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The Policy – Insurance Law Section Council – Illinois State Bar Association Illinois Supreme Court Holds Insurer to Burden of Proving That Its Policy Limitation Applies: Two Deaths Are Not a Single “Occurrence” ( Addison
Insurance Company v. Donna Fay, et al., Supreme Court Docket #105752 (1/23/09)) Copyright - Scott A. Blumenshine, Chicago
May 2009
The Illinois Supreme Court in Addison Insurance Company v. Donna Fay et al. protected an insurance policyholder and rejected the insurer’s attempt to limit his
insurance coverage. The court ruled that the deaths of two boys on the insured’s property were two occurrences and that the deaths were not a single occurrence as the insurer argued. Invoking the principle of liberal policy construction, the court determined that the insurer could not meet its burden of proving that its policy limitation applied to the case facts.
The opinion is significant because it rebuffed a common insurer tactic of falling back on dense policy verbiage that it drafts in order to deny or limit coverage. Often times the courts unquestioninly accept insurance policy obfuscation. Because policy language is drafted by insurers, and because the language is not negotiated by insureds, the courts must invoke liberal policy construction in its rulings.
The Facts
The case arose from the tragic deaths of two boys, Everett Hodgins and Justice Carr, on the property of Donald Parrish. Parish operated a business from the property. The property contained an excavation pit that was partially filled with water. The sand and clay around the pit was saturated with water. These circumstances created a
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due to prolonged exposure to the cold water and weather. The police investigators and medical experts could not definitively establish when the boys died.
The Policy
Addison Insurance Company insured Parish. The policy provided for a “General Aggregate Limit” of $2 million. The policy also contained an “Each Occurrence” limit of $1 million.
The Underlying Case Lawsuit and Declaratory Judgment Action The families of the deceased boys brought suits against Donald Parish. The lawsuit alleged Parrish’s failure to control and secure his property. Addison agreed to settle the claims for an amount equal to the policy’s limits. Addison brought the
declaratory judgment action (which was the subject of the Supreme Court’s decision) to resolve the issue of whether the boys’ deaths were one or two occurrences. The decision as to number of occurrences would determine whether Addison was obligated to pay $1 million or $2 million.
The trial court found that the deaths were the result of two occurrences. The trial court found the evidence sufficient to show that the causes of death were different and the circumstances immediately prior to death were different. The appellate court reversed relying on the supreme court’s decision in Nicor, Inc. v. Associated Electric & Gas Insurance Services Ltd., 223 Ill. 2d 407 (2006) concluding that the deaths were "so closely linked in time and space as to be considered by a reasonable person as one `occurrence.' "
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The court stated the issue as whether the deaths of Everett Hodgins and Justice Carr constituted a single occurrence or separate occurrences.
Standard of Review and Principles of Construction
The opinion noted that the construction of an insurance policy is a question of law, subject to de novo review. It noted that a court's primary objective in construing an insurance contract is to ascertain and give effect to the intention of the parties as
expressed in the agreement. Significantly, the court cited precedent for the principle that an insurance contract will be liberally construed in favor of the insured.
Burden of Proof
The opinion cited the well established principle that the burden is on the insured to prove that a claim falls within the coverage of the insurance policy. After the insured has proven coverage applies, the burden then shifts to the insurer to prove any limitation or exclusion applies. The court found that the defendants (the insured Parrish and estate claimants) proved coverage: the deaths occurred on the insured property, the policy covered the type of incident giving rise to the claims, and that the value of the losses equaled or exceeded the policy limits. Addison brought the claim after the coverage was established, and the claims were settled for “policy limits.”
The issue was which policy limits applied. The insurer Addison sought to limit the recovery by applying the stricter and lesser per occurrence policy limit of $1 million. The court held that the insurer thus bore the burden of establishing that the deaths of the two boys constituted one occurrence and that the lesser policy limit applied.
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The court noted that the policy itself defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The parties had no dispute about the definition of “occurrence.” However, because the policy did not state when an injury will be considered as a separate
occurrence, the court was required to construe the policy by applying the facts of the case. The decision then reviewed its opinion in Nicor for guidance.
