Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/trigger-of-coverage/page/2/
Timestamp: 2019-04-20 02:55:45+00:00

Document:
The Texas Court of Appeals held that the insured need not prove the exact dates physical damage occurred in order to trigger defense and indemnity coverage. Vines-Herrin Custom Homes, LLC v. Great Am. Lloyds Ins. Co., 2011 Tex. App. LEXIS 10027 (Tex. Ct. App. Dec. 21, 2011).
In 1999, the insured built a home. He was insured under a CGL policy issued by Great American from November 9, 1998 to November 9, 2000. Thereafter, the insured held a CGL policy issued by Mid-Continent from November 9, 2000 to September 18, 2002.
After construction was completed, the insured sold the house to the buyer in May 2000. After moving in, the buyer found numerous construction defects in the home, including water entering cracks in the home, and sinking and sagging of parts of the house. The buyer sued the insured, who sought coverage under the two policies. When the insurers refused to defend the underlying suit, the insured sued for a declaratory judgment.
The underlying case went to arbitration and an award of $2.4 million was granted to the buyer. The insured assigned to the buyer his claims against the insurers.
In the coverage action, the trial court initially applied the manifestation rule and imposed a duty to defend only if the property damage became apparent during the policy period. The court found for the buyer, but during the post-judgment motions, the Texas Supreme Court adopted the "actual injury" trigger. See Don's Bldg. Supply, Inc. v. One-Beacon Ins. Co., 267 S.W. 3d 20 (Tex. 2008). Under the "actual injury" approach, property damage occurred when actual physical damage took place rather than when it became discoverable. The trial court ruled for the insurers because the insured failed to show, by expert testimony, when the actual physical damage to the property occurred.
The Court of Appeals reversed. Don's Buildingheld only that property damage under the CGL policy "occurred when actual physical damage to the property occurred." Id. at 24. So long as the damage occurred within the policy period, coverage was provided. Applying the eight-corners rule, the pleadings sufficiently alleged the policies were in effect prior to construction and actual damage occurred sometime during or after construction during the policy periods. Therefore, the underlying pleadings adequately plead that actual physical damage to the property potentially occurred during the policy periods and a defense was owed.
Further, Great American's duty to indemnify was triggered. The lower court determined that the property damage manifested in May 2000, during Great American's policy period. As a matter of law, when the damage manifested, it had necessarily occurred under the actual injury rule. The evidence showed Great American's duty to indemnify was triggerd and expert testimony to establish the exact date of injury was not required to trigger the duty.
When property damage manifests before the policy period, but continues over time and overlaps the CGL's policy period, does the policy provide coverage? Applying Florida law, the U.S. District Court determined that under the manifestation trigger, there was no coverage. See Amerisure Ins. Co. v. Albanese Popkin The Oaks Development Group, L.P., 2010 U.S. Dist. LEXIS 125918 (S.D. Fla. Nov. 30, 2010).
The homeowners sued the insured developer for damages arising from the installation of Chinese drywall. The homeowners purchased their home from the insured on November 23, 2004. The homeowners moved into their home on October 6, 2006. Their complaint against the insured alleged property damage was sustained within the building and caused by the release of fumes and vapors from the Chinese drywall. The homeowners initially discovered the fumes and vapors in December 2006. Further property damage to air handling units, electrical wiring, metals and plumbing fixtures was noticed as late as April and May 2009. In September 2009, the homeowners discovered the cause of the property damage, the Chinese drywall.
Amerisure issued a CGL policy to the developer for the policy period January 16, 2008 to January 16, 2009. The policy applied to property damage only if prior to the policy period, no insured knew that the property damage had occurred. If an insured knew property damage had occurred prior to the policy period, then any continuation of property damage during or after the policy period would deemed to have been known prior to the policy period.
Amerisure sought declaratory relief on its coverage obligations and moved for summary judgment. The federal court noted that under Florida case law, the time of occurrence within the meaning of an "occurrence" policy was the time at which the injury first manifested itself. The underlying complaint alleged that the homeowners first noticed damage and odor stemming from the Chinese drywall in 2006, prior to the Amerisure policy. Throughout 2008 and into the summer of 2009, additional damage to the air handling units was observed. Nevertheless, the homeowners admitted that they first noticed the damage prior to the policy period.
