Michigan Chemical Corp. v. American Home Assurance Co.
728 F.2d 374 (1984)
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Rule of Law:
For the purpose of applying liability insurance coverage limits, the number of "occurrences" is determined by referring to the cause or causes of the damage, not to the number of individual injuries or claims that result from the causal event(s).
Facts:
- In early 1973, Michigan Chemical Corporation (MCC) manufactured a livestock feed supplement, 'Nutrimaster,' and a toxic flame retardant, 'Firemaster.'
- The two products were packaged in nearly identical fifty-pound bags, distinguished only by their stenciled trade names.
- On May 2, 1973, MCC accidentally shipped the toxic flame retardant (PBB) instead of the feed supplement to Farm Bureau Services.
- Farm Bureau Services mixed the PBB into its livestock feed and sold the contaminated product to numerous farmers across Michigan.
- Beginning in October 1973, farmers reported that their animals were getting sick, and subsequent investigations revealed the feed was contaminated.
- The contamination led to the destruction of tens of thousands of farm animals, including cattle, swine, sheep, and poultry.
- Hundreds of farmers filed property damage claims against MCC.
- MCC held several layers of liability insurance policies from insurers including American Home, Aetna, and INA, providing coverage of up to $28 million per 'occurrence'.
Procedural Posture:
- Michigan Chemical Corporation (MCC) and American Mutual Reinsurance Company (Amreco) filed a declaratory judgment action in the U.S. District Court against several excess insurance providers.
- The plaintiffs moved for partial summary judgment, asserting that each farmer's claim constituted a separate 'occurrence' under the policies.
- The defendant insurers contended that the single accidental shipment of PBB was the sole 'occurrence.'
- The district court granted partial summary judgment in favor of the plaintiffs, finding the term 'occurrence' ambiguous and ruling that each claim was a separate occurrence.
- The defendants (American Home, Aetna, and INA) filed an interlocutory appeal of the district court's partial summary judgment order to the U.S. Court of Appeals for the Sixth Circuit.
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Issue:
Does the term 'occurrence' in a liability insurance policy, for the purpose of applying per-occurrence coverage limits, refer to each individual claim of injury or to the underlying causal event that led to the injuries?
Opinions:
Majority - Contie, Circuit Judge
No. The term 'occurrence' refers to the underlying cause of the damage, not each individual claim. The vast majority of courts have held that the number of occurrences is determined by the cause or causes of the resulting injury, asking if there was one proximate, uninterrupted, and continuing cause. The policy language itself makes the 'accident' constituting the occurrence logically distinct from the 'injuries' which later take place. The number and timing of injuries are relevant only to determine which policy period applies, not the number of occurrences. Because this interpretation is well-settled in case law, the term 'occurrence' is unambiguous and must be interpreted according to the 'cause theory,' meaning the mis-shipment of PBB is the occurrence. However, each separate mis-shipment would constitute a distinct occurrence.
Dissenting - Keith, Circuit Judge
Yes. An 'occurrence' should be construed as taking place at the time damage results, meaning each farmer's injury is a separate occurrence. The policy defines an occurrence as an accident that 'results in' property damage, meaning the two elements are linked and an indemnifiable event does not exist until harm occurs. The majority's 'cause' theory renders the policy's products liability section meaningless, as the 'cause' (mis-shipment) happens at the insured's premises, while products liability coverage explicitly applies only to occurrences happening away from the premises. At a minimum, the term is ambiguous and, under Illinois law, should be construed against the insurer and in favor of coverage for the insured.
Analysis:
This decision solidifies the 'cause theory' as the dominant standard for interpreting the term 'occurrence' in liability insurance policies, particularly in mass tort and products liability contexts. It establishes that an insured cannot 'stack' per-occurrence policy limits for each individual claim when all claims stem from a single, originating cause. The ruling significantly limits the total potential liability for insurers in single-cause, multiple-injury disasters. The key takeaway for future litigation is the court's distinction that while a single, continuous cause is one occurrence, multiple distinct causal acts (like separate shipments of a defective product) would each count as a separate occurrence, shifting the focus of disputes from counting injuries to identifying discrete causal events.
