Claims of Individual Class Members Constitute Separate “Occurrences,” Subject to Separate Deductibles Under Insurance Policy

On February 11, 2016, the Court of Appeals issued a decision in Selective Insurance Company of America v. County of Rensselaer, Case No. 4, holding that the claims of individual class members in a class action constituted separate "occurrences," subject to separate deductibles under a liability insurance policy.

Selective Insurance involved a class action challenging the County of Rensselaer’s policy of subjecting all people admitted to its jails to a strip search, regardless of the crime they were accused of committing. The County's defense was handled by its insurance carrier. Counsel retained by Selective to defend the case advised the County that there were no viable defenses, and the County agreed to settle the case rather than challenge class certification. Following the settlement, a dispute emerged between the County and the carrier over how the policy's deductible of $10,000 per occurrence should be applied – i.e., whether the collective claims of the class members constituted one occurrence, subject to one deductible, or separate occurrences each subject to a $10,000 deductible that was larger than the settlement amount paid to each class member. The Court of Appeals affirmed the holding of the trial court and the Third Department that the claim of each class member was a separate occurrence, explaining:

The plain language of the insurance policy indicates that the improper strip searches of the arrestees over a four-year period constitute separate occurrences under the policies at issue. Contrary to the County's argument, the definition of "occurrence" in the policies is not ambiguous. The policy defines 'occurrence' as "an event, including continuous or repeated exposure to substantially the same general harmful conditions, which results in . . . 'personal injury' . . . by any person or organization and arising out of the insured's law enforcement duties" (emphasis added). Thus, the language of the insurance policies makes clear that it covers personal injuries to an individual person as a result of a harmful condition. The definition does not permit the grouping of multiple individuals who were harmed by the same condition, unless that group is an organization, which is clearly not the case here. The harm each experienced was as an individual, and each of the strip searches constitutes a single occurrence.

Moreover, the policies' definition of "occurrence" specifically describes four large-scale events that may constitute a single occurrence: (1) a riot or insurrection, (2) a civil disturbance resulting in an official proclamation of a state of emergency, (3) a temporary curfew, or (4) martial law. None of these listed circumstances encompasses a civil class action suit based upon a common policy. Thus, under the plain language of the insurance policies, each strip-search of the class members is a separate and distinct occurrence subject to a single deductible payment.

The Court also rejected the County's claim that the carrier "exhibited bad faith by not challenging class certification in the underlying action and reaching a settlement that made the County liable for all the damages recovered by the class members." The Court found no evidence "that Selective's conduct constituted a gross disregard of the County's interests," noting that Selective "hired competent attorneys to defend the County . . . and played an active role in the negotiation."

This decision illustrates how an insured's interests may not always align with the insurance carrier even after the carrier has assumed the defense of a lawsuit. The lesson here is that insureds need to carefully consider the coverage implications of any settlement of an underlying lawsuit.