The Bermuda Form

Should an Insured Declare An Integrated Occurrence?

Determining whether to declare integrated occurrence at the outset of a claim can have significant economic ramifications. When a claim is in its early stages, however, policyholders may not be able to determine the nature and extent of the occurrence or occurrences involved, thus potentially putting policyholders with Bermuda Form coverage at a disadvantage.

The Bermuda Form provides that a single “occurrence” exists if “actual or alleged personal injury to any individual person, or actual or alleged property damage to any specific property, arising from the insured's products takes place on or subsequent to the inception date, … and before the termination date of Coverage A.” Bermuda Form 0004, at § III(V)(1). The Bermuda Form further provides that a policyholder may be required to declare an integrated occurrence if that claim involves “an occurrence encompassing actual or alleged personal injury, [and/or] property damage … to two or more persons or properties which commences over a period longer than (30) consecutive days which is attributable directly, indirectly or allegedly to the same actual or alleged event, condition, cause, defect, hazard and/or failure to warn of such.” Id. at § III(R).

As reflected, this language applies only to claims involving multiple occurrences alleging damage to multiple persons or properties when they are attributable or allegedly attributable to the same actual or alleged condition, cause or defect. As a result of such policy language, if a claim involves a single occurrence the need to declare an integrated occurrence is negated.

One potential benefit of declaring an integrated occurrence when confronted with multiple occurrences is that by “batching” such claims into a single occurrence, the insured is required to pay only a single self-insured retention for that one batched claim. By contrast, without the ability to “batch,” the insured potentially would have to pay a separate self-insured retention for each claim, such that actual insurance proceeds in excess of the retention are never reached.

To derive the benefit of an integrated occurrence, the policyholder must declare to its Bermuda Form insurers in writing that a matter is, and must be handled as, an integrated occurrence. Id. In making such a declaration, ample care must be given to identify what comprises the occurrence. The declaration must precisely and thoroughly describe the occurrence, but not describe it too broadly. For example, defining an integrated occurrence as “all claims relating to Product X” could unintentionally batch claims that are distinct from and do not allege the defects and/or injuries that gave rise to the claim for which the policyholder declares an integrated occurrence. A risk of such a broadly worded declaration is that an unrelated claim several years later alleging entirely different defective qualities, and resulting damages, from the same product involved in the earlier declaration may be “batched” into the same policy year as the earlier declaration. Meanwhile, the earlier claim may have already impaired or exhausted the coverage, such that the insured will be left without coverage for the subsequent claim.

Conversely, describing the integrated occurrence too narrowly can also be problematic. The declaration of an integrated occurrence is often made at the early stages of a claim, before theories of defect, damage, causation and liability have fully developed. In the face of an overly narrow integrated occurrence description, an insurer may contend that underlying claims premised on the later-developed theories are not batched into the integrated occurrence, and instead should be treated as separate occurrences. Among the downsides of such a result is that the later claim or claims may be subject to separate retentions, thus potentially in the insured being unable to reach the available insurance limits excess to the self-insured retention.

Retroactively Declaring An Integrated Occurrence Requires Careful Consideration

Recognizing that policyholders may not know whether to declare an integrated occurrence before theories of defect, damage, causation and liability have fully developed, the Bermuda Form permits a policyholder to retroactively declare an integrated occurrence after having provided notice of the same claim as a non-integrated single occurrence. Specifically, the Bermuda Form provides that even if in an earlier policy period an occurrence was not reported as an integrated occurrence, that previously reported occurrence may later be deemed to be “batched” with other similar occurrences as an integrated occurrence in a later policy year, as described below:

If notice of an Occurrence … was given during a prior Annual Period, and if Personal Injury or Property Damage which is included in such Occurrence is included in an Integrated Occurrence of which Notice of Integrated Occurrence is first given during a subsequent Annual Period, all Ultimate Net Loss arising from such earlier notified Occurrence shall be included in the Ultimate Net Loss arising from such Integrated Occurrence. Any payments of Ultimate Net Loss on account of such earlier notified Occurrence shall be deemed to have been made under the Annual Period in which the Company received such Notice of Integrated Occurrence.

Id. at § II(B).

On the surface, this provision appears advantageous to policyholders facing a claim that evolved over time. Nonetheless, what the quoted language in essence means is that the previously noticed claim will be handled in a later policy year (“a subsequent Annual Period”). This raises at least two potential issues.

First, there may be other, as yet unknown, claims in the same later policy year in which the integrated occurrence was retroactively declared. However, because the Bermuda Form is “a claims made and reported policy,” the expired prior policy will not respond to those yet-unknown claims. The net result is that the yet-unknown claims arising under the subsequent policy year would then compete for available policy limits with the retroactively declared integrated occurrence. Moreover, because the integrated occurrence is by definition composed of multiple occurrences, and thus may involve significant defense and indemnity costs, there is a chance that less than adequate limits will remain to pay for those yet-unknown claims.

