Insurance Update: Sad Facts Result in Inconsistent Ruling on Number of Occurrences By Illinois Supreme Court

A coverage dispute arising from the drowning deaths of two teenage boys resulted in a number of occurrence ruling by the Illinois Supreme Court which, while claiming to be governed by prior case law, strays from the court’s prior reflections on the issue.  In Addison Ins. Co. v. Fay, Case No. 105752, 2009 Ill. LEXIS 176 (Ill. Jan. 23, 2009), the court looked at the sad facts of the underlying case to determine whether the injuries constituted a single occurrence or multiple occurrences, and thus whether the single $1,000,000 per occurrence limit of liability or the $2,000,000 aggregate limit was implicated.  The court ultimately decided that, because little was known about the timing or circumstances of the boys’ deaths, there were two occurrences under the terms of the Addison insurance policy.

The opinion includes a recitation of the underlying facts.  The two boys were last seen on April 30, 1997 leaving one’s home, and that teen’s mother believed the boys were going fishing.  When they did not return home that night, a search ensued.  The boys’ bodies were found four days later, on May 3, 1997, in an excavation pit on land owned by Addison’s insured.  The clay and sand pit was saturated with water, creating a “quick” condition.  The opinion explained that a “quick” condition occurs when a cushion of water prevents the soil from supporting a load, which can result in the load sinking and becoming trapped.  Quicksand is a commonly referenced type of soil exhibiting the condition.

The boys’ bodies were at the edge of a pool of water in the pit, trapped in wet clay and sand, facing in different directions but physically touching.  Two autopsies showed that the immediate cause of one’s death was hypothermia and the other’s death was caused by drowning secondary to hypothermia.  Neither autopsy could show with any certainty the time of death of either boy, nor how closely in time they had died.  Witnesses for both the estates of the boys and the insured-landowner conceded that the boys’ actions after they left home were unknown. Investigators concluded that the boys had been returning home to get out of a storm the evening they disappeared, had used the property where their bodies were found as a shortcut and had gotten trapped.  The investigation also indicated that one tried to jump across the water and became trapped in the excavation pit, and that the other boy tried to help his friend but had become trapped himself.  The investigators could not conclude how much time had elapsed between the two entrapments and whether the second boy had been present when the first boy became trapped. 

The boys’ parents sued the landowner.  Addison, as the landowner’s insurer, agreed to settle the case for an amount equal to the policy limits, but a dispute ensued about the number of occurrences, meaning whether the single $1,000,000 per occurrence limit of liability or the $2,000,000 aggregate limit applied.  The trial court found that there were two occurrences, but the appellate court reversed based on Nicor, Inc. v. Associated Electric & Gas Ins. Services, Inc., 223 Ill. 2d 407 (Ill. 2006), and a New Jersey appellate court decision with similar facts called Doria v. Insurance Co. of N. America, 210 N.J. Super. 67, 509 A.2d 220 (N.J. App. 1986).

The Illinois Supreme Court began its analysis on further appeal by determining the standard of review it would apply to the findings of fact by the trial court.  The court noted that the trial court had heard no live testimony and, therefore, was not in a superior position to observe the witnesses while testifying to judge their credibility or to determine the weight to give their respective testimony.  The court therefore found that it was not bound by the trial court’s findings and could review the record de novo.  2009 Ill. LEXIS 176, at **8-9.

The Illinois Supreme Court then looked at which party bore the burden on the issue of number of occurrences.  Insurer Addison argued that the claimants must establish the number of occurrences to establish coverage.  The supreme court cited the tenet that once an insured demonstrates coverage, the burden falls on the insurer to prove that a limitation of coverage applies.  The court then noted that insurer Addison brought the declaratory judgment action to determine the number of occurrences only after the claimants had established that the claims fell within the policy’s coverage and the value of the loss.  The court found that Addison was trying to limit coverage under the policy and held that the insurer bore the burden of proving that the two deaths constitute a single occurrence.  Id. at *11.

The analysis then turned to whether the underlying incident involved a single occurrence or multiple occurrences.  The Illinois Supreme Court remarked that there was no dispute regarding the meaning of “occurrence,” defined as “an accident, including continuous or repeated exposure to the same general harmful conditions.”  However, because the policy was silent on when an injury would be treated as a separate occurrence, the court found that it must construe the policy by applying the facts of the case.

