Take, for example, what seems to be a fairly straightforward question—when
is an Insurance Services Office, Inc. (ISO), post-1985 commercial general liability
(CGL) "occurrence" policy triggered? Presuming "Who cares?" is not your response,
look at the CGL and you will see it is when the
bodily injury or property damage occurs. In other words, if bodily injury
or property damage (or both) does not occur
during the CGL policy period, the CGL insurer has no obligation to respond as
the coverage is not "triggered." For more on coverage implications, see
The Hazards
of Products and Completed Operations: Understanding the Fundamentals (October
2006).
Trigger of Coverage—A Fundamental Concept
In most cases, determining when either
bodily injury or property damage has occurred is simple. For instance, a couple
of years after I built you a staircase, you were carrying Grandmother's antique
vase down the stairs when the railing gave way. You fell and broke your arm,
and Grandmother's vase was shattered.
When did the bodily injury and property damage occur? That's obvious: when
you fell. There is no need to introduce "trigger theories" to determine that
fact. If I am found to have negligently built the railing, and that was the
cause of your fall, then I would likely be found liable for your injuries and
the damage to the vase. The CGL policy that I have in effect
when you fell is triggered—the CGL that
was in effect 2 years earlier when I built the
railing is not triggered.
Cumulative Injury or Progressive or Damage
Of course, some types of injury or damage do not happen as described in the
above example. In particular, bodily injury caused by toxic substances can happen
over time, such as persons who have suffered injury from inhaling asbestos fibers.
Property damage also can be progressive or deteriorating, such as damage by
pollutants to soil or groundwater. Construction defects often involve water
intrusion that gradually causes damage in the form of rot to buildings or other
structures. In many of these instances, the injury or damage may not become
known for months or even years after it has begun. Determining when the bodily
injury or property damage occurred is anything but simple. Enter the "trigger
of coverage theories."
Trigger of Coverage Theories
Courts have reverted to the so-called trigger theories when they cannot pinpoint
the date or dates the injury or damage actually took place. The descriptions
that follow are not intended as complete descriptions or a legal analysis of
the theories1, but are intended to provide only
a basis upon which to raise an overriding question. Do these "trigger theories"
change or nullify the fundamental requirement that bodily injury or property
damage must occur during the CGL policy period to activate insurers' obligations?
Exposure Theory—All
CGL policies are triggered if they are in effect during
exposure to injurious or harmful conditions.
Primarily used in asbestos cases, this theory considers bodily injury to
begin when a person was first exposed to asbestos, usually at the first
inhalation of asbestos fibers.
Manifestation Theory—The CGL policy is
triggered when the injury or damage is discovered or
manifests itself (or in some cases is
capable of being discovered) during the policy period. That the injury or
damage may be been occurring prior to discovery may not be taken into account
in this theory.
Injury-in-Fact Theory—All
CGL policies are triggered if they are in effect during the time
the injury or damage is shown to have actually
taken place, even if the injury or damage continues over time.
Continuous Trigger Theory—All
CGL policies are triggered if they are in effect during any of the
following times: exposure to harmful
conditions; actual injury or damage;
and upon manifestation of the injury
or damage.
It is very important to recognize that different states follow different
theories, and in many occasions, the same state follows a different theory,
depending on the type of injury or damage that is being alleged. For example,
some courts will follow one trigger theory to determine when bodily injury took
place but will follow another trigger theory to determine when property damage
took place. In short, it is indeed difficult to state with certainty as to the
trigger theory a court will follow in a given situation.
Don's Building Supply, Inc.
The Supreme Court of Texas recently ruled in Don's
Bldg. Supply, Inc. v. OneBeacon Ins. Co., 2008 WL 3991197 (Tex 2008), when
property damage was deemed to have occurred in the context of a CGL policy.
Don's Building Supply was a seller and distributor of synthetic stucco, exterior
insulation finish systems (EIFS), that was installed on various homes over several
years. Don's Building Supply was insured by a CGL policy assigned to OneBeacon
Insurance2 for the years 1993 to 1996.