Therefore, there was no property damage alleged during the policy period. The fact that the damage was continuous in nature was irrelevant under the manifestation trigger. Consequently, there was no coverage or duty to defend, and the motion for summary judgment was granted.
Hawaii has adopted the injury-in-fact trigger, whereby coverage is triggered by the actual occurrence during the policy period of an injury-in-fact. See Sentinel Ins. Co. v. First Ins. Co., 875 P.2d 894, 915 (Haw. 1994). Under the injury-in-fact trigger, "an injury occurs whether detectable or not; in other words, an injury need not manifest itself during the policy period, as long as its existence during that period can be proven in retrospect." Id. Had the injury-in-fact trigger applied in Amerisure Ins. Co., there likely would have been coverage.
In Emhart Indus., Inc. v. Century Indemn. Co., No. 07-2806 (1st Cir. March 13, 2009)[here], the First Circuit found a duty to defend a CERCLA case until the point at which it was determined there was no duty to indemnify.
From 1944 to 1968, Metro-Atlantic operated a chemical plant at the nine acre site. In 1964, Metro-Atlantic manufactured hexachlorophene for less than one year. Dixon is a byproduct of the hexachlorophene manufacturing process. In 1968, Metro-Atlantic merged with Crown Chemical Corporation to form Crown-Metro and thereafter ceased operations at the site. Emhart eventually became the corporate successor to Crown Metro.
The EPA discovered dioxin on the site in 1998. In 2000, it issued a Notice of Potential Liability under CERCLA, identifying Emhart as a Potentially Responsible Party. The Notice required Emhart to pay costs of $947,140 incurred to date, as well as future costs, and to remove contaminated soil and river sediments. The EPA also issued three Unilateral Administrative Orders for Removal Action requiring certain remedial work be performed on the site. The anticipated costs of remediation were likely to exceed $100 million.
Emhart sought coverage from Century under policies issued to Crown-Metro. Eventually, Century located a primary policy issued to Crown-Metro in February 1969 and an excess policy in effect from December 1, 1969 to January 1, 1970. Emhart sued when coverage was denied. A six week trial was conducted on the issue of indemnity. The jury entered a verdict that there was no duty to indemnify.
Thereafter, the district court awarded summary judgment to Emhart on Century's duty to defend under both the primary and excess policies. Under the "pleadings test" applicable in Rhode Island, the EPA's charging documents alleged claims that were potentially covered. The district court further found that Century had breached its duty, and damages in the amount of $4.2 million, the total defense costs of the underlying EPA action, were awarded. The district court ruled, however, that Century's duty to defend ceased as of the October 19, 2006 jury verdict. Further, Emhart was not entitled to total indemnity costs as damages for Century's breach of its duty to defend.
The First Circuit affirmed in all respects. The Court agreed that the pleadings test was applicable despite Century's argument to the contrary.
Century also argued the district court erred in allocating to Century the total defense costs incurred prior the jury verdict. Century advocated use of the "time-on-the-risk" scheme of allocation, which would limit the defense costs based on the ratio between the periods of Century's coverage (approximately one year) and the entire period of dioxin exposure alleged by the EPA (approximately fifty-eight years). The First Circuit agreed with the district court that the "all sums" language in the primary policy and the "ultimate net loss" language on the excess policy placed no limit on the amount of defense costs that could be allocated to Century.
Next, the Court considered Emhart's cross-appeal, contending the district court erred in limiting the damages to only those defense costs accrued as of the date of the jury verdict. The First Circuit agreed the jury's findings of fact proved there was no duty to indemnify under the policies, thereby negating any duty to defend. Emhart also argued it was entitled to full indemnity costs as damages. The First Circuit disagreed because Emhart had not proven any contract damages beyond the costs of defense.
