Insurance, Accidents, and Policyholder Mental Incapacity: Proving Occurrence; Defeating Intentional Loss Exclusion

This CLE webinar will discuss when an insured's mental incapacity can cause an intentional act to be construed as an accident for purposes of establishing an occurrence, and when the mental incapacity defense may defeat an intentional loss exclusion. The speakers will first review what constitutes an occurrence and an accident when the policyholder's actions lead to unintended damages and how the intentional loss exclusion is applied.

CGL and most other types of liability insurance cover bodily injury or property damage from an "occurrence." "Occurrence" is then defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Because standard form policies do not define "accident," courts have typically defined it as something "unintended and unforeseen" or "something that does not occur in the ordinary course" or "not reasonably anticipated." Standard "intentional acts" exclusions similarly require that insurable damages must be neither expected nor intended.

When the policyholder's intentional acts produce unintended damages, insurers might deny coverage either on grounds the policyholder has not established an "accident" sufficient to constitute an occurrence, or, second, that the "intentional acts" exclusion applies. Different jurisdictions approach the question of when an intentional act is an accident in different ways, with some courts focusing on the intent to act only and others on the intent to produce the result, with variations in between. One common fact pattern is when insureds damage the property of another on the mistaken belief they have the right to do so.

The analysis gets more complicated when the insured (or the person causing damage) acts during a mental health crisis, with diminished capacity (for example, someone with dementia), or is legally insane and not legally responsible for their actions. Perhaps the actor is a minor child. In some jurisdictions, the inability to form the requisite intent will render the incident an accident. In some states, the intentional loss exclusion will only apply if an insured understood the nature and wrongfulness of an act and was able to control their actions. Other jurisdictions focus solely on the conduct of the insured as volitional. 

Listen as this panel of esteemed speakers discusses issues arising from the unintended consequences of policyholders' volitional or intended actions, including mental health crises.