From 2003 to 2005, the homeowners filed suit against Don's Building, alleging
that the EIFS was defective, allowing moisture to seep into wall cavities behind
the siding, causing wood rot and other damage. The allegations by the homeowners
also stated the moisture intrusion began within 6 months to a year after application
of the EIFS and that the damage was hidden from view by the siding and could
not have been discovered until well after the OneBeacon policy period had ended.
The trial court found OneBeacon's policy did not apply as the property damage
did not occur until it became identifiable; even though the damage was occurring
during the OneBeacon policy period, the damage was not
identifiable until after the OneBeacon policies
had expired. Thus, the trial court followed the manifestation trigger theory,
relieving OneBeacon of any obligations under its CGL policies as the trial court
found no property damage had occurred during the OneBeacon CGL policies.
Don's Building appealed to the U.S. Court of Appeals for the Fifth Circuit,
which in turn certified the following question to the Supreme Court of Texas:
When not specified by the relevant policy, what is the proper rule under
Texas law for determining the time at which property damage occurs for the
purpose of an occurrence-based commercial general liability policy?
At this point, it is absolutely critical to note that the Fifth Circuit
asked when the property damage took place,
not if the CGL policy covers property damage
that does occur during the policy period.
The court recited in its ruling the policy provisions of a standard ISO CGL
policy and concluded that the CGL policy is meant to be interpreted under the
injury-in-fact trigger theory:
Considering these provisions together and reading them for their plain meaning,
we hold that property damage under this policy
occurred when actual physical damage to the property occurred. The policy
says as much, defining property damage as "[p]hysical injury to tangible
property," and explicitly stating that coverage is available if and only if
"'property damage' occurs during the policy period." So in this case,
property damage occurred when a home that is the subject of an underlying
suit suffered wood rot or other physical damage.
The date that the physical damage is or could
have been discovered is irrelevant under the policy. Many courts
agree with the analysis we adopt today, sometimes
called the "actual injury" or "injury-in-fact" approach [Emphasis
added.]
Additionally, the court commented on the manifestation and on the exposure
theories in light of the CGL policy wording:
As for the manifestation rule, the rule urged by OneBeacon and followed
by most Texas cases to date, the policy before
us simply makes no provision for it. The policy in straightforward wording
provides coverage if the property damage "occurs during the policy period,"
and further provides that property damage means "[p]hysical injury to tangible
property."
Whatever practical advantages a manifestation rule would offer to the insured
or the insurer, the controlling policy language does not provide that the
insurer's duty is triggered only when the injury manifests itself during
the policy term, or that coverage is limited to claims where the damage
was discovered or discoverable during the policy period. [Emphasis added.]
Similarly, the policy's language does
not support adoption of an exposure rule,
at least not where there is "physical injury to tangible property" as alleged
in this case. Again, 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. [Emphasis added.]
The court then explained the challenge of deciding how the coverage is to
apply when the exact date of property damage may not be precisely determined:
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. The 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. In this
case, property damage occurred when the home in question suffered wood rot
or some other form of physical damage. [Emphasis added.]
Implications of Injury-in-Fact
The trigger theories are no more than a determination of when the bodily
injury or property damage occurred; the theories should be applied only when
it is not obvious when the bodily injury or property damage actually took place.
Nonetheless, some insurance professionals conclude that the adoption of an
injury-in-fact rule somehow changes the basic nature of the CGL trigger. For
example, some believe that injury-in-fact theory changes the CGL so that, using
the Don's Building case, the CGL policies in effect
when the EIFS was installed (and
before the water intrusion began), would
somehow be triggered. The injury-in-fact theory clearly does not stand for such
a proposition. The Supreme Court of Texas in Don's
Building made the following commentary on other cases reviewed by the
court:
Instead, these cases merely hold that the time
of the injury or damage, as opposed to the time of the alleged negligent
conduct that caused the injury, is the triggering
event under the policy. [Emphasis added.]