Finally, the First Circuit rejected Emhart's challenge to jury instructions on the applicable trigger. Emhart contended the jury should have been instructed using either the "continuous trigger" or "injury-in-fact" standard. The issue on the verdict form read, "Was dioxin contamination discoverable in the exercise of reasonable diligence during the policy periods?" The First Circuit determined the "injury-in-fact theory" and "continuous trigger" were incorporated in the instructions and verdict form.
Our last post summarized a Texas case (Byrne, Ltd. v. Trinity Universal Ins. Co., 2008 Tex. App. LEXIS 9041 (Tex. Ct. App. Dec. 4, 2008)), which held the insurer must defend where the underlying complaint is silent as to when the injury occurred. Today we shift gears and review a case favorable to insurers regarding implementation of the continuous injury trigger.
A New Jersey court recently held that when initial manifestation of a personal injury predates the policy period, the insurer has no duty to defend or indemnify even though further progression of the disease may have occurred while the policy was in effect. See Polarome Int'l, Inc. v. Greenwich. Co., 2008 N.J. Super. LEXIS 266 (N.J. Super. Ct. App. Div. Dec. 17, 2008).
The insured was a distributor of food flavorings and fragrances, including diacetyl, a chemical used as a butter flavoring. Two suits were filed against the insured alleging serious, continuing bodily injuries as a result of diacetyl inhalation. Greenwich's commercial general liability policy provided coverage from December 31, 2003, through December 31, 2005.
The underlying plaintiffs alleged injury long before Greenwich's policy period. Greenwich denied coverage in both cases because no bodily injury occurred in either case during the policy period.
In the declaratory judgment action, the trial court was guided by the New Jersey Supreme Court's decision in Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). Based on Owens-Illinois, there was no duty to defend after manifestation even if there were allegations that the symptomatology of the manifested injury worsened during the subsequent policy periods.
The Appellate Division affirmed. Under Owens-Illinois, the continuous injury trigger applied only to the years of repeated exposure to injurious conditions. It is only the undetectable injuries at and after exposure and prior to initial manifestation that are progressive and indivisible such that the occurrence of an injury cannot be known, making the continuous injury trigger applicable. Once a diacetyl-related personal injury was initially manifest, subsequent CGL policies would not be triggered.
Further, there was no merit to the insured's argument that coverage was triggered for all separate, related bodily injuries that occur over multiple policy periods. The end of the continuous trigger in New Jersey for personal injuries caused by toxic exposures was the initial manifestation of the disease.
Under [the continuous injury trigger], property damage is deemed to have occurred continuously for a fixed period (the "trigger period"), and every insurer on the risk at any time during that trigger period is jointly and severally liable to the extent of their policy limits, the entire loss being equitably allocated among the insurers . . . . The trigger period begins with the inception of the injury and ends when the injury ceases.
Sentinel, 76 Haw. at 298, 875 P.2d at 915.
Although Sentinel was a property damage case, it was guided by personal injury case such as American Home Prod. Co. v. Liberty Mut. Ins. Co., 565 F. Supp. 1486 (S.D.N.Y. 1983), aff'd as modified, 748 F.2d 760 (2nd Cir. 1984).
The seminal Hawai`i case on injury in fact and trigger of coverage is Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawaii, Ltd. 76 Hawai`i 277, 875 P.2d 894 (1994), where the Hawai`i Supreme Court adopted the injury in fact trigger. Since Sentinel, however, the Hawai`i Supreme Court has not returned to the issue.
Texas has put forth some important cases on trigger of coverage of late. In September, we reviewed here Don's Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W. 3d 20 (Tex. Sup. Ct. 2008), where, in responding to certified questions from the 5th Circuit Court of Appeals, the Texas Supreme Court stated the injury in fact trigger was applicable under a comprehensive liability policy. [See update on Don's Building Supply below]. Now comes the Texas Court of Appeals' decision in Byrne, Ltd. v. Trinity Universal Ins. Co., 2008 Tex. App. LEXIS 9041 (Tex. Ct. App. Dec. 4, 2008), which holds that when the underlying complaint is silent as to when property damage occurred, the insurer must defend.
