A provocative new opinion from the New York Court of Appeals revisits the issue of when individual losses may be treated as involving one “occurrence” as well as novel issues with respect to whether an insurer may be liable in bad faith for negotiating a settlement that effectively strips the insured of coverage and whether class action fees should be allocated.

The facts in Selective Ins. Co. of America v. County of Rensselaer, 2016 NY Slip. Opp. 01001 (N.Y. Feb. 11, 2016) involved a class action against the County of Rensselaer by jail visitors who had been illegally strip searched even though authorities had no reasonable basis for suspecting that they had weapons or contraband on them. The policy of strip searches had gone on from 1999 to 2004 during which time the County had successive law enforcement liability policies with Selective. Selective agreed to provide a defense to the lawsuit in light of its policies’ “personal injury” coverage for “humiliation or mental anguish or violation of civil rights protected under 42 USC § 1981.” However, each policy also contained a $10,000 deductible that applied to all covered damages, including legal fees, “sustained by one person or organization as the result of any one occurrence.”

Selective appointed defense counsel to handle the case and ultimately negotiated a settlement wherein each of the 800 claimants received $1,000 each along with a payment of $442,701.74 in attorney’s fees to the class counsel. The County subsequently refused to reimburse Selective for more than a single $10,000 deductible, however, arguing that all of the claims arose out of one “occurrence” (the strip search policy).


In the ensuing coverage litigation, lower courts agreed with Selective that each individual strip search was a separate occurrence but nonetheless declared that Selective was liable in full for the attorney’s fees as they were assignable to the class representative.

There is, in fact, precedent for the County’s position. See, e.g., Appalachian Ins. Co. v. Liberty Mutual Ins. Co., 676 F.2d 56 (3d Cir. 1982) (sex discrimination claims contained in class action against employer all deemed traceable to employment guidelines adopted in 1965 and therefore involve a single “occurrence”). On the other hand, New York courts are far more likely to find separate “occurrences” unless the various claimants’ injuries were closely grouped together in time and space. See Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, PA, 21 N.Y.3d 139 (2013) (sexual abuse); Appalachian Ins. Co. v. General Electric Co., 863 N.E.2d 994 (N.Y. 2007) (asbestos bodily injuries) and Travelers Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s of London, 96 N.Y.2d 583, 760 N.E.2d 319, 734 N.Y.S.2d 531 (2001) (pollution losses).

It should have come as no surprise, therefore, that the Court of Appeals refused to find that individual strip searches that occurred over a period of four years could not be aggregated as a single “occurrence” in Selective’s 1999 policy year. The court also pointed out that, unlike standard GL forms, these law enforcement liability policies set forth specific examples of “large scale” events such as riots, insurrection, civil disturbances and the imposition of martial law, where diverse injuries should be treated as a single “occurrence” but which clearly did not apply to these facts.

Bad Faith

In light of the court’s “occurrences” analysis, the County was held responsible for the entire $800,000 that Selective had paid as damages to the settling claimants. Given this outcome, the County argued that Selective acted in bad faith in the manner in which it controlled its insured’s defense and negotiated the settlement. Nevertheless, the Court of Appeals refused to find any bad faith on the part of Selective, declaring that there that Selective had hired competent attorneys to defend the County and played an active role in the negotiation and that there was “no indication from the record that Selective’s conduct constituted a gross disregard of the County’s interests.”

On the other hand, the Court of Appeals declared that Selective was entirely responsible for the $442,701 in fees paid to class counsel. The court suggested that these same fees might have been incurred even if the suit had been prosecuted on behalf of the victim of a single 1999 strip search. More plausibly, the court concluded that the lack of any language in the policy addressing this issue gave rise to an ambiguity that should be resolved in the County’s favor.

This is an interesting opinion with a lot of material that may be useful in future cases. The discussion of the alleged bad faith of Selective may prove particularly helpful. New York is a relatively conservative state when it comes to bad faith claims but the facts in this case were, at least on the surface, troubling. At the same time, one must wonder what other facts were in the record that are not reflected in the opinion. It is unclear from the record, for instance, whether there had been any discussions with the County in the course of negotiating the settlement such that the County could, was or should have been aware of these implications. (It is also unclear why the County did not negotiate a policy that contained some sort of aggregate limit on the number of deductibles for which it would be responsible.) Courts in other states have refused to allow insurers to recoup settlement payments where they failed to alert the insured to coverage concerns before funding the settlement. See, e.g., Medical Malpractice Joint Underwriting Association v. Goldberg, 425 Mass. 46, 680 N.E.2d 1121 (1997).