Also consider the case of Travelers Ins. Co. v. Eljer
Mfg. Inc., 757 N.E. 2d 481 (Ill. 2001), in which the court held:
… under CGL policies covering "physical injury to tangible property," that
claims against insured that it manufactured defective plumbing system were
covered if the buildings in issue suffered
water damage due to leaks during the policy period, regardless of when the
plumbing systems were installed, because plain language of policies
state "that the insurable event which
gives rise to the insurers' obligation to provide coverage is the
physical damage to tangible property."
[Emphasis added.]
Similarly, in the case of Millers Mut. Fire Ins.
Co. of Tex. v. Ed Bailey, Inc., 647 P.2d 1249, 1250, 1253 (Idaho 1982),
the Idaho Supreme Court held:
… that where the insured installed foam in
a building during the term of a CGL policy, and a fire allegedly
caused by the foam occurred after the policy
expired, the property damage claim was
not covered because the policy defined property damage as "physical
injury to or destruction of tangible property which occurs during the policy
period" and "no actual physical damage to the
structure in this case occurred within the policy period." [Emphasis
added.]
In short, there is simply nothing in the "injury-in-fact" theory that would
even remotely suggest that the work (the installation of the siding or plumbing)
or the negligent act and not the resulting property damage triggers the CGL
policy.
Implications of Continuous Trigger
As with injury-in-fact, some insurance professionals have concluded that
the continuous trigger theory changes the CGL requirement that the bodily injury
or property damage must occur during the policy period. Similar to injury-in-fact
theory, such proponents believe that the CGL in effect is triggered when the
negligent act takes place rather than when
the bodily injury or property damage resulting from the negligent act takes
place.
In Montrose Chem. Corp. of Cal. v. Admiral Ins. Co.,
913 P.2d 878 (Cal. 1995), which found that a continuous trigger applied (after
a lengthy analysis of the trigger theories), Admiral Insurance argued that the
policy was triggered by an "occurrence" and not the result of the "occurrence"—the
bodily injury and property damage—as in the case at issue, the occurrence took
place before Admiral's CGL policy:
Admiral submits that "all damage was caused by a single
occurrence outside (i.e., prior to commencement of) Admiral's policy period,"
and urges that any determination that continuous or progressive damage or
injury occurring during its ensuing policy periods can itself trigger coverage,
"ignore[s] the policy language and confuse[s]
the consequences of the occurrence with the occurrence itself, i.e., the
event that 'resulted' in damage." [Emphasis added.]
The court reviewed the CGL policy wording, including the assertion that the
term "occurrence" was ambiguous, and concluded:
We find no ambiguity in this language; it clearly and explicitly provides
that the occurrence of bodily injury or property
damage during the policy period is the operative event that triggers coverage.
[Emphasis added.]
There is no discernable basis for concluding that continuous trigger theories
change the CGL—the policy is triggered only
when either bodily injury or property damage occur during the policy period.
The California Supreme Court in Montrose Chemical clearly concludes the
"operative event that triggers coverage" is the
occurrence of the bodily injury or property
damage during the policy period.
.
Conclusion
Back to the overriding question: Do the various trigger theories change or
nullify the fundamental requirement that bodily injury or property damage must
occur during the policy period to activate insurers' obligations under a CGL
policy? After examining the fundamentals of the coverage issues, the answer
is clearly "No." While undoubtedly the trigger theories have the potential to
broaden or restrict when the bodily injury
or property damage is determined to have occurred, such theories do not suggest
in any way that coverage applies when no bodily injury or property damage has
occurred during the policy period.
1 See
Coverage Trigger: Getting
It Right for the Right Reason by Steven Rawls and Rebecca C. Appelbaum (October
2008), Butler, Pappas, Weihmuller, Katz and Craig, LLP, for an analysis for
the "trigger theories."
2 OneBeacon Insurance Company was an assignee
of the CGL policies issued by Potomac Insurance Company of Illinois.