When applying an injury-in-fact, or actual injury trigger, coverage under a general liability policy is triggered when the personal injury or property damage underlying the claim actually occurs. GenCorp., supra, held that the appropriate trigger for claims arising out of the disposal of hazardous waste was:
Thus, in accord with the policy language, coverage is triggered when the property damage actually occurs, and, if the trier of fact determines that the injury is in fact continuous and progressive, the continuous trigger will apply. 7
Commentators and courts alike have noted that the injury-in-fact approach often looks identical to the continuous trigger theory. As the Wolverine World Wide, Inc. v. Liberty Mut. Ins. Co., 2007 WL 705981 (Mich. App. 2007), court explained:
[t]his is likely because the concept of "injury in fact" is flexible. The fact-finder can determine that injury occurred at any number of points, from initial exposure through manifestation. Further, in continuous damages cases, injury may occur repeatedly through numerous consecutive policy periods.
Don's Building Supply
Importantly, application of a particular trigger theory depends upon a factual showing of the nature of the damage that occurred. In Don's Bldg. Supply, the insured, Don's, sold and distributed exterior insulation and finish systems (EIFS) which were installed on various homes between December 1, 1993, and December 1, 1996. During construction, Don's was insured by three consecutive general liability policies issued by OneBeacon. Various homeowners filed suit against Don's from 2003 to 2005, alleging that the EIFS was defective and not weather-tight, thus allowing moisture to seep into wall cavities behind the siding and causing wood rot and other damages.
The homeowners argued that the ongoing moisture exposure was damaging the homes and the damage "'actually began to occur on the occasion of the first penetration of moisture behind'" the EIFS, which they say was "'within 6 months to 1 year after its application.'" Don's Bldg. Supply at 1. The homeowners argued that the damage to the homes was hidden from view and "not discoverable or readily apparent to someone looking at that surface until after the policy period ended." Id.
OneBeacon initially provided a defense and sought a declaratory judgment determining that there is no duty to defend until the damage becomes identifiable [i.e., manifests]. The trial court agreed, Don's appealed and the Fifth Circuit Court of Appeals certified two questions to the Supreme Court of Texas. The first asked what the proper rule is under Texas law "for determining the time at which property damage occurs for purposes of an occurrence-based commercial general liability insurance policy" and the second asked whether, after choosing and applying the appropriate trigger, the specific underlying pleadings triggered a duty to defend when:
the pleadings allege that actual damage was continuing and progressing during the policy period, but remained undiscoverable and not readily apparent for purposes of the discovery rule until after the policy period ended because the internal damage was hidden from view by an undamaged exterior surface.
Don's Bldg. Supply at 1 and 5.
To determine the appropriate trigger, in accordance with the Texas rules of interpretation, the court first looked at the policy language. 8 Like all standard commercial general liability (CGL) insuring agreements, the OneBeacon policies at issue provided coverage for "property damage" 9 which occurs during the policy period and is caused by an "occurrence." 10 Therefore, the court held that "property damage under this policy occurred when actual physical damage to the property occurred." Don's Bldg. Supply at 3. Here, "property damage occurred when a home that is the subject of an underlying suit suffered wood rot or other physical damage." Id.
The Supreme Court of Texas explicitly rejected the application of a manifestation trigger because "[t]he date that the physical damage is or could have been discovered is irrelevant under the policy." Id at 4. 11 The CGL policy "asks when damage happened, not whether it was manifest, patent, visible, apparent, obvious, perceptible, discovered, discoverable, capable of detection, or anything similar. Occurred means when damage occurred, not when discovery occurred." Don's Bldg. Supply at 4. To conclude otherwise in effect transforms "the typically more expensive occurrence-based policy into a cheaper claims-made policy, a form of coverage specifically designed to limit the insurer's risk by restricting coverage to claims made during the policy period without regard to the timing of the damage or injury." Towns v. Northern Sec. Ins. Co., 2008 WL 2941568, ¶29 (Vt. 2008).
In further rejecting the manifestation trigger, the Supreme Court of Texas distinguished those decisions which confuse the timing of the negligent conduct with the timing of the damage. A prime example of a case getting this concept confused is Auto Owners Ins. Co. v. Travelers Cas. & Surety Co., 227 F. Supp. 2d 1248 (M.D. Fla. 2002). The Don's Bldg. Supply court explained that these cases "appear to use a form of the verb 'manifests' merely as a synonym for 'results in' or 'leads to,' rather than drawing a distinction between the actual occurrence of damage and the later discovery or obviousness of damage." Don's Bldg. Supply at 3. 12 These cases are often cited in support of a manifestation trigger, when the cases really only address the concept that the timing of the negligent conduct which caused the injury or damage is not what triggers coverage under occurrence policies, but rather "the sustaining of actual damage by the complaining party." Trizec at 812. 13
The Supreme Court of Texas also rejected the exposure trigger for most of the same reasons it identified when rejecting the manifestation trigger: neither is supported by the policy language. The court explained that the "policy provides coverage if the 'property damage' occurs during the policy period.' The policy does not state that coverage is available if property is, during the policy period, exposed to a process, event, or substance that later results in bodily injury or physical injury to tangible property." Don's Bldg. Supply at 4. Similarly, the Second Circuit Court of Appeal explained that:
Injury cannot be read as the equivalent of exposure, because the policy contemplates injury caused by exposure; since a cause normally precedes its effect, it is plain that an injury could occur during the policy period although the exposure that caused it preceded that period.
American Home Prods. at 764.
After explaining why the alternative trigger theories are incompatible with the standard general liability policy language, the Supreme Court of Texas belittles all of the nonpolicy-related reasons for applying anything other than an injury-in-fact trigger in the following comment:
Pinpointing the moment of injury retrospectively is sometimes difficult, but we cannot exalt ease of proof or administrative convenience over faithfulness to the policy language; our confined task is to review the contract, not revise it. Our prevailing concern is not one of policy but of law, and we must honor the parties' chosen language-covering third-party claims if damage to the claimant's property occurred during the policy period.
Don's Bldg. Supply at 4.