circuit was not persuaded that “the term 'occurrence' has obtained any … specialized or singular meaning in the context of property insurance,” noting that it had interpreted Arthur A. Johnson as “'rejecting any single definition of occurrence.'” Id. at 189. Therefore, the court concluded that “given the significant distinction between first-party and third-party insurance policies, the fact-specific nature of the inquiry, and the fact that it is the parties' intent that controls,” the meaning of “occurrence” is “sufficiently ambiguous under New York law … to warrant consideration by the fact finder of extrinsic evidence to determine the parties' intentions. Id. at 190. Thus, the court left it up to the jury to determine the number of occurrences.

At trial, Silverstein pointed to prior situations in which Travelers and Industrial Risk Insurers had treated what Silverstein contended were similar losses as separate occurrences under the same policy forms. One of these cases involved fires set to four California courthouses by an arsonist, which Travelers treated as separate occurrences. The other involved damage to a Harrah's entertainment casino in Louisiana from a series of rainstorms, which IRI treated as separate events. The jury agreed with Silverstein. Not surprisingly, the insurers have indicated that the verdict was wrong and they will seek post-trial relief.

The starting point in answering the question of “how many occurrences” is with the mutual intention of the parties at the time an insurance policy was sold. See AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 799 P.2d 1253, 274 Cal. Rptr. 820 (1990) (“In the insurance context, we generally resolve ambiguities in favor of coverage. Similarly, we generally interpret the coverage clauses of insurance policies broadly, protecting the objectively reasonable expectations of the insured.”). However, many policies do not have language that dictates a precise single answer. That is particularly true with the question of determining how many “occurrences” there have been. Therefore, any ambiguity must be resolved in favor of coverage and against the insurer. See, e.g. Am. Guar. & Liab. Ins. Co. v. Timothy S. Keiter, P.A., 360 F.3d 13, 17 (1st Cir. 2004) (“any ambiguity as to the meaning of the policy language is construed against the insurer”); Pension Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F. 3d 944, 953 (9th Cir. 2002) (“The language of the insurance policy is broad, and the onus was on the drafter of the policy to convey any limitations. If [the insurer] desired to limit coverage … , it could have expressly done so.”); Merchants Ins. Co. v. USF&G, 143 F.3d 5, 10 (1st Cir. 1998) (“[If] [the insurer] had really intended to limit coverage … , [it] was free to draft a policy with qualifying language that expressly implemented that intention.”).

Courts have tended to focus on the cause of the loss in assessing the number of occurrences. See Peco Energy Co. v. Boden, 64 F.3d 852, 856 (3d Cir. 1995) (“To determine 'whether bodily injury or property damage is the result of one occurrence or multiple occurrences, the majority of courts have looked to the cause or causes of the bodily injury or property damage. … “). However, they have reached varying decisions in answering the “how many” question. Some courts have found that under the circumstances before them, there is only one occurrence. See, e.g., id. (“[W]hen a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses for liability insurance purposes constitute part of a single occurrence.”); Eott Energy Corp. v. Storebrand Internat'l Ins. Co., 45 Cal. App. 4th 565, 575, 52 Cal. Rptr. 2d 894 (1996) (“[T]he term 'occurrence' reasonably contemplates that multiple claims could, in at least some circumstances, be treated as a single occurrence or loss. … In our view, [the insured's] objectively reasonable expectation would embrace the conclusion that multiple claims, all due to the same cause or a related cause, would be considered a single loss to which a single deductible would apply.”). Other courts have found that multiple occurrences might exist in circumstances in which some might have said that there was a single occurrence. Compare Eureka Fed. Sav. & Loan Ass'n v. Am. Cas. Co., 873 F.2d 229 (9th Cir. 1989) (court rejected contention of directors of failed savings and loan association who has been sued in connection with 200 loan transactions that each loan had resulted from the same lending strategy; court ruled that each failed loan was a separate loss) with Pennbank v. St. Paul Fire & Marine Ins. Co., 669 F. Supp. 122 (W.D. Pa. 1987) (development of a plan for the repossession of separate properties involved an 'occurrence').

