Number of occurrences is the “money issue.” A court finds that damage was caused by multiple occurrences and poof, in a heartbeat, an insurer’s exposure for a claim can double or triple or more. It is also one of the more predictable issues. Number of occurrences, more than some others, enables the parties to make some educated guesses. For example, in a state that applies the “cause test” for determining number of occurrences, a court is more likely to find that injury or damage was caused by a single occurrence, and, hence, one limit of liability applies. In a state that applies the “effect test” for determining number of occurrences, a court is more likely to find that injury or that damage was caused by more than one occurrence, and, hence, more than one limit of liability applies.

This is why I always pay more attention to number of occurrences decisions that buck this general rule. United National Ins. Co. v. Assurance Company of America, No. 10-1086 (D. Nev. Nov. 12, 2015) is one such case. Not to mention that it is a construction defect case. In other words it does not involve some obscure fact pattern that is unlikely to be replicated.

At issue was coverage for R.B. Petersen & Sons Construction Co., a grading and paving contractor that worked on a project called Seneca Falls. “Petersen’s work on this project was governed by six written proposals, which delineated several different types of work: over-excavation, grading, sub-grading for curbs and streets, fine grading, compacting, filling, curb construction, paving, importing soil, importing gravel, and placing gravel.”

The facts are described by the court like this: “R.B. Petersen was added as a third-party defendant in the underlying construction-defect litigation in October 2006. After amendments, the complaint alleged claims of 124 homeowners in 122 Seneca Falls homes purchased between August 22, 2000, and May 15, 2003. In their third amended complaint, the homeowners alleged that R.B. Petersen ‘provided rough grading and earthwork services’ and that ‘the nature and scope of construction defects include but may not be limited to, improperly placed or compacted soils, improperly designed or constructed walkways, driveways, slabs, pads, foundations, exterior masonry site retaining/fence walls, and landscape.’ Throughout that litigation, there were allegations that R.B. Petersen caused damages by (1) failing to over-excavate to a proper depth, (2) failing to provide a gravel base at home sites, (3) using expansive and/or corrosive soils in its fill material, (4) improperly compacting slab sites, and (5) using oversized fill materials.”

Putting aside how the issue arose, it became necessary for the court to determine how many occurrences caused the damage at issue in a settlement. [There was also a question concerning the applicability of an “anti-stacking” provision but I’ll take a pass on that.] As you would expect, the court started its analysis by addressing how Nevada law treats number of occurrences. The answer – like the majority of jurisdictions – is the causal approach (i.e., the cause test). “Under this analysis, the inquiry is focused on whether there was one or more than one cause [that] resulted in all of the injuries or damages.’ ‘[T]he focus of the inquiry should not be on the number, magnitude or time of the injuries, but rather on the cause or causes of the injury.... As long as the injuries stem from one proximate cause there is a single occurrence.” The court went on to discuss three examples of the Nevada Supreme Court’s application of the casual test.

The primary insurer argued (in a dispute with the excess insurer, as is often the case) that all of the insured’s grading work, as a whole, at the Seneca Falls development was the single cause of the damage, and, thus, constituted one occurrence under its policies. On one hand, the court saw this point: “Zurich is correct that rough grading, over-excavation, importing fill materials, paving, filling, and compacting soils is an interconnected series of acts or omissions by R.B. Petersen that are attendant to or part of the grading and paving work it performed at the Seneca Falls development. Zurich is also correct that the record reflects that those series of acts and omissions are what caused damage to the homes in the Seneca Falls development and created R.B. Petersen’s liability for the ‘scaling and corrosion of various elements of the homes, ponding and drainage problems surrounding the homes[,] and moisture intrusion into the homes.’”

However, that was not the end of the analysis. The court took note of the fact that the insured’s “negligence was directed toward separate groups of homeowners and can be separated into several discrete series of acts or omissions.” And this became the basis for the court’s determination that the property damage was caused by four “independent causes:” “the grading and paving work that R.B. Petersen performed in each of the four units of that development.” More specifically, “R.B. Petersen performed grading and paving work in all four units of the Seneca Falls development and that its work was performed in four or five distinct phases over several years. Moreover, that R.B. Petersen’s grading and paving work at the Seneca Falls development was subject to different soils reports and recommendations for each unit of that development.”

United National v. Assurance is not going to change my opinion that, in a state that applies the “cause test” for determining number of occurrences, a court is more likely to find that damage was caused by a single occurrence. But the moral of the story is don’t judge an issue by its label. Damage that looks like it has one single, general cause – as Zurich argued and the court acknowledged was not an unreasonable position – can in fact be parsed into separate, single causes. So the court complies with its obligation to follow the requisite cause test, yet issues an opinion that resembles the effect test.