The Pennsylvania Supreme Court addressed when a liability policy was triggered for ongoing property damage. The Court also declined to apply the multiple trigger theory. Pennsylvania Nat'l Mut. Cas. Ins. Co. v. John, 2014 Pa. LEXIS 3313 (Pa. Dec. 15, 2014).
In 2002, Appellants, co-owners of a dairy farm, expanded the size of their dairy herd and milking facility. Appellants hired LPH Plumbing to install a new plumbing system, which would include a wastewater drainage system and a separate freshwater drinking system. LPH Plumbing subcontracted with Stoltzfus Welding to weld metal pipes leading to a holding tank for the new freshwater drinking system. Construction was completed in July 2003.
Unknown to Appellants, the plumbing system was defective when dairy operations began. PVC piping for the wastewater was cracked, allowing "gray water" to escape. Further Stoltzfus failed to properly weld an intake pipe leading to a holding tank that formed a part of the freshwater drinking system for the dairy herd. Consequently, Appellants' herd was exposed to contaminated drinking water shortly after dairy operations began in July 2003.
As early as April 2004, the gray water contamination caused various health and reproductive problems with the dairy herd. Appellants consulted with various veterinarians and nutritionists to help diagnose and remedy the dairy herd's various maladies. Appellants finally began to suspect that the dairy herd's drinking supply was the cause of the problem when, in March 2006, the cows began thrashing their heads in their drinking troughs and refused to drink the water. Appellants then investigated and found the plumbing defects and the ongoing seepage of gray water into the dairy herd's drinking supply.
Appellants sued LPH Plumbing and the Stoltzfus. LPH Plumbing was defended by Penn National, which had issued four policies to LPH Plumbing. The first covered from July 1, 2003 to July 2, 2004; the second from July 1, 2004 to July 1, 2005; and the third from July 1, 2005 to July 2, 2006. The fourth policy provided umbrella coverage for the period July 2, 2005 to July 2, 2006. Each policy carried a $1 million coverage limit.
Appellants secured a jury verdict against LPH Plumbing and Stoltzfus for $3.5 million and $277,505.36 in delay damages. LPH appealed to the Superior Court. Through mediation, LPH Plumbing agreed to drop its appeal and Penn National agreed to pay $1.2 million to Appellants in exchange for waiver of all claims against LPH Plumbing. Appellants retained the right to seek the remainder of the $3.5 million judgment directly from Penn National.
In a declaratory judgment action against LPH Plumbing, Penn National contended that only one policy was implicated, the policy for July 1, 2003 to July 1, 2004, when the injuries first manifested. Appellants sought a declaration that the two policies, the CGL and umbrella policies, in effect for the period July 1, 2005 to July 1, 2006, when the gray water contamination was discovered, were triggered. In the alternative, Appellants sought a declaration that LPH Plumbing's liability triggered each of the four CGL policies pursuant to a multiple trigger theory.
The trial court entered an order that Penn National was liable for paying the judgment against LPH Plumbing only under the CGL policy in effect for July 1, 2003 to July 1, 2004. The trial court concluded there was only a single occurrence, which happened when the effects of LPH Plumbng's negligence first manifested in April 2004 with the drop in milk production. The trial court also found the multiple trigger theory inapplicable because the Pennsylvania appellate courts had declined to apply the trigger outside of latent disease cases, like asbestosis.
On appeal the Superior Court affirmed, finding Penn National liable only under the policy in effect from July 1, 2003 to July 1, 2004. The negligent installation of the plumbing system gave rise to only one occurrence in 2004.
The Pennsylvania Supreme Court, in turn, also affirmed. The court first rejected Appellants' contention that the application of the first manifestation rule for determining trigger of coverage required the cause of injury be known or reasonably discoverable. The policy language stated coverage was triggered when "'bodily injury' or 'property damage' occurs during the policy period." Coverage was therefore triggered when any of the following were reasonably ascertainable: physical injury to tangible property, loss of use of tangible property, bodily injury, sickness, or disease. The Penn National policies contained no language requiring the cause of injury to be identifiable before coverage was triggered.
Therefore, property damage here first became reasonably apparent in April 2004. The significant drop in milk production in April 2004 constituted property damage, as it indicated loss of use of tangible property. The fact that Appellants did not discover the cause of the dairy herd's various maladies until March 2006, had no bearing on determining which policy applied.
Considering Appellants' alternative argument that the multiple trigger theory applied to continuous, progressive property damage, thus triggering all of the Penn National policies, the court also disagreed. The policy language demonstrated that, consistent with the first manifestation approach, only the policy in effect when an occurrence first arose was answerable for the ensuing bodily injury or property damage. The Penn National policies provided coverage when an "occurrence" caused either "bodily injury" or "property damage" during the respective policy periods. Pennsylvania had adopted the first manifestation rule, with the lone exception being asbestos bodily injury claims. It was unlikely that the parties would have intended a single occurrence, albeit with property damage continuing past the end of the respective policy period, to trigger coverage under multiple consecutive policies. The better position was to construe the Penn National policies as providing for coverage only under the policy or policies in effect at the time an occurrence first arose. An occurrence first arose when bodily injury or property damage first manifested in a way that became reasonably apparent.
Here, the damage sustained to the dairy herd, occasioned by LPH Plumbing's negligent installation of the plumbing system, did not lay dormant for an extended period, as in asbestos cases. Instead, the damage to the dairy herd first manifested in April 2004, less than a year after the dairy herd first began ingesting the contaminated drinking water. Therefore, the court declined to apply the multiple trigger theory to determine coverage under the Penn National policies. Only the policy in effect when damage to the herd first manifested in April 2004 was implicated for the ensuing property damage.