E.I. Du Pont De Nemours & Co. v. Stonewall Insurance Company presents the question of whether common liabilities present a single occurrence under a CGL policy or, rather constitute multiple occurrences. 2009 WL 1915212 (Del. Super. Ct. June 30, 2009). The court concluded that the claims presented but one occurrence.
In 1983, DuPont began manufacturing and selling an acetal resin plastic material known as “Delrin.” The material was used by other companies to mold fittings for polybutylene plumbing (“PB”) systems, which were then installed in residential housing units. In 1987, DuPont received the first lawsuit filed on behalf of homeowners seeking damages on account of property damage allegedly caused by defective PB systems. The lawsuit alleged that the acetal fittings were inherently defective. DuPont responded in 1989 by ceasing to sell Delrin to manufacturers of PB systems fittings. In total, DuPont was faced with approximately 469,000 claims between 1989 and November 2007, incurring more than $239 million in total PB liabilities.
From March 1, 1967 until the present, DuPont maintained a CGL insurance policy. For each policy year, there was a per-occurrence self-insured retention (SIR) amount and multiple layers of excess liability insurance providing coverage above the SIR. Stonewall issued two policies in 1985. One policy participated in the first layer of excess insurance above the $50 million SIR with a policy limit of $1 million. The other Stonewall policy participated in the next excess layer, providing $4 million in coverage for that layer.
Given that each policy had a per-occurrence $50 million SIR, it is not altogether surprising that Stonewall took the position that there were approximately 469,000 occurrences. Each Stonewall policy defined an “occurrence” in these terms:
The term “Occurrence” wherever used herein shall mean an accident or happening or event where a continuous or repeated exposure to conditions which unexpectedly or unintentionally result in personal injury, property damage, or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from premises location shall be deemed one occurrence. All Personal Injury or Property Damage arising out of the common condition and goods or products manufactured, sold, handled, or distributed by the Named Insured shall be deemed one occurrence.
Stonewall elicited testimony from a defense expert that there were two discrete, independent defects in the plumbing fittings attributable to Delrin. One was that typical household water degraded the fittings, causing them to leak, which Stonewall characterized as the “inside-out chemical degradation problem.” Stonewall ascribed the other cause to the fact that Delrin lacks the strength to resist mechanical stresses on the fittings, causing them to crack and leak, which was characterized as the “outside-in crack problem.” 2009 WL 1915212, at *2.
Delaware courts have adopted the majority view, which applies a “cause” test to determine the number of occurrences. This test stands in contrast to the minority approach, which focuses on the effects of an injury or condition, rather than the original cause. 2009 WL 1915212, at *4. (The court collected in footnotes 6 and 7 a comprehensive collection of the cases.) The court observed that the “cause” test “has been used in rejecting insurers’ arguments that each personal-injury or property-damage claim constituted a separate occurrence.” Id. “The analysis has also been applied to reject insurers’ theories that multiple technical factors contributing to a product’s failure should be considered separate occurrences.” Id. On this understanding, the court concluded that, under this test, the claim presented but one occurrence, that is, “the sale or the unsuitability of Delrin.” Id.
What is more, the court rejected Stonewall’s contention that it was material that two discrete causes contributed to the failure of the acetal fittings. Rather, “the better view—that the number of independent physical causes contributing to a product’s failure is irrelevant for purposes of determining the number of occurrences.” 2009 WL 1915212, at *12. “This view was simply a logical extension of the cause test, and it comports with manufacturers’ reasonable expectations in entering into CGL insurance contracts.” Id. “The proper focus for insurance-coverage purposes . . . is the underlying cause of the property damage from the point of view of the insured.” Id. (emphasis in original).
On these understandings, the court rejected Stonewall’s “contention that the damage of each individual house is a separate occurrence” and “that even if some fittings failed due to ‘inside-out’ degradation and some failed due to ‘outside-in’ mechanical stresses, the damage giving rise to DuPont’s Delrin liability all arises from one occurrence—Delrin’s lack of suitability for use in PB plumbing systems.” Id.
