Reversing the rulings of the trial court and intermediate appellate court, the Supreme Court of Wisconsin recently concluded that a fire which spread across several properties was a single ‘occurrence’ for purposes of the commercial general liability policy, and not a new ‘occurrence’ each time the fire crossed a property line.
By determining that the fire was a single ‘occurrence’ under the policy, the policy’s reduced per-occurrence limit for property damage “due to fire, arising from logging or lumbering operations” under its incorporated endorsement, rather than its higher aggregate limit, applied.
A copy of the opinion in Ecura Insurance v. Lyme St. Croix Forest Company, LLC is available at: Link to Opinion.
In May 2013, a fire broke out on land owned by a forest company which burned 7,442 acres over three days. The fire allegedly began from a piece of logging equipment owned by a logging company (the “policyholder”).
At the time of the fire, the policyholder was insured by a multistate property and casualty insurance company under a commercial general liability policy and umbrella policy. The policy provided a $2 million general aggregate limit and $1 million per-occurrence limit, and further reduced the per-occurrence limit to $500,000 for property damage “due to fire, arising from logging or lumbering operations” under its Logging and Lumbering Operations Endorsement.
The insurer filed a declaratory judgment action to determine its coverage obligations, and argued on partial summary judgment that the fire was a single occurrence, thus triggering the $500,000 limit under the endorsement.
Relying on the Wisconsin Supreme Court’s opinion in Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, 36 Wis. 2d 67, 857 N.W. 2d 156 (spread of liquid cow manure contaminating wells of neighboring properties considered ‘multiple occurrences’ under insurance policy), the trial court “concluded that ‘although there was one uninterrupted cause of the fire, each ‘seepage’ of fire onto another’s property constitute[d] a separate occurrence for purposes of the policy.’”
Thus, the policy’s $2 million general aggregate limit, rather than the $500,000 ‘per occurrence’ limit under the endorsement applied. The insurer appealed.
On appeal, the appellate court affirmed the trial court’s determination that each time the fire spread into a new piece of property and caused damage constituted an ‘occurrence,’ and the higher $2 million policy limit rather than the $500,000 endorsement limit, applied. The insurer petitioned for Supreme Court review of the appellate court’s ruling.
The issue on review before the Wisconsin Supreme Court was whether or not the fire constituted a single occurrence for purposes of the policy, or whether there was instead a new occurrence each time the fire crossed a property line.
The Court initially reviewed the plain language of the policy, which covers bodily injury or property damage caused by an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Citing past precedent, the Wisconsin Supreme Court looked to the “cause theory,” to analyze whether the fire constituted a single occurrence or multiple occurrences.
Under the cause theory, “where a single, uninterrupted cause results in all of the injuries and damage, there is but one ‘accident’ or ‘occurrence.'” Welter v. Singer, 126 Wis. 2d 242, 250, 376 N.W.2d 84 (Ct. App. 1985). The elements of time and geography are crucial to this analysis: 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 only a single occurrence has taken place. Falk, 360 Wis. 2d 67, ¶66 (citing Welter, 126 Wis. 2d at 251). “If, however, that cause is interrupted or replaced by another cause the chain of causation is broken and more than one accident or occurrence has taken place.” Olsen v. Moore, 56 Wis. 2d 340, 349, 202 N.W.2d 236 (1972).
In review of the appellate court’s reliance upon Falk, the Wisconsin Supreme Court found its approach unpersuasive.
Although the manure in Falk seeped over the course of an unspecified amount of time, here, the fire burned continuously for three days, in a discrete area, and was caused by a single precipitating event. See Welter, 126 Wis. 2d at 250-251 (“As long as the injuries stem from one proximate cause there is a ‘single occurrence.’”). Thus, regardless of how many property lines the fire crossed, because the damage closely follows the cause in both time and space, it would reasonably be considered by the average person to be one event. Plastics Eng’g Co., 315 Wis. 2d 556. Moreover, the court’s focus in Falk primarily dealt with the policy’s pollution exclusion, and provided limited cause theory analysis. For these reasons, the Supreme Court concluded that Falk was not instructive.
The Wisconsin Supreme Court further determined that the appellate court’s analysis to determine the number of occurrences incorrectly applied the “effect theory” rejected in earlier rulings.
Specifically, the appellate court’s contention that “the fire had to spread to each piece of real property for another property owner to suffer property damage due to the fire” improperly focused on the effect of individual property owners, rather than the cause of the damages. This evaluation strayed from the Wisconsin Supreme Court’s established “cause theory” methodology, and incorrectly led the conclusions that the fire constituted multiple ‘occurrences.’
Lastly, the Wisconsin Supreme Court reasoned that a finding that the fire constituted multiple ‘occurrences’ would lead to arbitrary and reasonable consequences.
The Court noted that if the exact same fire had burned land owned by only one person instead of several, it would constitute but one occurrence; thus, an insurer would pay more in the event the same amount of land burned is split among several owners. It further noted that the appellate court’s assertion that “there was an ‘occurrence’ each time the fire spread to a new piece of real property and caused damage” leads to unreasonable results, as it is the nature of a fire to “fuel and expand by the consumption of new materials,” and its constant refueling and expanding would unnecessarily result in “unfathomably large number of occurrences regardless of how many property lines it crosses.”
Citing the decisions of state and federal courts throughout the country, the Wisconsin Supreme Court concluded that although the fire destroyed the property of multiple claimants, it constituted a single occurrence pursuant to the policy, and the $500,000 endorsement limit applied.
Accordingly, the appellate court’s opinion was reversed and the matter was remanded to the trial court for further proceedings.