Second, the Bermuda Form frequently contains endorsements containing “Previously Notified Occurrence or Claim” exclusions. When retroactively declaring an integrated occurrence, these exclusions could create gaps in coverage. A typical “Previously Notified Occurrence or Claim” exclusion provides:

This Policy does not apply to …
Any Occurrence, including any “Batch Occurrence,” “Integrated Occurrence” or similar term as defined under any other Policy, Personal Injury, Property Damage or Advertising Liability or any Claim or potential Claim arising therefrom, notice of which has been given or deemed to have been given under any other policy prior to the Continuity Date. …

For purposes of this endorsement, the Continuity Date shall be defined as: ["Previously Notified Occurrence or Claim" exclusion].

Under this language, if the policy defines the continuity date as Jan. 1, 2016, there can be no coverage for an occurrence previously noticed as a single occurrence on any date prior to Jan. 1, 2016. The ability to retroactively declare that previously notified occurrence as an integrated occurrence is thus effectively precluded.

Nonetheless, the continuity date will usually be the first date that an insurer participates uninterrupted in the policyholder's Bermuda Form coverage program. Thus, in contrast to the foregoing illustration, if the Continuity Date is 1987 because Insurer XYZ had consistently participated in the policyholder's Bermuda Form coverage program since 1987, the ability to retroactively declare as an integrated occurrence previously notified as a single occurrence should be unaffected. Instead, as described above, the greater risk is where the Continuity Date is more recent. If that Continuity Date is after the date upon which the policyholder of an occurrence as a single occurrence, the policyholder will be precluded from then retroactively declaring an integrated occurrence under the policy containing that more recent Continuity Date.

Conclusion

In sum, the decision to declare an integrated occurrence is frequently not without risk. Policyholders must therefore be attentive to not only policy language and claims analysis, but also to case-specific risk-based subjective inquiry and business judgment.

*****
Jared Zola and Lisa M. Campisi are partners in Blank Rome's policyholder-only insurance coverage practice in New York. This article also appeared in the New York Law Journal, an ALM sibling publication of this newsletter.

Many Fortune 500 companies' product liability insurance programs use the Bermuda Form to insure alleged bodily injury and property damage. The Bermuda Form has many characteristics distinct from standard commercial general liability (CGL) policies. Knowing its intricacies is essential for any coverage lawyer involved in large-scale coverage analysis and disputes.

When product and general liability insurance markets tightened in the mid-1980s, insurers designed the Bermuda Form to maintain the key features of traditional occurrence coverage and add additional features in an attempt to eliminate what insurers viewed as growing exposures and risks. Among these newly added features unique to the Bermuda Form are the so-called “integrated occurrence” provisions. Under traditional occurrence-based policies, where there is continuing injury or damage over many years, coverage is often owed on multiple policies spanning many policy years. By instead of funneling similar third-party claims into a single policy year through an “integration” process, the Bermuda Form sought to provide a more insurer-friendly construct.

Most versions of the Bermuda Form require a policyholder to formally “declare” an “integrated occurrence” when providing notice to the insurer. Whether to do so, and how to do so in a way that will capture the appropriate claims and yet not inadvertently cast too wide a net, raises many thorny considerations. Additionally, while the Bermuda Form permits a retroactive declaration that an occurrence is integrated after it had previously been declared a single occurrence, doing so likewise raises several issues that require careful consideration.

Should an Insured Declare An Integrated Occurrence?

Determining whether to declare integrated occurrence at the outset of a claim can have significant economic ramifications. When a claim is in its early stages, however, policyholders may not be able to determine the nature and extent of the occurrence or occurrences involved, thus potentially putting policyholders with Bermuda Form coverage at a disadvantage.

The Bermuda Form provides that a single “occurrence” exists if “actual or alleged personal injury to any individual person, or actual or alleged property damage to any specific property, arising from the insured's products takes place on or subsequent to the inception date, … and before the termination date of Coverage A.” Bermuda Form 0004, at § III(V)(1). The Bermuda Form further provides that a policyholder may be required to declare an integrated occurrence if that claim involves “an occurrence encompassing actual or alleged personal injury, [and/or] property damage … to two or more persons or properties which commences over a period longer than (30) consecutive days which is attributable directly, indirectly or allegedly to the same actual or alleged event, condition, cause, defect, hazard and/or failure to warn of such.” Id. at § III(R).

As reflected, this language applies only to claims involving multiple occurrences alleging damage to multiple persons or properties when they are attributable or allegedly attributable to the same actual or alleged condition, cause or defect. As a result of such policy language, if a claim involves a single occurrence the need to declare an integrated occurrence is negated.

One potential benefit of declaring an integrated occurrence when confronted with multiple occurrences is that by “batching” such claims into a single occurrence, the insured is required to pay only a single self-insured retention for that one batched claim. By contrast, without the ability to “batch,” the insured potentially would have to pay a separate self-insured retention for each claim, such that actual insurance proceeds in excess of the retention are never reached.

