The Myth of 'Accident-Based' Policies

Folklore sometimes develops regarding a particular insurance issue, to the point where the actual policy wording is ignored or forgotten. One such area is the common discussion about the supposed difference between "accident based" and "occurrence based" coverage. According to this fairy tale, "Once upon a time, policies covered only events called 'accidents'...." The story goes on to reveal how subsequently the insurance industry decreed that coverage would expand to events called "occurrences," and there was much rejoicing among insureds. This story, though, is a fallacy which completely ignores both the terms of the pre-1966 policy wording, and the entire context of the changes made in the 1966 ISO policy. In short, it is simply incorrect to say that the earlier policies covered "accidents" and the later policies covered "occurrences." This story (if believed) deprives insureds of the broad coverage to which they are entitled under the pre-1966 wording. By treating the word "accident" as a noun, carriers argue the pre-1966 policy applies only to "boom-type events" and not gradual and progressive harm, a severe (and non-existent) restriction on coverage.

In standard form CGL policies issued before 1966, the insuring agreements read as follows (there were separate clauses for property damage and bodily injury; here we just quote the property damage clause):

Coverage B—Property Damage Liability To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident. The bolded phrase "caused by accident" is in contrast to that used in the insuring agreement that became standard in 1966:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence . . . . When analyzing (and arguing) coverage, virtually everyone, from judges to carrier counsel to policyholder counsel have focused on the change of the word "accident" to the word "occurrence" and treat the change as involving a simple substitution of one noun for another. Certainly, the post 1966 policy uses " occurrence" as a noun, referring to "an occurrence." The pre-1966 wording, however, does not say "caused by an accident," it simply says "caused by accident." Incredibly, many...