The trigger of coverage problem arises in determining exactly what must
take place within the policy's effective dates to trigger coverage. For
example, property damage must occur during the policy period to trigger
property coverage under most homeowners policies.
Trigger Theories
There are at least four trigger theories exist throughout the various
jurisdictions:
- Manifestation trigger
- Exposure trigger
- Continuous trigger
- Injury-in-fact trigger
Note, however, that different trigger theories may be applied in the same
jurisdiction depending on the type of insurance policy under which coverage
is sought and the type of damage allegedly suffered.
The Problem of Progressive Property Damage
One of the most difficult determinations made by courts is the trigger
theory applicable to continuous or progressive property damage claims. A
recent decision from a Texas appellate court demonstrates the complexities of
trigger issues applicable to continuous or progressive first-party property
damage claims under a homeowners insurance policy. The Texas court applied
the manifestation trigger theory and interpreted manifestation to require
actual knowledge of the damage so that a claim is properly made and timely
notice is provided upon actual knowledge of the damage and not
speculation.
In Allstate Ins. Co. v. Hunter, 2007 Tex.
App. LEXIS 9183 (Tex. App.—Fort Worth, 2007), the Hunters noticed a strange
smell in their home in the summer of 2002. The Hunters' HO-B homeowners
insurance policy with Allstate Texas Lloyd's expired on October 6, 2002,
and the Hunters replaced it with an HO-A homeowners policy from Allstate,
which was effective on October 7, 2002. The strange smell persisted, and in
December 2002, the Hunters hired a company to conduct air sample testing in
their home, which revealed no elevated mold content in the air and offered no
explanation for the smell. On February 4, 2003, a general contractor, Bill
Hart, inspected the home and found water damage and mold in the crawlspace
under the home. The Hunters testified that this was the first time that they
knew of the mold damage or that the source of the odor that they had been
smelling was mold. Two days later, the Hunters notified Allstate of their
claim.
The Allstate adjuster determined that the Hunters' claim should be
treated as a claim under the HO-A policy and hired a plumber to inspect the
Hunters' home. The plumber's report showed an ongoing water leak at
the Hunters' home. Because the HO-A policy covered only "sudden and
accidental" plumbing leaks, Allstate denied the Hunters' claim under
the HO-A policy. The Hunters then requested that Allstate treat their claim
as one under their prior HO-B policy that had expired on October 6, 2002.
Allstate did so and denied coverage under the HO-B policy based on the
Hunters' failure to comply with the condition of the HO-B policy
requiring prompt notice of the claim, reasoning that if the claim had
occurred under the prior HO-B policy that expired on October 6, 2002, then
the Hunters' February 2003 notice of that claim was not timely. The
Hunters sued Allstate and through the progression of tribunals, the trigger
issue found its way to the appellate court.
Until now, no Texas state appellate court has specifically discussed the
distinctions among the various trigger of coverage theories in the context of
coverage under a standard, first-party homeowners insurance policy for a
first-party claim based on continuing or progressively deteriorating damage
to the insured's dwelling. However, two courts have applied the
manifestation trigger to such claims:
- State Farm Fire & Cas. Co. v.
Rodriguez, 88 S.W.3d 313 (Tex. App. 2002, pet. denied)
(applied manifestation trigger theory to a homeowner's claim for
progressively deteriorating property damage to the insured's
dwelling)
- Flores v. Allstate Tex. Lloyd's Co.,
278 F. Supp. 2d 810, 815-16 (S.D. Tex. 2003) (applied manifestation trigger
theory on homeowner's claim for water damage and mold).
Other states have likewise applied the manifestation trigger of coverage
theory in first-party progressive property loss situations:
- Prudential-LMI Commercial Ins. v. Superior
Court, 798 P.2d 1230, 1246 (Cal. 1990)
- Jackson v. State Farm Fire & Cas.
Co., 835 P.2d 786, 789 (Nev. 1992)
- Winding Hills Condo. Ass'n, Inc. v. North
Am. Specialty Ins. Co., 752 A.2d 837, 840 (N.J. Super. Ct. App. Div.
2000)
- Ellis Court Apartments Ltd. P'ship v. State
Farm Fire & Cas. Co., 72 P.3d 1086, 1089 (Wash. App. 2003)
But c.f. Miller v. Safeco Ins. Co. of
Am., 2007 U.S. Dist. LEXIS 72250 (E.D. Wis. 2007) (Wisconsin courts
employ continuous trigger theory in progressive property damage claims which
determines that an injury occurs continuously from exposure until
manifestation, with manifestation being when the loss become apparent).
In Allstate Ins. Co. v. Hunter, the parties
themselves agreed that the manifestation trigger of coverage applies to the
Hunters' homeowners insurance policy with Allstate for coverage of
progressive property damage to the Hunters' dwelling. Nonetheless, the
court examined the terminology and language used in the insurance contract
itself and found the language supports the parties' agreement that the
manifestation trigger of coverage theory applies to the Hunters' HO-B
policy concerning progressive property damage to the Hunters'
dwelling.