To derive the benefit of an integrated occurrence, the policyholder must declare to its Bermuda Form insurers in writing that a matter is, and must be handled as, an integrated occurrence. Id. In making such a declaration, ample care must be given to identify what comprises the occurrence. The declaration must precisely and thoroughly describe the occurrence, but not describe it too broadly. For example, defining an integrated occurrence as “all claims relating to Product X” could unintentionally batch claims that are distinct from and do not allege the defects and/or injuries that gave rise to the claim for which the policyholder declares an integrated occurrence. A risk of such a broadly worded declaration is that an unrelated claim several years later alleging entirely different defective qualities, and resulting damages, from the same product involved in the earlier declaration may be “batched” into the same policy year as the earlier declaration. Meanwhile, the earlier claim may have already impaired or exhausted the coverage, such that the insured will be left without coverage for the subsequent claim.

Conversely, describing the integrated occurrence too narrowly can also be problematic. The declaration of an integrated occurrence is often made at the early stages of a claim, before theories of defect, damage, causation and liability have fully developed. In the face of an overly narrow integrated occurrence description, an insurer may contend that underlying claims premised on the later-developed theories are not batched into the integrated occurrence, and instead should be treated as separate occurrences. Among the downsides of such a result is that the later claim or claims may be subject to separate retentions, thus potentially in the insured being unable to reach the available insurance limits excess to the self-insured retention.

Retroactively Declaring An Integrated Occurrence Requires Careful Consideration

Recognizing that policyholders may not know whether to declare an integrated occurrence before theories of defect, damage, causation and liability have fully developed, the Bermuda Form permits a policyholder to retroactively declare an integrated occurrence after having provided notice of the same claim as a non-integrated single occurrence. Specifically, the Bermuda Form provides that even if in an earlier policy period an occurrence was not reported as an integrated occurrence, that previously reported occurrence may later be deemed to be “batched” with other similar occurrences as an integrated occurrence in a later policy year, as described below:

If notice of an Occurrence … was given during a prior Annual Period, and if Personal Injury or Property Damage which is included in such Occurrence is included in an Integrated Occurrence of which Notice of Integrated Occurrence is first given during a subsequent Annual Period, all Ultimate Net Loss arising from such earlier notified Occurrence shall be included in the Ultimate Net Loss arising from such Integrated Occurrence. Any payments of Ultimate Net Loss on account of such earlier notified Occurrence shall be deemed to have been made under the Annual Period in which the Company received such Notice of Integrated Occurrence.

Id. at § II(B).

On the surface, this provision appears advantageous to policyholders facing a claim that evolved over time. Nonetheless, what the quoted language in essence means is that the previously noticed claim will be handled in a later policy year (“a subsequent Annual Period”). This raises at least two potential issues.

First, there may be other, as yet unknown, claims in the same later policy year in which the integrated occurrence was retroactively declared. However, because the Bermuda Form is “a claims made and reported policy,” the expired prior policy will not respond to those yet-unknown claims. The net result is that the yet-unknown claims arising under the subsequent policy year would then compete for available policy limits with the retroactively declared integrated occurrence. Moreover, because the integrated occurrence is by definition composed of multiple occurrences, and thus may involve significant defense and indemnity costs, there is a chance that less than adequate limits will remain to pay for those yet-unknown claims.

Second, the Bermuda Form frequently contains endorsements containing “Previously Notified Occurrence or Claim” exclusions. When retroactively declaring an integrated occurrence, these exclusions could create gaps in coverage. A typical “Previously Notified Occurrence or Claim” exclusion provides:

This Policy does not apply to …
Any Occurrence, including any “Batch Occurrence,” “Integrated Occurrence” or similar term as defined under any other Policy, Personal Injury, Property Damage or Advertising Liability or any Claim or potential Claim arising therefrom, notice of which has been given or deemed to have been given under any other policy prior to the Continuity Date. …

For purposes of this endorsement, the Continuity Date shall be defined as: ["Previously Notified Occurrence or Claim" exclusion].

Under this language, if the policy defines the continuity date as Jan. 1, 2016, there can be no coverage for an occurrence previously noticed as a single occurrence on any date prior to Jan. 1, 2016. The ability to retroactively declare that previously notified occurrence as an integrated occurrence is thus effectively precluded.

Nonetheless, the continuity date will usually be the first date that an insurer participates uninterrupted in the policyholder's Bermuda Form coverage program. Thus, in contrast to the foregoing illustration, if the Continuity Date is 1987 because Insurer XYZ had consistently participated in the policyholder's Bermuda Form coverage program since 1987, the ability to retroactively declare as an integrated occurrence previously notified as a single occurrence should be unaffected. Instead, as described above, the greater risk is where the Continuity Date is more recent. If that Continuity Date is after the date upon which the policyholder of an occurrence as a single occurrence, the policyholder will be precluded from then retroactively declaring an integrated occurrence under the policy containing that more recent Continuity Date.

Conclusion

In sum, the decision to declare an integrated occurrence is frequently not without risk. Policyholders must therefore be attentive to not only policy language and claims analysis, but also to case-specific risk-based subjective inquiry and business judgment.

*****
Jared Zola and Lisa M. Campisi are partners in Blank Rome's policyholder-only insurance coverage practice in New York. This article also appeared in the New York Law Journal, an ALM sibling publication of this newsletter.