However, courts generally have found in “disaster” situations that there is a single occurrence. As one author has observed:

As a general rule, when many persons are injured or damaged as the result of an ongoing physical process, the resulting injuries will typically be treated as one “occurrence.” Thus, in cases involving natural disasters, such as fires, floods, or multi-vehicle auto accidents, courts have generally found only one 'occurrence.'

See Michael F. Aylward, “Multiple 'Occurrences”' A Divisive Issue,” Coverage Vol. 5, No. 1, at 40 (Jan./Feb. 1995). See also id. at 44 (“Diverse tort claims may be aggregated where they result from the same physical cause, as in the case of a fire or train crash.”).

If there is a common theme in the decisions, it may be that the courts generally have resolved the issue by adopting a view of the number of occurrences that maximizes coverage for the insured. This is consistent with the widely accepted principle that if policy language is ambiguous, it will be interpreted in the manner that maximizes coverage.

Furthermore, a court could rule that there is just one occurrence for purposes of determining the number of deductibles or retentions, but multiple occurrences for purposes of any policy limits applicable on a “per occurrence” basis. This would limit what the insured would have to pay before an insurer has to pay while maximizing the total amount of coverage available. Courts have reached decisions that support such a conclusion. See Owens Illinois, Inc. v. Aetna Cas. & Sur. Co., 597 F. Supp. 1515 (D.D.C. 1984) (“[T]he allocation of rights and obligations established by the insurance policies would be undermined if [the insured's] coverage is subject to multiple deductibles.”); Michael F. Aylward, at 40 (“In seeking to 'maximize' coverage, courts first look to the type of claims presented. Does the insured face hundreds of small claims that will be absorbed by policy deductibles and self-insured retentions? If so, they are far more likely to treat the claims as involving one 'occurrence.' … By contrast, courts are more likely to find multiple 'occurrences' where the limits of liability are relatively low compared to the insured's total exposure.”). This is consistent with the notion of maximizing coverage in the event of an ambiguity.

It is unclear what the ultimate outcome will be in the World Trade Center litigation. However, the jury's verdict seems amply supported by the law. And, it does show that if an insurer fails to use language that limits its duty, it will be obligated to provide more expansive coverage.

Kirk A. Pasichis a partner in the Los Angeles firm of Pasich & Kornfeld, LLP. He represents insureds in complex coverage matters. He has been named as “the market leader for policyholder representation in California” by Chambers USA: America's Leading Business Lawyers 2003-2004.

On Dec. 6, 2004, a New York federal jury determined that the 9/11 attacks on the World Trade Center involved two “occurrences” under policies issued to leaseholder Larry Silverstein. As a result, Silverstein could get up to $1.1 billion more than if the attacks had constituted a single occurrence.

The litigation originally involved 22 insurers. However, the obligations of 13 insurers were determined to be governed by a “WilProp” form that had specific language defining an “occurrence.” The WilProp form defined “occurrence” to mean:

All losses or damages that are attributable directly or indirectly to one cause or to one series of similar causes. All such losses will be added together and the total amount of such losses will be treated as one occurrence irrespective of the period of time or area over which such losses occur. World Trade Center Properties, LLC v. Hartford Fire Ins. Co., 345 F.3d 154, 160 (2d Cir. 2003).

The Second Circuit concluded that “no finder of fact could reasonably fail to find that the intentional crashes into the WTC of two hijacked airplanes sixteen minutes apart as a result of a single, coordinated plan of attack was, at least, a 'series of similar causes.' Accordingly, we agree … that under the WilProp definition, the events of September 11th, constitute a single occurrence as a matter of law.” Id.

However, a different result was reached as to the remaining insurers. Silverstein contended that the governing terms were those terms in effect with Travelers, the primary insurer, whose policies did not contain a definition of “occurrence.” Those insurers also sought summary judgment.

Silverstein argued that each aircraft striking one of the World Trade Center's towers constituted a separate occurrence under the insurance program. The insurers argued that the attack was a single event that resulted from a single coordinated Al Qaeda plot. They also made the practical argument that with an integrated coverage program, it made no sense for insurers providing part of the program's coverage to pay a single loss, while the remaining insurers paid two losses.