In considering the proper way to determine the number of occurrences under an insurance policy, the court in Nicor considered which of two competing theories properly represented the law of Illinois. Under the "cause theory," a court will determine the number of occurrences by referring to the cause or causes of the damage. Under the "effect theory," the number of individual claims or injuries resulting from the accident will determine the number of occurrences. The court recognized that the cause theory represents the law in Illinois.
The insurer Addison argued that the focus should be the conduct of its insured. Addison asserted that Parrish was guilty of but one sole act – the negligent maintenance of his property. Addison, the court agreed, was correct that Parrish was not guilty of intervening negligent acts between each boy’s injury.
This is where the court stepped up. The court rejected Addison’s rationale that the focus should be on the number of negligent acts. The court found that Addison’s position would lead to an “unreasonable interpretation” of Parrish’s insurance policy.
Focusing on the sole negligent omission of failing to secure the property would allow two injuries, days or even weeks apart, to be considered one occurrence…Purchasers of insurance such as Parrish would be left unprotected by their insurance policy, and liable for any amount above the per-occurrence limit. In accepting a per-occurrence limit, Parrish could not have intended to expose himself to greater liability by allowing
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multiple injuries, sustained over an open-ended time period, to be subject to a single, per-occurrence limit.
The court found that where the injuries result from a continuous negligent
omission, a limiting principle must be applied. The limiting principle court applied was a time and space test. The time and space test looks at whether the cause and result were so close in time as to be considered one event. The court then delved into the case facts. The facts were clear as to where the boys died and the cause of their deaths. The facts were unclear as to the exact time and manner of their deaths. No conclusive evidence existed that the time and manner of the deaths were a single event.
Because the facts did not conclusively demonstrate that the deaths were a single occurrence, the court ruled that Addison could not meet its burden of proving that the boys’ deaths were so closely linked in time and space as to be considered one event. Addison could not prove facts in support of its policy limitation and the estate claims were thus not subject to the lower policy limits.
Commentary
The decision upheld the rights of the insurance consumer Parrish, and as a result, the estates of the two dead boys. The court rejected as unreasonable the insurer’s
interpretation of the policy and the facts that the two deaths constituted a single
occurrence. The supreme court soundly concluded that Parrish could not have intended to purchase an insurance policy that only protected him under the lower each occurrence limit for the two boys’ deaths.
The opinion lays out three policy construction principles: 1) a reasonable policy interpretation, 2) the insured’s intent, and 3) liberality. The court expressly rejected as unreasonable the insurer’s argument that looks solely at the number of negligent acts.
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The court concluded that such an analysis would allow insurers to avoid payment for multiple losses occurring over a long period of time, if the losses occurred as a result of one act of negligence. The court also found that the insured could not have purchased his policy with the intent that multiple deaths would be subject to a single claim limit and expose him to excess policy liability. The court justly enforced what are often unspoken policy holder rights that are hammered at the anvil of unreasonable and strict insurance policy construction.
Insurance contracts are an oddity. The insured asks to be insured and makes premium payments. The insurer promises the insured that it will pay in the event of a loss. The insurer completely controls the policy language. The insurer drafts the policy. It is well established that such an agreement is a contract of adhesion. (The reason to favor coverage is twofold: to effectuate intent of insured who purchased policy to obtain
coverage and to lay burden upon insurance company which, as drafter, could have drafted policy and exceptions more clearly and specifically; A.D. Desmond Co. v. Jackson National Life Insurance Co., 223 Ill. App. 3d 616 (1992)). In the event of a loss, some insurers deny or attempt to limit claims based on vague, obtuse or just plain
incomprehensible policy language. The courts are the only source of remedy for the insured or claimant who encounters a recalcitrant insurer who improperly relies on inapplicable policy language.
The court’s opinion in Addison is important for insurance consumers who are generally uninformed, unsophisticated and reliant upon insurance companies who are exceptionally well informed, sophisticated and non-reliant upon insureds in matters of insurance transactions. The opinion is also important for negligence victims who, under
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the law, are entitled to full compensation which typically comes from insurance. Where insurers collect insurance premiums based on its promise to pay for unknowable future events, it is only fair that they be held to their promise and not be allowed to slink away under the cover of vague policy language and unreasonable policy interpretation.
