Are construction defects that allegedly result in water intrusion and property damage over several policy periods the result of one occurrence or multiple occurrences? This was the issue under consideration in Bayley Constr. v. Am Guar. and Liab. Ins. Co., 2010 U.S. Dist. LEXIS 110767 (W.D. Wash. Oct. 15, 2010).
Bayley Construction was the general contractor for construction of a shopping center. When sued for construction defects, it settled with the help of some of its insurers. Travelers contributed $1 million, Wausau contributed $1 million, and American Guarantee contributed $4 million. After the settlement, American Guarantee pursued its cross claims against National Union and Travelers. National Union and Travelers moved for summary judgment.
National Union's policies first became effective on December 31, 2004. The policies defined "occurrence" as "an accident, including continuous or repeated exposure to conditions. All such exposure to substantially the same general conditions shall be considered as arising out of one Occurrence." An endorsement addressed continuing damage as follows:
In the event of continuing or progressive Bodily Injury or Property Damage over any length of time, such Bodily Injury or Property Damage shall be deemed to be one Occurrence and shall be deemed to occur only when such Bodily Injury or Property Damage first commenced.
National Union argued that because it was undisputed that the water damage commenced during the 2000-01 period - before National Union's policies were in effect - all subsequent damage had to be attributed to the date of the original occurrence. Accordingly, the damage occurred outside National Union's policy period. American Guarantee responded that its expert identified certain property damage that did not occur until 2006, 2007 or 2008, which fell within National Union's policy periods.
The court noted that merely because the damage was ongoing and continued into the National Union policy period did not change the fact that it started before the National Union policy period. Because National Union's policies specifically stated that ongoing property damage was considered to be one occurrence on the date of its first inception, and the first inception of the water intrusion was before 2004, the "occurrence" of property damage took place before the earliest National Union policy period.
Travelers motion was based on "anti-stacking" language in its policies. Travelers paid the $1 million policy limits on Bayley's 2000-01 policy, but did not pay any additional amounts despite issuing subsequent policies covering additional policy periods. The anti-stacking language stated,
We'll pay amounts . . . legally required to pay as damages for covered bodily injury or property damage that happens while this agreement is in effect. . . and is not property damage covered by another insurance policy issued to you by us. . . .
Travelers argued the property damage at the shopping center first manifested during the 2000-01 policy period and Travelers paid on that policy. Therefore, the property damage "happened" during the 2000-01 policy period and the "anti-stacking" language precluded aadditional coverage under its subsequent policies.
The court agreed. Even American Guarantee's witnesses conceded the property damage constituted one occurrence of continuing damage and Travelers paid the policy limit on the 2000-01 policy. Under the policies' anti-stacking provision, no subsequent policies covered the loss at the shopping center.