Silverstein cited Arthur A. Johnson Corp. v. Indemnity Insurance Co., 7 N.Y.2d 222, 164 N.E.2d 704, 196 N.Y.S.2d 678 (1959). There, the court addressed a circumstance where a major rainfall flooded a construction site, giving rise to multiple claims of flood damage. The insurance carrier asserted a policy limitation of $50,000 per accident and claimed that because there had been only one proximate cause (the rainfall) there is only one “accident,” notwithstanding the fact that two separate walls collapsed. The court noted that other courts had reached varying conclusions in similar circumstances. The court then explained as follows:

[The] catastrophe was not the rain” that, in itself, did no harm. It was the breach of the wall letting the rainwater in. Furthermore, if the walls were located blocks away from each other on different job sites but subject to the same rainfall, no one could contest that there were two accidents. For these reasons, we conclude that the collapses of separate walls, of separate buildings at separate times, were in fact separate disastrous events and, thus, two different accidents within the meaning of the policy. 196 N.Y.S.2d at 684.

However, the court also made the following comment:

In the instant case, it cannot be said that one would allege but one act of negligence as the proximate cause of the injuries to the two separate properties. Here the proximate cause cannot be said to be the heavy rainfall but separate negligent acts of preparing and constructing separate walls which, for all we know, may have been built at separate times by separate groups of workmen. Id.

Thus, the court regarded the proximate cause not as the rainfall, but as separate negligent acts in preparing and constructing separate walls.

However, the Second Circuit rejected Silverstein's argument that Arthur A. Johnson supported the finding of multiple occurrences under the WilProp form. The court distinguished between first-party coverage, such as property insurance policies, and third-party liability insurance, which was at issue in Arthur A. Johnson. As the court explained, in the liability context, the cases “involved multiple liability claims filed against the insured by multiple parties,” while in the first-party property context, “the insured's negligence is not at issue; rather the policy insures against external perils such as fires, floods, and intentional acts that cause damage to the insured's property, and against which a property interest holder can take adequate measures to protect his investment in advance of any loss.” World Trade Center, 345 F.3d at 188. The Second Circuit was not persuaded that “the term 'occurrence' has obtained any … specialized or singular meaning in the context of property insurance,” noting that it had interpreted Arthur A. Johnson as “'rejecting any single definition of occurrence.'” Id. at 189. Therefore, the court concluded that “given the significant distinction between first-party and third-party insurance policies, the fact-specific nature of the inquiry, and the fact that it is the parties' intent that controls,” the meaning of “occurrence” is “sufficiently ambiguous under New York law … to warrant consideration by the fact finder of extrinsic evidence to determine the parties' intentions. Id. at 190. Thus, the court left it up to the jury to determine the number of occurrences.

At trial, Silverstein pointed to prior situations in which Travelers and Industrial Risk Insurers had treated what Silverstein contended were similar losses as separate occurrences under the same policy forms. One of these cases involved fires set to four California courthouses by an arsonist, which Travelers treated as separate occurrences. The other involved damage to a Harrah's entertainment casino in Louisiana from a series of rainstorms, which IRI treated as separate events. The jury agreed with Silverstein. Not surprisingly, the insurers have indicated that the verdict was wrong and they will seek post-trial relief.

The starting point in answering the question of “how many occurrences” is with the mutual intention of the parties at the time an insurance policy was sold. See AIU Ins. Co. v. Superior Court , 51 Cal. 3d 807, 799 P.2d 1253, 274 Cal. Rptr. 820 (1990) (“In the insurance context, we generally resolve ambiguities in favor of coverage. Similarly, we generally interpret the coverage clauses of insurance policies broadly, protecting the objectively reasonable expectations of the insured.”). However, many policies do not have language that dictates a precise single answer. That is particularly true with the question of determining how many “occurrences” there have been. Therefore, any ambiguity must be resolved in favor of coverage and against the insurer. See, e.g. Am. Guar. & Liab. Ins. Co. v. Timothy S. Keiter, P.A., 360 F.3d 13, 17 (1st Cir. 2004) (“any ambiguity as to the meaning of the policy language is construed against the insurer”); Pension Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F. 3d 944, 953 (9th Cir. 2002) (“The language of the insurance policy is broad, and the onus was on the drafter of the policy to convey any limitations. If [the insurer] desired to limit coverage … , it could have expressly done so.”); Merchants Ins. Co. v. USF&G, 143 F.3d 5, 10 (1st Cir. 1998) (“[If] [the insurer] had really intended to limit coverage … , [it] was free to draft a policy with qualifying language that expressly implemented that intention.”).

