Insurance Law Hawaii

No Duty to Defend or Indemnify Where Initial Manifestation of Injury Predates Policy

    Our last post summarized a Texas case (Byrne, Ltd. v. Trinity Universal Ins. Co., 2008 Tex. App. LEXIS 9041 (Tex. Ct. App. Dec. 4, 2008)), which held the insurer must defend where the underlying complaint is silent as to when the injury occurred.  Today we shift gears and review a case favorable to insurers regarding implementation of the continuous injury trigger. 

    A New Jersey court recently held that when initial manifestation of a personal injury predates the policy period, the insurer has no duty to defend or indemnify even though further progression of the disease may have occurred while the policy was in effect.  See Polarome Int'l, Inc. v. Greenwich. Co., 2008 N.J. Super. LEXIS 266 (N.J. Super. Ct. App. Div. Dec. 17, 2008). 

    The insured was a distributor of food flavorings and fragrances, including diacetyl, a chemical used as a butter flavoring.  Two suits were filed against the insured alleging serious, continuing bodily injuries as a result of diacetyl inhalation.  Greenwich's commercial general liability policy provided coverage from December 31, 2003, through December 31, 2005.

    The underlying plaintiffs alleged injury long before Greenwich's policy period.  Greenwich denied coverage in both cases because no bodily injury occurred in either case during the policy period.  

    In the declaratory judgment action, the trial court was guided by the New Jersey Supreme Court's decision in Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994).  Based on Owens-Illinois, there was no duty to defend after manifestation even if there were allegations that the symptomatology of the manifested injury worsened during the subsequent policy periods.

    The Appellate Division affirmed.  Under Owens-Illinois, the continuous injury trigger applied only to the years of repeated exposure to injurious conditions.  It is only the undetectable injuries at and after exposure and prior to initial manifestation that are progressive and indivisible such that the occurrence of an injury cannot be known, making the continuous injury trigger applicable. Once a diacetyl-related personal injury was initially manifest, subsequent CGL policies would not be triggered.

    Further, there was no merit to the insured's argument that coverage was triggered for all separate, related bodily injuries that occur over multiple policy periods.  The end of the continuous trigger in New Jersey for personal injuries caused by toxic exposures was the initial manifestation of the disease.

    Polarome therefore departs from the Hawai`i Supreme Court's seminal trigger of injury case, Sentinel Ins. Co. v. First Ins. Co. of Hawaii, Ltd., 76 Haw. 277, 875 P.2d 894 (1994).  Sentinel opined the continuous injury trigger was applicable where the damage continues progressively over time spanning different insurers' policy terms.  Sentinel explained, 

Under [the continuous injury trigger], property damage is deemed to have occurred continuously for a fixed period (the "trigger period"), and every insurer on the risk at any time during that trigger period is jointly and severally liable to the extent of their policy limits, the entire loss being equitably allocated among the insurers . . . .  The trigger period begins with the inception of the injury and ends when the injury ceases. 

Sentinel, 76 Haw. at 298, 875 P.2d at 915.    

    Although Sentinel was a property damage case, it was guided by personal injury case  such as American Home Prod. Co. v. Liberty Mut. Ins. Co., 565 F. Supp. 1486 (S.D.N.Y. 1983), aff'd as modified, 748 F.2d 760 (2nd Cir. 1984).

Insurer Must Defend Where Underlying Complaint is Silent as to When Injury Occurred

    The seminal Hawai`i case on injury in fact and trigger of coverage is Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawaii, Ltd. 76 Hawai`i 277, 875 P.2d 894 (1994), where the Hawai`i Supreme Court adopted the injury in fact trigger.  Since Sentinel, however, the Hawai`i Supreme Court has not returned to the issue.

    Texas has put forth some important cases on trigger of coverage of late.  In September, we reviewed here Don's Building Supply, Inc. v. OneBeacon Ins. Co., 267 S.W. 3d 20 (Tex. Sup. Ct. 2008), where, in responding to certified questions from the 5th Circuit Court of Appeals, the Texas Supreme Court stated the injury in fact trigger was applicable under a comprehensive liability policy.  [See update on Don's Building Supply below].  Now comes the Texas Court of Appeals' decision in Byrne, Ltd. v. Trinity Universal Ins. Co., 2008 Tex. App. LEXIS 9041 (Tex. Ct. App. Dec. 4, 2008), which holds that when the underlying complaint is silent as to when property damage occurred, the insurer must defend. 

   Byrne was a general contractor.  Subcontractors included Subfloor Systems, Inc., which was responsible for installing concrete flooring, and Sam White Investments, which was to install stucco on the complex's walls.   Byrne was named as an additional insured under commercial general liability policies obtained by these subcontractors.  The policies excluded property damage occurring before the work was completed and before the work was put to its intended use.

    Construction was substantially completed in April 1999.  Mercantile purchased the complex in June 1999.  In 2001, Mercantile sued Byrne (but not its subcontractors) for construction defects concerning water infiltration.  The subcontractors' insurers refused to defend and Byrne sued for declaratory relief.  The trial court granted the insurers' motion for summary judgment.

    The Court of Appeal noted that Don's Building Supply held that property damage under a CGL policy occurred when actual physical damage to the property took place.  The date on which physical damage is or could have been discovered was irrelevant under the policy.  The Court then looked to the underlying complaint to determine when allegations of property damage occurred.  Although such allegations were sparse in Mercantile's complaint, one allegation indicated some water related problems had occurred before the sale to Mercantile in June 1999.  Exactly when the property damage occurred was left unclear, however.  Based on prior Texas case law, the Court noted that if the underlying complaint was silent as to when property damage occurred but left open the potential that it occurred during the policy period, summary judgment for the insurer was improper.

    Therefore, in Byrne, some property damage could have occurred during the policy period, and thus the claims against Byrne were potentially covered.  Read as a whole, the underlying complaint left open the possibility that property damage occurred during the policy period.  Consequently, the insurers had not shown they were entitled to summary judgment based on the eight corners of the complaint and the policies.

    Byrne favors policy holders who seek a duty to defend.  In our next post, we will review a New Jersey case addressing trigger of coverage which favors insurers.

    [Update on Don's Building Supply] - Having received input from the Texas Supreme Court, the Fifth Circuit remanded the case to the district court.  See OneBeacon Ins. Co. v. Don's Building Supply Inc., 2008 U.S. App. LEXIS 26423 (5th Cir. Dec. 23, 2008).  The district court will consider when property damage occurred, not when the property damage was discovered, for purposes of determining whether there is coverage under the policy.