21 N.Y.3d 143 (2013)

When an insurance policy does not define ‘occurrence’ to aggregate separate incidents, the ‘unfortunate event’ test applies, requiring a close temporal and spatial relationship and a causal continuum to consider incidents as a single occurrence.

Summary

This case concerns an insurance coverage dispute between the Roman Catholic Diocese of Brooklyn and National Union Insurance Company regarding liability for a settlement paid to a minor who was sexually abused by a priest. The central issue is whether the multiple instances of abuse constitute a single ‘occurrence’ or multiple occurrences under the insurance policies. The New York Court of Appeals held that the incidents constituted multiple occurrences because they lacked a close temporal and spatial relationship and were not part of the same causal continuum, necessitating pro rata allocation of the settlement and multiple applications of the self-insured retention (SIR).

Facts

A minor, Alexandra L., was sexually abused by a priest of the Diocese on several occasions from August 1996 to May 2002. The abuse occurred in various locations, including the church rectory, the priest’s vehicle, and the minor’s home. The Diocese settled a civil action brought by the minor for $2 million plus additional consideration. National Union provided primary insurance to the Diocese under three consecutive one-year policies from August 31, 1995, to August 31, 1998. These policies had a $750,000 liability limit and a $250,000 self-insured retention (SIR) per occurrence.

Procedural History

The Diocese sought coverage under National Union’s policies. National Union disclaimed coverage based on exclusionary provisions and asserted that multiple SIRs applied. The Diocese then sought a declaratory judgment. The Supreme Court initially ruled against National Union, finding that they failed to timely disclaim coverage and considered the abuse a single occurrence. The Appellate Division reversed, holding that the acts were multiple occurrences, subject to pro rata allocation and multiple SIRs. The Court of Appeals granted leave to appeal.

Issue(s)

1. Whether National Union waived its right to assert that multiple SIRs apply and that the incidents were multiple occurrences by failing to timely disclaim on those grounds under Insurance Law § 3420(d)?
2. Whether the multiple instances of sexual abuse constitute a single ‘occurrence’ or multiple occurrences under the terms of the insurance policies?
3. Whether the liability should be allocated jointly and severally or on a pro rata basis among the implicated policies?

Holding

1. No, because the arguments regarding the SIR and allocation are limitations on liability, not disclaimers of coverage, and thus not subject to the notice requirements of Insurance Law § 3420(d).
2. Multiple occurrences, because the incidents lacked a close temporal and spatial relationship and were not part of a single causal continuum.
3. Pro rata, because the policies cover bodily injury that occurs during the policy period, and the incidents of abuse could not be precisely tied to specific policy periods.

Court’s Reasoning

The Court of Appeals first addressed the timeliness of National Union’s defenses. It held that Insurance Law § 3420(d) applies to disclaimers of coverage, not to limitations on liability like the SIR. Therefore, National Union did not waive its arguments regarding the SIR and allocation. On the merits, the Court applied the ‘unfortunate event’ test, established in Arthur A. Johnson Corp. v. Indemnity Ins. Co. of N. Am., to determine whether the incidents were a single or multiple occurrences. The Court emphasized that the policies did not define ‘occurrence’ to aggregate incidents. Applying the ‘unfortunate event’ test, the Court found that the sexual abuse incidents spanning six years and multiple locations lacked the necessary temporal and spatial closeness. The Court further reasoned that the incidents were not part of a single causal continuum, distinguishing the case from Hartford Acc. & Indem. Co. v. Wesolowski, where a single car crash resulted in multiple impacts in rapid succession. The Court stated, “cause should not be conflated with the incident.” With respect to allocation, the court determined a pro rata allocation was appropriate because “Plainly, the policy’s coverage is limited only to injury that occurs within the finite one-year coverage period of the policy,” aligning with the policy language and Consolidated Edison Co. of N.Y. v. Allstate Ins. Co. ruling.