Triggering Event for Coverage is Time of The Damage
Grange Mutual Casualty Company appealed a trial court's entry of summary judgment in favor of West Bend Mutual Insurance Company on the parties' claims for declaratory judgment in an insurance coverage dispute. This case is Grange Mutual Casualty Company v. West Bend Mutual Insurance Company, 2011 WL 887728 (Ind.App.).
Cincinnati Insurance Company insured Sullivan Corporation, a general contractor for a project in Indianapolis. Sullivan entered into a subcontract with McCurdy Mechanical to install the sanitary sewer, domestic water and storm piping, roof drains, and plumbing fixtures at a school. After McCurdy finished its work, the school experienced significant water damage and it was discovered that the flooding was due to a fractured storm drain pipe that McCurdy had damaged prior to its completion of the work. Cincinnati paid for the damages under Sullivan's policy and then initiated a subrogation action against McCurdy and its insurers. West Bend and Grange had insured McCurdy under general liability policies; West Bend provided insurance coverage to McCurdy from May 23, 2004 until May 23, 2005. Grange was the insurance carrier from May 23, 2005 to May 23, 2007. Thus, West Bend insured McCurdy at the time McCurdy performed work at the school and damaged the drain pipe, and Grange insured McCurdy at the time of the flooding.
Both West Bend and Grange jointly settled Cincinnati's claim against McCurdy and agreed to litigate the coverage dispute between them over which policy actually provided the coverage for McCurdy. Grange argued that the date of the occurrence determines coverage and contended that West Bend's policy provides liability coverage for the water damage because the pipe was damaged during West Bend's policy period, and this occurrence caused the later flooding. West Bend argued that there were two separate occurrences: the broken pipe and the flooding. The trial court sided with West Bend and this appeal followed.
The appeals court noted that it cannot be disputed that significant property damage actually occurred during the Grange policy period and so, the Grange policy covered the property damage that resulted from the flood. However, the court went on, coverage under Grange's policy does not equate to lack of coverage under West Bend's policy. The court said that, although the damages resulting from McCurdy's negligence became apparent only after they evolved over time, some damage clearly resulted when the drain pipe was fractured, and this was within West Bend's policy period. The court found that the undisputed facts show that the storm pipe was damaged during the West Bend policy period and this policy clearly stated that covered property damage includes “any continuation, change, or resumption of that property damage after the end of the policy period”. So, because the West Bend policy was triggered at the time McCurdy damaged the drain pipe, the policy covers all damages that flowed from the original damage, and this includes the extensive flooding damage.
In sum, the court decided that the facts established that both policies were triggered in this case. The first policy (the West Bend policy) was triggered by the original fracturing of the storm drain pipe that resulted in the immediate damage to the pipe and the subsequent flooding. The second policy (the Grange policy) was triggered by the flood damage that occurred during its policy period. Thus, both policies cover the flood damage at issue. And, since both policies provide for contribution by equal shares between primary insurers, West Bend and Grange have to contribute equal amounts until the individual policy pays its applicable limit of insurance.
The judgment of the trial court was affirmed in part, reversed in part, and remanded.
Editor's Note: Most courts today hold that property damage occurs when it manifests itself or when it is discovered. The appeals court coupled this finding with an interpretation of the Montrose language that is in current general liability policies to require both insurers to contribute to the indemnification of their mutual insured. West Bend had to contribute to the property damage claim in this instance since its insured caused property damage during the West Bend policy period and the damage was not known by the insured to have occurred, so this damage included the continuation and change of that property damage after the end of the policy period. Grange had to contribute since the covered water damage actually occurred during its policy period. So, both insurers had to share the expense of the property damage claim against the insured.