Opinion ID: 2052528
Heading Depth: 1
Heading Rank: 5

Heading: New York Law Application and Analysis

Text: For purposes of this appeal, HCC and the Insurance Companies agree on three basic matters. First, New York law controls. [5] Second, the trigger of coverage under New York law is injury in fact, i.e., physical injury to or destruction of tangible property during the policy period. Under New York's injury-in-fact rule, covered property damage must, in fact, result during the policy period to trigger the policy in effect at that time. Maryland Cas. Co. v. W.R. Grace & Co., 23 F.3d 617 (2d Cir.1993), amended (May 16, 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 655, 130 L.Ed.2d 559 (1994); Cortland Pump & Equip., Inc. v. Firemen's Ins. Co . of Newark, N.Y.Supr.Ct.App.Div., 194 A.D.2d 117, 604 N.Y.S.2d 633, 636 (1993); Abex Corp. v. Maryland Cas. Co., 790 F.2d 119 (D.C.Cir.1986) (applying New York law); American Home Products Corp. v. Liberty Mutual Ins. Co., 748 F.2d 760 (2d Cir.1984). Third, the issue on appeal is when does property damage, as defined by the policies, take place in the context of the underlying plumbing claims. The seminal case regarding the issue of injury-in-fact appears to be American Home Products Corp. v. Liberty Mutual Ins. Co., 748 F.2d 760 (2d Cir.1984) ( American Home Products II ). [6] In that case, the policyholder had been sued for liability which was related to several pharmaceutical products. Id. at 762. Liberty Mutual contended that coverage was not triggered until the injury had manifested itself, i.e., was observable or diagnosable. Id. The Second Circuit rejected Liberty Mutual's argument and held that insurance coverage is triggered by an injury-in-fact during the policy period. We agree with the district court's conclusion, substantially for the reasons stated in its opinion, that the trigger-of-coverage clause unambiguously provides for coverage based upon the occurrence during the policy period of an injury in fact. We reject only so much of the court's decision as holds that injury in fact means an injury that was diagnosable or compensable during the policy period.        A real but undiscovered injury, proved in retrospect to have existed at the relevant time, would establish coverage, irrespective of the time the injury became [diagnosable]. Id. at 764, 766 ( quoting American Home Products Corp. v. Liberty Mut. Ins. Co., 565 F.Supp. 1485, 1497 (S.D.N.Y.1983), aff'd as modified, 748 F.2d 760 (2d Cir.1984) ( American Home Products I )) (emphasis added). The Second Circuit subsequently applied its rationale in American Home Products II to property damage claims. Maryland Cas. Co. v. W.R. Grace & Co., 23 F.3d 617, 625 (2d Cir.1993), amended (May 16, 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 655, 130 L.Ed.2d 559 (1994). [7] The Seventh Circuit has addressed the trigger of coverage issue in the context of the same Celcon® fittings and polybutylene plumbing systems that are the subject matter of the case sub judice. Eljer Mfg., Inc. v. Liberty Mut. Ins. Co., 972 F.2d 805 (7th Cir.1992), cert. denied, 507 U.S. 1005, 113 S.Ct. 1646, 123 L.Ed.2d 267 (1993) ( Eljer II ). The decision in Eljer II was based upon both New York and Illinois law, which the Seventh Circuit concluded were the same. Id. at 812. [8] The Seventh Circuit found that physical injury triggering coverage begins once an allegedly defective product is incorporated into other property. Id. at 814. The New York Court of Appeals has held that property damage during the policy period can trigger insurance coverage. McGroarty v. Great Am. Ins. Co., N.Y.Ct. App., 36 N.Y.2d 358, 368 N.Y.S.2d 485, 490-91, 329 N.E.2d 172, 176 (1975). In McGroarty, for example, the gradual cracking and settling of a building over a period of months between 1965 and 1966 was a process that triggered coverage by successive insurance policies. Id. Thus, insurance coverage was not dependent upon when the damage from the undetected process was discovered. Id. Accord American Home Products I, 565 F.Supp. at 1498 ([C]asualty insurance coverage is extended to a home damaged by slow-moving causes, such as a shifting foundation or an attack of termites, as soon as the effect of those causes is shown to have inflicted measurable, compensable, albeit unascertained, damage on the policyholder during the policy period.). See also Maryland Cas. Co. v. W.R. Grace & Co., 23 F.3d at 628.