North Carolina Business Court Interprets “Other Insurance” Provision And Applies “Cause” Test To Determine Number Of Deductibles For First-Party Coverage

A North Carolina Business court (1) held that a third-party liability policy is not “other insurance” to a first-party property policy and (2) applied the “cause” test to determine the number of “occurrences” in the context of first-party coverage. Hyosung USA, Inc. v. Travelers Prop. Cas. Co. of Am., 2021 NCBC 81, 2021 NCBC LEXIS 115, 2021 WL 6053673 (N.C. Super. Ct. Dec. 16, 2021).

Products stored in a warehouse were damaged after a windstorm removed portions of the warehouse roof, which allowed water intrusion. Plastic sheeting was hung to protect the products from further damage, but the plastic sheeting later failed and the products sustained further water damage. The insured sought recovery from its warehouse services provider, which had third-party liability insurance. The insured also filed a claim under its first-party property policy. Eventually, the insured sued both insurers and the warehouse services provider. In support of its two partial motions for summary judgment, the insured argued that (1) the third-party liability insurance policy was not “other insurance” under the first-party property insurance policy, and (2) the incidents causing water damage to its products constituted a single “occurrence” subject to a single windstorm deductible.

The court analyzed the policies’ “other insurance” provisions, and concluded that the third-party insurance policy is not “other insurance” to the insured’s first-party insurance. Even though the policies insured the same property, the court reasoned that a first-party property insurance policy and a third-party liability insurance policy do not insure the same interest against the same risk. The court dismissed the claim against the third-party liability insurer. Next, the court considered the number of “occurrences.” Notably, the first-party property insurance policy did not define the term “occurrence,” and the relevant deductible provision contained anti-concurrent causation language. The insurer argued that the court should apply the “effects” test with a result of finding two occurrences (and two deductibles). The court observed that North Carolina appellate and federal courts do not appear to have addressed the number of occurrences under a first-party property policy, but concluded that North Carolina state and federal cases considering the number of occurrences under third-party liability policies were instructive. Based on such case law, the court applied the “cause” test and concluded that the two incidents constituted a single “occurrence” because both incidents were caused by the same windstorm.