The Montana Supreme Court determined there was no coverage for the insured due to a lack of property damage during the policy period. Truck Ins. Exchange v. O'Mailia, 2015 Mont. LEXIS 54 (Mont. Feb. 17, 2015).
The insured plumbing company, Lolo Plumbing & Heating, installed a water heater at Famous Dave's restaurant. At the time of installation, the insured had a CGL policy with Truck. The policy provided coverage from July 10, 2006 to November 29, 2009.
On March 12, 2010, three years after the water heater was installed, a burning smaell was detected in the restaurant's mechanical room. The fire department turned off the water heater and asked that a plumber look at it. Diamond Plumbing & Heating was called and replaced the combustion air fan assembly, but did not further examine the water heater.
A burning smell was detected the next day. Diamond was again called and concluded the water heater was working fine. The temperature of the exhaust vent was 486 degrees, but Diamond did not examine or clean the heat exchanger. About an hour after Diamond left, a fire broke out in the restaurant.
Experts determined the cause of the fire was related to the installation and maintenance of the water heater. One expert determined that the wood framing near the water heater was likely "pyrolizing" because it was exposed to excessive temperatures. Pyrolysis was explained to be the result of material or wood degrading due to heat exposure. The expert believed that pyrolysis was already occurring by the time Diamond first inspected the water heater on March 12, 2010.
Famous Dave's restaurant sued Diamond, which sought indemnification from several third-party defendants, including the insured, Lolo Plumbing. The insured tendered to Truck, who defended under a reservation of rights. Truck also filed suit for a declaratory judgment that there was no coverage. Truck argued that although the allegedly negligent installation occurred during the policy period, the resulting property damage occurred after the policy was terminated, and was therefore not covered. The insured argued that property damage occurred during the policy period because prior to the fire, wooden materials located near the water heater had been degraded by pyrolysis. The trial court granted summary judgment to Truck.
The Montana Supreme Court affirmed. None of the experts found that the structure surrounding the water heater was damaged merely as a result of exposure to high temperatures. At most, pyrolysis created a condition that increased the probability of a later physical injury. Consequently, there was no evidence that physical injury, i.e., property damage, occurred during the policy period. Even if exposure to excessively high temperatures created a harmful condition during the policy period, the existence of that condition did not result in property damage to the water heater occurring during the policy period, and thus did not constitute an "occurrence" as defined by the policy.
Therefore, the policy did not provide coverage for claims resulting from the fire.