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Coverage Trigger: Getting It Right for the Right Reason

Steven Rawls | October 1, 2008

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In Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 2008 WL 3991187 (Tex. 2008), the Supreme Court of Texas reviewed standard general liability policy language and held that an injury-in-fact trigger of coverage applied to a construction-defect claim for "property damage," expressly rejecting both the exposure and manifestation triggers.

"Trigger" is a term of art meaning the event which activates coverage under the policy. 1 Courts often look to trigger theories when the insured's burden to prove coverage under its policy seems insurmountable due to the difficulty in determining when the underlying injury or damage actually happened.

There are four generally accepted trigger of coverage theories 2:

  • Exposure
  • Manifestation
  • Continuous trigger
  • Injury in fact

Exposure Coverage Trigger Theory

The exposure theory has primarily been applied in asbestos bodily injury cases. See e.g., Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980). The Forty-Eight Insulations court explained that coverage is triggered under the exposure theory when the first injury-causing conditions occur; there, upon the first inhalation of asbestos fibers. 3

Manifestation Coverage Trigger Theory

The manifestation, or discovery, trigger activates coverage under the policy in place when the personal injury or property damage becomes known, or is discovered by, the property owner or victim. Even when courts apply the manifestation theory, they do so without the consistency one would expect. Some courts find the policy is triggered when the damage is actually discovered while others trigger the policy in place when the damage could or should have been discovered. 4

Continuous Coverage Trigger Theory

The continuous trigger has also been referred to as the multiple trigger or triple trigger. This trigger originated in asbestosis cases where bodily injury progresses and becomes more serious over time. 5 The court in Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981), illustrated the origin of the multiple trigger:

In sum, the allocation of rights and obligations established by the insurance policies would be undermined if either the exposure to asbestos or the manifestation of asbestos-related disease were the sole trigger of coverage. We conclude, therefore, that inhalation exposure, exposure in residence, and manifestation all trigger coverage under the policies. We interpret "bodily injury" to mean any part of the single injurious process that asbestos-related diseases entail.

Keene at 1047.

Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994), applied a continuous trigger to "the small percentage of [the insured's] asbestos related expenditures" on property damage claims. In the primarily bodily injury case, the court explained that here, where none of the parties suggested the process was anything but continuous, "claims of asbestos-related property damage from installation through discovery or remediation (the injurious process) trigger the policies on the risk throughout that period." The court refused to address when "the injurious process" ends. 6

Injury-in-fact Coverage Trigger Theory

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:

a continuous trigger employing injury-in-fact as the initial triggering event is the applicable theory in this case if GenCorp can substantiate its claim that the injuries ... were continuing in nature. In the absence of such a showing, injury-in-fact will be the governing trigger. In addition, since there is no indication that the initial point of injury in this case is difficult to ascertain—GenCorp's expert has even opined on the matter—it appears that injury-in-fact rather than exposure should be the event that is deemed to trigger continuous coverage. That is, depending on the evidence presented at trial, coverage will be triggered for the periods between the first point of injury-in-fact and manifestation.

GenCorp. at 748.

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.

Wolverine at 3.

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.

Conclusion

As Don's Bldg. Supply makes clear, an injury-in-fact or actual injury trigger is the only trigger theory supported by the language of the standard CGL policy. This is "the only interpretation of the clause that neither departs from the policies' language nor imports expansions of or limitations on the words that do not ordinarily exist." American Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760, 765 (2nd Cir. 1984).

Contributing author Rebecca C. Appelbaum is a senior associate practicing in the area of third-party coverage at Butler Pappas Weihmuller Katz Craig, LLP.

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Footnotes

1 See Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's of London, 673 A.2d 164, 166, n.2 (Del. 1996).
2 See e.g., Auto Owners Ins. Co. v. Travelers Casualty & Surety Co., 227 F. Supp. 2d 1248, 1266 (M.D. Fla. 2002) (citing In re Celotex Corp., 196 B.R. 973, 1000 n.187 (Bankr. M.D. Fla. 1996); GenCorp, Inc. v. AIU Ins. Co., 104 F. Supp. 2d 740, 745 (N.D. Ohio 2000). See also Spaulding Composites Co., Inc. v. Aetna Cas. & Sur. Co., 819 A. 2d 410, 415 (N.J. 2003).
3 See also Norfolk Southern Corp. v. California Union Ins. Co., 859 So. 2d 167, 191 and 191 n.50 (La. Ct. App. 2003) (adopting the exposure trigger in asbestosis and long latency disease cases).
4 Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 2008 WL 3991187, 3 (Tex. 2008) (citing Dorchester Dev. Corp. v. Safeco Ins. Co., 737 S.W.2d 380 (Tex. App. 1987)).
5 GenCorp, Inc. v. AIU Ins. Co., 104 F. Supp. 2d 740, 748 (N.D. Ohio 2000).
6 See also Harford Cty. v. Harford Mut. Ins. Co., 610 A.2d 286, 294-5 (Md. 1992) (holding, in the environmental pollution context, that "'manifestation' is not the sole trigger of coverage in environmental pollution cases ... coverage under the policies may be triggered during the policy period at a time earlier than the discovery or manifestation of the damage.")
7 See GenCorp. at 748 (citing Armstrong World Ind., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2nd 690, 736 (Cal. App. 1996) (determining the appropriate trigger in the context of asbestos-containing building material claims)).
8 Under Texas law, insurance policies are construed like contracts and unambiguous language must be enforced as written. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936 (Tex. 1984). Any ambiguity is resolved in favor of coverage, policy language is to be given its plain, ordinary meaning and the provisions are to be construed as a whole. Don's Building Supply at 2 (internal citations omitted). Most other states apply substantially similar rules of interpretation to insurance policies. See e.g., Auto Owners Ins. Co. v. Anderson, 756 So. 2d 29 (Fla. 2000) and Olmstead v. Lumbermens Mut. Ins. Co., 259 N.E.2d 153 (Ohio 1970).
9 "Property damage" is defined as physical injury to tangible property, including all resulting loss of use of that property ... or loss of use of tangible property that is not physically injured.
10 "Occurrence" is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
11 See also Trizec Prop., Inc. v. Biltmore Constr. Co. Inc., 767 F.2d 810, 813, n.6 (11th Cir. 1985) (determining that the manifestation theory "is incompatible with the language of the policy and holding that the damage itself which must occur during the policy period for coverage to be effective) and American Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760 (2nd Cir. 1984).
12 Unlike the cases described here, Auto Owners actually gets it wrong. Even after reviewing Trizec and Travelers Ins. Co. v. C.J. Gayfer's & Co., 366 So. 2d 1199 (Fla. App. 1979), and recognizing that the it is not the timing of the negligent conduct but rather the sometimes subsequent sustaining of actual injury or damage (i.e., the manifestation of the result of the negligent act), the court inexplicably holds that the appropriate trigger of coverage in Florida is manifestation rather than actual injury.
13 See also Millers Mut. Fire Ins. Co. of Tex. v. Ed Bailey, Inc., 647 P.2d 1249, 1253 (Idaho 1982); Dow Chem. Co. v. Assoc. Indem. Corp., 724 F. Supp. 474 (E.D. Mich. 1989) (reviewing cases rejecting antecedent negligence as capable of triggering coverage).
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