The Seventh Circuit predicted that the Wisconsin Supreme Court would adopt the continuous injury trigger for first party property loss that extends over several policy periods. Miller v. Safeco Ins. Co. of Am., 2012 U.S. App. LEXIS 12940 (7th Cir. June 25, 2012).
A home inspection report performed before the Millers purchased their home showed a soft spot on the roof. The stucco's finish color was also uneven and stained. Further, some water damage was found in the study and skylights above the kitchen sink. But the report advised that the exterior walls, chimney, grass roof, flashings, floor joists/beams and columns, garage walls and floor appeared serviceable. A roof specialist determined the soft spot was not significant and could be repaired for $1,500.
The Millers purchased a homeowner's policy from Safeco on June 30, 2005. The policy went into effect the next day when the Millers closed on the property. But the Millers did not see the policy's terms until Safeco mailed them a copy of the policy at the end of July.
Before receiving the policy, the Millers discovered severe inner wall water leaks and significant water infiltration on three of the home's exterior walls. A new specialist found that the home had numerous construction deficiencies that existed long before the Millers purchased the house. These deficiencies resulted in chronic water intrusion, damaging the interior finished walls, insulation, external plywood sheathing and other parts of the structure. The Millers submitted a claim to Safeco for the water damage, mold and lost use of the home. Safeco denied the claim.
The Millers sued and moved for summary judgment. The court held that Safeco was precluded from raising the policy's exclusions because it did not notify the Millers of the exclusions until after they discovered the damage. The court awarded $468,164.00 in damages. Safeco was also found to have acted in bad faith.
The Seventh Circuit may not have realized its holding was significant. The court held the continuous injury trigger theory was properly used to determined the date of harm based on the policy's language limiting coverage to "losses occurring during the policy period." The Seventh Circuit noted the Wisconsin applied the continuous trigger theory to determine the date of injury in cases where the exact date of harm is uncertain and potentially occurring over several policy periods. The court cited Soc'y Ins. v. Town of Franklin, 607 N.W. 2d 342, 346 (Wis. Ct. App. 2000). But Franklin involves a third party policy, not a first party policy. Only a few courts have adopted the continuous injury trigger in first party policies.
The Seventh Circuit agreed that various exclusions could not be used to deny coverage because the Millers did not know about themuntil after the loss was discovered and when they received the Safeco policy in the mail.
Finally, Safeco acted in bad faith. Safeco argued that the issue of coverage was at least "fairly debatable." The Seventh Circuit disagreed. First, Safeco asserted that the damage was a preexisting condition the Millers knew about. There was no evidence, however, that the Millers knew about the extent of the damage until after closing. Second, Safeco argued the Millers took four months between discovering the damage and filing a claim. The court noted that the Millers were preparing their claim by contacting an attorney and have professionals assess the damage. Third, Safeco felt the Millers failed to protect the home after discovery. Again, the court disagreed. The Millers did what they could to mitigate the damage. Further, the home was a total loss. Therefore, there was no basis for finding the coverage was fairly debatable.