The Illinois Supreme Court started its analysis by discussing the Nicor decision, relied on by the appellate court.  The underlying claims in that case involved property damage which occurred when insured Nicor undertook a program to replace regulators in its customers’ homes containing mercury.  In this process, some regulators were tipped or broken, resulting in contamination of some of the homes with mercury.  Coverage litigation ensued and one of the issues was whether the claims involved a single or multiple occurrences.  In its analysis on the issue in that case, the Illinois Supreme Court discussed the “cause” theory, meaning what caused the underlying damage or claims, and the “effect” theory, meaning the effect caused by the underlying damage.  The court ultimately held that Illinois law determines the number of occurrences by looking at the cause or causes of the damage.  Nicor, 223 Ill. 2d at 418-19.

It would seem that following the “cause” theory, there would be one occurrence in the case at bar, i.e., the boys’ deaths caused by the landowner’s negligent act of failing to properly secure and control his property.  However, the Illinois Supreme Court continued its analysis by a “further refinement of the cause theory in its application to a variety of facts.”  2009 Ill. LEXIS 176, at *14; citing Nicor, 223 Ill. 2d at 420-21.  The court distinguished Nicor from the case at bar because Nicor discussed affirmative acts of negligence, meaning the individual technician’s replacement of the old regulators, rather than an ongoing negligent omission.  2009 Ill. LEXIS 176, at *14.  The court acknowledged that the landowner committed no intervening negligent act between the injuries of both boys, but reasoned that focusing on the sole negligent omission of the landowner would result in one occurrence even if the injuries occurred days or weeks apart, which was an unreasonable policy interpretation.  Id. at *16-17.

The Illinois Supreme Court then examined the New Jersey appellate decision discussed by the Second District Appellate Court, Doria v. Insurance Co. of N. America, 210 N.J. Super. 67, 509 A.2d 220 (N.J. App. 1986).  That case involved two brothers injured when they gained access to a swimming pool and the court noted that it had strikingly similar facts to the case under consideration.  The court there applied a “time and space test,” which states that “if cause and result are so simultaneous or so closely linked in time and space as to be considered by the average person as one event,” then there is one occurrence.  Doria, 210 N.J. Super. at 74, 509 A.2d at 224.  The Illinois Supreme Court found that the appellate court had properly adopted the “time and space test,” 2009 Ill. LEXIS 176, at *120, but the Court’s analysis did not end there.

The Illinois Supreme Court went on to reject the appellate court’s opinion that the facts showed only a single occurrence.  The court reviewed the facts de novo, and stated that the court could infer that the boys did not become trapped simultaneously and that the second boy became trapped trying to free the first boy from the sand.  However, the investigators could not determine how closely in time the boys became trapped or how closely in time they each died.  The court therefore found that Addison did not meet its burden to show multiple occurrences and held that the underlying injuries involved two occurrences.  Id. at *22.

The Illinois Supreme Court’s effort to find two occurrences for these very sympathetic claimants is almost uncomfortable to read.  One way to make sense of the various decisions nationwide concerning the issue of number of occurrences is to check whether the ruling increased the coverage for the insured.  This analysis, albeit cynical, is sometimes the only way to make sense of a particular decision.  The Nicor case was one of the few decisions resulting in reduced or no coverage for the insured, which was admittedly a large utility.  The Addison v. Fay case returns to a more familiar pattern for number of occurrences cases, and found additional coverage for the families of the deceased boys.

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Michele Oshman, an associate in our Chicago office, is a member of the firm’s Appellate and Insurance Coverage practice groups.  Michele concentrates her practice in the areas of insurance coverage and complex defense litigation and has represented the interests of insurance companies in state and federal courts throughout the country, including disputes over coverage for underlying mass tort, professional liability, environmental, asbestos, construction defects, product liability, medical, municipal liability and other claims.  She has also defended manufacturers in product liability cases, including nationwide class action matters, and has done reinsurance related work.

If you have any questions regarding this article, contact Michele via moshman@querrey.com, or via 312-540-7590.