Byrne was a general contractor. Subcontractors included Subfloor Systems, Inc., which was responsible for installing concrete flooring, and Sam White Investments, which was to install stucco on the complex's walls. Byrne was named as an additional insured under commercial general liability policies obtained by these subcontractors. The policies excluded property damage occurring before the work was completed and before the work was put to its intended use.
Construction was substantially completed in April 1999. Mercantile purchased the complex in June 1999. In 2001, Mercantile sued Byrne (but not its subcontractors) for construction defects concerning water infiltration. The subcontractors' insurers refused to defend and Byrne sued for declaratory relief. The trial court granted the insurers' motion for summary judgment.
The Court of Appeal noted that Don's Building Supply held that property damage under a CGL policy occurred when actual physical damage to the property took place. The date on which physical damage is or could have been discovered was irrelevant under the policy. The Court then looked to the underlying complaint to determine when allegations of property damage occurred. Although such allegations were sparse in Mercantile's complaint, one allegation indicated some water related problems had occurred before the sale to Mercantile in June 1999. Exactly when the property damage occurred was left unclear, however. Based on prior Texas case law, the Court noted that if the underlying complaint was silent as to when property damage occurred but left open the potential that it occurred during the policy period, summary judgment for the insurer was improper.
Therefore, in Byrne, some property damage could have occurred during the policy period, and thus the claims against Byrne were potentially covered. Read as a whole, the underlying complaint left open the possibility that property damage occurred during the policy period. Consequently, the insurers had not shown they were entitled to summary judgment based on the eight corners of the complaint and the policies.
Byrne favors policy holders who seek a duty to defend. In our next post, we will review a New Jersey case addressing trigger of coverage which favors insurers.
[Update on Don's Building Supply] - Having received input from the Texas Supreme Court, the Fifth Circuit remanded the case to the district court. See OneBeacon Ins. Co. v. Don's Building Supply Inc., 2008 U.S. App. LEXIS 26423 (5th Cir. Dec. 23, 2008). The district court will consider when property damage occurred, not when the property damage was discovered, for purposes of determining whether there is coverage under the policy.
In answering a certified question from the Fifth Circuit, the Texas Supreme Court adopted the injury-in-fact trigger for a comprehensive liability policy in Don's Building Supply Inc. v. OneBeacon Ins. Co., No. 07-0639 (Tex. Aug. 29, 2008).
The insured sold and distributed insulation which was installed in various homes from December 1, 1993 to December 1, 1996. During this time, the insured was covered by comprehensive general liability policies issued by OneBeacon. From 2003 to 2005, various Texas homeowners filed suit against the insured, alleging the insulation was defective and not weather-tight, allowing moisture to seep behind the insulation and cause wood rot. The homeowners alleged the damage began to occur within six months to one year after installation of the insulation. The district court held that OneBeacon's duty did not arise because the damage was not identifiable during the policy period.
The Fifth Circuit asked the Texas Supreme Court what the proper rule under Texas law was for determining the time at which property damage occurs for purposes of an occurrence-based CGL policy? OneBeacon's policy said the insurance applied to "property damage" only if it occurred during the policy period. The policy defined "property damage" as "physical injury to tangible property."
Citing cases from other jurisdictions, including the Hawai`i Supreme Court's decision in Sentinel Ins. Co. v. First Ins. Co. of Haw., 76 Hawai`i 277, 875 P.2d 894, 915, 917 (Haw. 1994), the Texas Supreme Court adopted the injury-in-fact approach, and held that property damage occurred when actual physical damage to property occurred. Under the facts presented, property damage occurred when the homes suffered wood rot or other physical damage. Although OneBeacon advocated for the "manifestation rule", the policy did not allow for this application of the rule. Instead, the policy linked coverage to damage, not damage detection.
A second certified question from the Fifth Circuit asked whether an insurer's duty to defend was triggered where damage is alleged to have occurred during the policy period but was inherently undiscoverable until after the policy expired? The Texas Supreme Court again answered "yes." A claim against the insured that a home suffered physical injury to tangible property during the policy period and was caused by the insured's defective product triggered OneBeacon's duty to defend. The duty was not diminished because the property damage was undiscoverable until after the policy period.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.