Courts have tended to focus on the cause of the loss in assessing the number of occurrences. See Peco Energy Co. v. Boden , 64 F.3d 852, 856 (3d Cir. 1995) (“To determine 'whether bodily injury or property damage is the result of one occurrence or multiple occurrences, the majority of courts have looked to the cause or causes of the bodily injury or property damage. … “). However, they have reached varying decisions in answering the “how many” question. Some courts have found that under the circumstances before them, there is only one occurrence. See, e.g., id. (“[W]hen a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses for liability insurance purposes constitute part of a single occurrence.”); Eott Energy Corp. v. Storebrand Internat'l Ins. Co., 45 Cal. App. 4th 565, 575, 52 Cal. Rptr. 2d 894 (1996) (“[T]he term 'occurrence' reasonably contemplates that multiple claims could, in at least some circumstances, be treated as a single occurrence or loss. … In our view, [the insured's] objectively reasonable expectation would embrace the conclusion that multiple claims, all due to the same cause or a related cause, would be considered a single loss to which a single deductible would apply.”). Other courts have found that multiple occurrences might exist in circumstances in which some might have said that there was a single occurrence. Compare Eureka Fed. Sav. & Loan Ass'n v. Am. Cas. Co., 873 F.2d 229 (9th Cir. 1989) (court rejected contention of directors of failed savings and loan association who has been sued in connection with 200 loan transactions that each loan had resulted from the same lending strategy; court ruled that each failed loan was a separate loss) with Pennbank v. St. Paul Fire & Marine Ins. Co., 669 F. Supp. 122 (W.D. Pa. 1987) (development of a plan for the repossession of separate properties involved an 'occurrence').

However, courts generally have found in “disaster” situations that there is a single occurrence. As one author has observed:

As a general rule, when many persons are injured or damaged as the result of an ongoing physical process, the resulting injuries will typically be treated as one “occurrence.” Thus, in cases involving natural disasters, such as fires, floods, or multi-vehicle auto accidents, courts have generally found only one 'occurrence.'

See Michael F. Aylward, “Multiple 'Occurrences”' A Divisive Issue,” Coverage Vol. 5, No. 1, at 40 (Jan./Feb. 1995). See also id. at 44 (“Diverse tort claims may be aggregated where they result from the same physical cause, as in the case of a fire or train crash.”).

If there is a common theme in the decisions, it may be that the courts generally have resolved the issue by adopting a view of the number of occurrences that maximizes coverage for the insured. This is consistent with the widely accepted principle that if policy language is ambiguous, it will be interpreted in the manner that maximizes coverage.

Furthermore, a court could rule that there is just one occurrence for purposes of determining the number of deductibles or retentions, but multiple occurrences for purposes of any policy limits applicable on a “per occurrence” basis. This would limit what the insured would have to pay before an insurer has to pay while maximizing the total amount of coverage available. Courts have reached decisions that support such a conclusion. See Owens Illinois, Inc. v. Aetna Cas. & Sur. Co., 597 F. Supp. 1515 (D.D.C. 1984) (“[T]he allocation of rights and obligations established by the insurance policies would be undermined if [the insured's] coverage is subject to multiple deductibles.”); Michael F. Aylward, at 40 (“In seeking to 'maximize' coverage, courts first look to the type of claims presented. Does the insured face hundreds of small claims that will be absorbed by policy deductibles and self-insured retentions? If so, they are far more likely to treat the claims as involving one 'occurrence.' … By contrast, courts are more likely to find multiple 'occurrences' where the limits of liability are relatively low compared to the insured's total exposure.”). This is consistent with the notion of maximizing coverage in the event of an ambiguity.

It is unclear what the ultimate outcome will be in the World Trade Center litigation. However, the jury's verdict seems amply supported by the law. And, it does show that if an insurer fails to use language that limits its duty, it will be obligated to provide more expansive coverage.

Kirk A. Pasichis a partner in the Los Angeles firm of Pasich & Kornfeld, LLP. He represents insureds in complex coverage matters. He has been named as “the market leader for policyholder representation in California” by Chambers USA: America's Leading Business Lawyers 2003-2004.