Continuous Trigger Theory versus Manifestation Trigger
July 13, 2015
The insureds brought an action against the insurer seeking coverage for water damage that was caused by a defect present since completion of their home but that went undiscovered until well after their policy had expired. This case is Strauss v. Chubb Indemnity Insurance Company, 771 F.3d 1026 (2015).
Randall and Diane Strauss had a home built in 1994. At that time, the home was insured by Chubb Indemnity. Unknown to the parties then, water infiltrated and damaged the home through a defect present since the completion of the construction. The water damage continued until it was discovered in 2010. The Chubb policy was no longer in effect in 2010.
The Strausses submitted a claim to Chubb for the water damage but the insurer declined coverage. The Strausses sued and the district court ruled in favor of the insureds. The insurer appealed.
The United States Court of Appeals, Seventh Circuit, noted that the Chubb policy was an all risk policy that applied to occurrences that take place while the policy is in effect. An occurrence was defined as a loss or accident to which the insurance applies occurring within the policy period; continuous or repeated exposure to substantially the same general conditions is considered to be one occurrence.
Chubb argued that the manifestation trigger theory should be applied. Under this theory, only the insurer that bears the risk at the time the loss manifests or can be discerned is responsible for indemnification once coverage is found to exist. The insureds argued that the continuous trigger theory should be used and that all policies in effect from the time the loss begins to the time the loss manifests owe coverage. The court said that selecting the proper trigger theory is a prerequisite to determining whether the water infiltration damage is covered by the Chubb policy.
The insurer wanted the court to impose the manifestation theory, arguing that the continuous trigger theory should be limited to third party coverage cases and that the manifestation theory is the only trigger suitable to analyzing first party property insurance policies. The circuit court said that no Wisconsin court has adopted a rule that applies the manifestation trigger independent of the language found in a policy in the first party context, or exiled the continuous trigger theory to third party liability cases. Moreover, the court went on, Wisconsin courts consistently based decisions on coverage disputes solely on policy language. Therefore, the appeals court said it would consider the language of the policy. Doing so, the court decided that the policy provisions require the application of the continuous trigger theory.
The court reviewed the definition of occurrence, which included the “continuous or repeated exposure to substantially the same general conditions” phrase. The court said this was not ambiguous and meant that the parties to the insurance contract contemplated a long-lasting occurrence that could give rise to a loss over an extended period of time. The court found that the latent water infiltration constituted a single occurrence under the terms of the policy, and because the policy covered all risks of physical loss, the water damage triggered coverage.
Chubb also argued that the Strausses filed their lawsuit too late, past either a statutory deadline or a time limit imposed by the policy. The court pointed out that the policy permitted claims to be filed within one year after a loss occurs and this can entirely reasonably be interpreted to mean after a loss completes. So, for purposes of the statute of limitations, the loss in this instance occurred all the way up until the damage manifested in 2010. The Strausses filed suit within one year of the manifestation and therefore, the lawsuit is timely.
The ruling of the district court was affirmed.
Editor's Note: The U.S. Circuit Court rules that the continuous trigger theory for this first party claim applies, relying mainly on the policy language in which the definition of an occurrence includes the phrase “continuous or repeated exposure to substantially the same general conditions”. So in this instance, coverage applied under the policy in force when the damage first occurred even though the damage was not actually discovered until well after that first policy was no longer in effect.