The pertinent provision of the Hunters' HO-B policy that addresses
when Section I coverage for damage to the Hunters' dwelling is triggered
provides:
This policy applies only to loss in Section I or bodily injury or property
damage in Section II which occurs during the policy period stated on the
declarations page.
The court contrasted this insuring language with that found in most
occurrence-based liability policies that defines "occurrence" as
"an accident, including exposure to conditions, which result[s] in
bodily injury or property damage during the policy period," which is
language commonly associated with an exposure trigger of coverage theory and
not found in Section I coverage under the homeowners policy for damage to the
dwelling.
The question submitted to the jury asked:
Do you find from a preponderance of the evidence that on or before October
6, 2002, there was rot, mold, or other fungi which was capable of being
perceived, recognized and understood?
Allstate argued that the trial court erred by submitting the manifestation
trigger of coverage theory question without inserting the word
"easily" before the phrase "perceived, recognized, and
understood." Allstate further argued that the manifestation theory
submitted by the trial court is unworkable because it means that mold
manifests for purposes of triggering coverage under a homeowners policy when
it is theoretically "capable" of perception through some type of
exotic testing that was not actually performed. Under such a theory of
manifestation, the homeowner could not possibly comply with the policy's
notice provision because a homeowner cannot provide notice of a mold claim to
an insurer until the homeowner possesses actual knowledge of the mold, i.e.,
not at some earlier date when the mold could have been perceived through
testing or by someone crawling in the crawlspace.
Finally, Allstate pointed out that the Hunters utilized two different
theories or dates of manifestation at trial. They obtained an affirmative
answer to question number one by proving that the rot, mold, or fungi in
their dwelling was theoretically capable of being perceived, recognized, and
understood by some unidentifiable person on or before October 6, 2002. But
then, in order to obtain a jury finding in their favor on the question of
whether they provided timely notice to Allstate, the Hunters proved that they
provided notice 2 days after they actually learned of the mold—not after the
mold was capable of being perceived—which was more than 4 months after the
HO-B policy expired.
Therefore, Allstate argued that the Hunters claimed the mold was
"manifest" for purposes of triggering coverage when it was
theoretically capable of being perceived by some unidentified person, but it
was not "manifest" for purposes of triggering their duty to give
notice to Allstate until it was actually discovered.
The Hunter Ruling
The court agreed with Allstate that the manifestation question propounded
to the jury should have contained the word "easily" prior to the
phrase "capable of being perceived, recognized, and understood" and
that the Hunters cannot utilize two different manifestation theories or
dates, one to trigger coverage under the HO-B policy—when the rot, mold, or
fungi was theoretically capable of perception—and one to determine when the
Hunters' duty to give notice arose—when the Hunters actually learned of
the mold. The evidence indicated that the Hunters first smelled mold in 2002,
though it was not actually discovered until February 2003, at which time the
Hunters made claim with Allstate.
The court held, however, that using the proper case law definition of
"manifest"—that is, when the damage was “capable of being easily
perceived, recognized, and understood”—there was no evidence that the damage
manifested prior to that date. In fact, the evidence established that despite
searches by Mrs. Hunter and air-testing by experts, the damage to the
Hunters' home did not "manifest" until February 4, 2003, when
Bill Hart found it in the crawlspace under the Hunters' home. The Hunters
argued that damage manifests when it is capable of being perceived by
one's senses and that, consequently, the mold manifested prior to October
6, 2003, because the Hunters smelled it prior to that date.
The court held that the problem with this argument is that if the damage
manifested itself on the date that the Hunters smelled it, then that is the
date on which the Hunters' duty to notify Allstate of this claim was
triggered. The Hunters did not notify Allstate of the mold smell until
February 6, 2003. Furthermore, the court held that if the Hunters had filed a
claim with Allstate in the spring of 2002 when they smelled what turned out
to be mold, there is no question that their HO-B policy with Allstate would
have covered the claim. However, the evidence established that the Hunters
did not contact Allstate when they smelled the odor in their home. The court
found no support for the Hunters' argument that their action of telling
Allstate in February 2003 that they had been smelling an odor for 10 months
triggered coverage in the absence of the filing of a claim with Allstate or
of notifying Allstate during that 10-month period.
Conclusion
Clearly, Allstate Ins. Co. v. Hunter
evidences the complexities of determining the application of trigger theories
in progressive or continuous property damage claims. The Texas appellate
court made the logical conclusion that the manifestation trigger requires
that the damage be “capable of being easily perceived, recognized, and
understood” for the insured to have the requisite knowledge of the damage to
provide notice of claim to the homeowners insurer. According to the court,
speculation of damage based on smell or other senses may not be enough to
trigger coverage.
Dana
Harbin is an attorney in the Dallas office of Cooper &
Scully, P.C. where she specializes in insurance coverage and bad faith
involving all types of insurance policies, both first and third party. Ms.
Harbin earned her BA degree from the University of Texas in Arlington and her
JD degree from the University of Texas at Austin. She can be reached
at