The American Law Institute’s “Principles of the Law of Liability Insurance” project rolls along. Actually, given the glacial speed of the process, it is more accurate to say that it is chugging along. But even the tortoise eventually covered a lot of ground and that’s what is happening here.

As I reported in the June 4th issue of Coverage Opinions, the principals of the Principles, Professors Tom Baker and Klye Logue, informed me that at its May meeting the ALI membership approved all of the remaining sections of Chapter 2 without amendment (in general, involving various issues concerning the duty to defend and reservations of rights). Chapter 3 (which includes allocation and contribution; exclusions; conditions; insuring clauses; and application of limits and deductibles) will be worked on for the next year, with the goal of submitting a complete draft of Chapter 3 to the ALI Council for its approval in Fall 2015, and then to the membership in May 2016. 

Several of the sections of Chapters 1 and 2 have been met with insurer concerns, generally on the basis that they adopt minority positions. It would be well-beyond the scope of this brief article to address such concerns here. I did address one troubling aspect of Chapter 2 in detail in the April 23rd issue of Coverage Opinions – the hourly rate that independent counsel can charge. I was pleased to learn that my article led to a relatively small editorial change.

With Chapter 3 next up, I take a brief look here at one provision of the draft that strikes me as very problematic for insurers. The draft text of section 36 defines the term “accident,” unless stated otherwise in a liability policy, and when used in an insuring clause, as follows: “an action or event that causes a result that the insured does not subjectively expect or intend.” In fairness I have to admit that I have not seen any of the Comments or Reporters’ Notes concerning this definition.

As I also wrote about, separately, in the June 4th issue of Coverage Opinions, courts have been struggling with the meaning of the term “accident” for a very long time. A very, very long time. The term “accident” is usually not defined in a liability policy. These days a policy provides coverage for an “occurrence,” which, in turn, is defined as an “accident, including continuous…” (you know the rest).

I have come to the conclusion that the question whether injury or damage was caused by an “accident” gets the nod as the oldest continuously running insurance coverage issue. It is the Mousetrap of insurance coverage. The earliest American case that I could find, addressing whether an “accident,” for purposes of insurance coverage took place, is from 1835 (Howell v. Cincinnati Ins. Co., Ohio Supreme Court). And English cases go back further. But it’s not just that there are a lot of really old cases addressing the “accident” question -- it’s that some of them look remarkably similar to ones that were decided yesterday. In other words, not only have courts been grappling for 180 years with the coverage question whether injury or damage was caused by an “accident,” but they haven’t figured out the answer after all this time.

The ALI Principles depart from most liability policies and define “accident.” But to do so as “an action or event that causes a result that the insured does not subjectively expect or intend” is likely to result in coverage for undeserving situations.

Courts have long-been confronted with claims by insureds who did the most outrageously intentional acts, and then maintained that coverage was owed because they did not expect or intend the injury that resulted. So it was an accident. However, many of these courts have also long seen through these assertions of subjective intent as being implausible. Indeed, some judges even use language to suggest that they are snickering inside at the argument that someone could have engaged in such an outrageous act and then asserted: yeah, but I didn’t mean to cause that injury. Courts usually solve this problem by concluding that, despite the insured’s assertion otherwise, when an injury is substantially certain to occur (or some similar language), it was not caused by an accident.

But to specifically define “accident” using a subjective test is to open the door to the argument that coverage is owed to a guy who cold-cocked another in the face – but now claims that he only meant to break the other’s nose and, thus, did not subjectively expect or intend to cause the brain damage that occurred when the victim fell to the ground [This sounds like an extreme example but it’s not. Lots of cases resemble this situation.] By using an express subjective definition of “accident,” an injury, despite the substantial certainty that it was going to occur, may be determined to have been caused by an accident. While courts may find an insured’s assertion, that an injury was not subjectively expected or intended, to be ludicrous, they may nonetheless be compelled, if following the ALI Principle, to rule in the face of incredulousness. After all, with policy language being the test for determining coverage, courts may be constrained to conclude that it trumps common sense.

Surely even the strongest pro-policyholder advisors involved with the ALI Principles can’t believe that coverage is owed based on self-serving statements of intent that fly in the face of reality.