Finger on the Trigger

Generally, an insurance carrier is only responsible for a loss that occurs during an insured’s policy period.
But what happens if you discover a loss, but can’t pinpoint when the damage occurred? Or maybe the “damage” occurred over several years, during which time you had several different policies in effect. Which policy do you turn to for coverage?
The courts have developed “trigger of coverage” theories to help determine the time a covered event must occur to be covered by an insurance contract.
Some courts have held that only the policy in place at the time the damage actually occurred is affected. Other courts have ruled the policy in place at the time the damage manifests itself to the insured is responsible for coverage.
Massachusetts courts have not adopted any particular theory, and there appears to be equal support for both theories.

Trigger of coverage
‘Trigger of coverage” is a term of art describing what must occur during the policy period for potential coverage to commence under the specific terms of an insurance policy. Courts have developed four main theories to determine which insurance policy or policies are triggered where the “loss” spans multiple policy periods.
Continuous. Each insurance policy in effect at the time of each event triggers coverage – at exposure, at the development of the actual injury and at the time of manifestation.
Manifestation. The insurance policy in effect at the time when the loss or damage is reasonably capable of discovery is liable for the claim.
Actual Injury. This is usually determined by expert testimony. Each policy in effect when the injury or damage “actually occurred,” even if not discovered during the particular policy period, must respond to the claim.
Exposure. Each insurance policy in place when the claimant was exposed to the alleged cause of the harm (e.g., asbestos) must respond to the claim.

Massachusetts law
The Massachusetts Supreme Judicial Court in Lumbermen’s Mut. Cas. Co. v. Belleville Indus., Inc., 407 Mass. 675 (1990) specifically declined to adopt any of the above theories. Consequently, depending on the facts of the case, different trigger of coverage theories have been applied in Massachusetts.
In the third-party insurance context, Massachusetts courts are split as to which trigger of coverage theory should apply. In American Home Assurance Co. v. Libbey-Owens-Ford Co., 786 F.2d 22 (1st Cir. 1986), the 1st Circuit noted that the “damage” sustained by the insured building extended over a period of time, including periods before and after the expiration of the policy at issue.
The court established the following test to determine the date of the occurrence: The time at which a reasonable person would be aware that a defect exists that may give rise to a cause of action, i.e., the “manifestation” theory.
In Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143 (1984), the SJC likewise determined that coverage was triggered at the time the injury became known to the insured. The court said, “[t]he time of occurrence of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed, but the time when the complaining party was actually damaged.”
In contrast, in two environmental cleanup cases, Trustees of Tufts University v. Commercial Union Ins. Co., 415 Mass. 844 (1993) and Rubenstein v. Royal Ins. Co. of America, 44 Mass. App. Ct. 842 (1998), The SJC and Massachusetts Appeals Court, respectively, each found the policy in effect when the damage actually occurred (“actual injury” theory) should cover later asserted claims.
It is worth noting that a subsequent Massachusetts Superior Court case characterized the holding in Tufts University as limited to “environmental contamination cases.”

First-party policies
In New England Gas & Elec. Ass’n v. Ocean Accident and Guarantee Corp., 330 Mass. 640 (1953), a gas and light company brought a claim under its property insurance policy for business interruption as a result of damage to a turbine necessary to conduct its business.
The insurer denied coverage on the basis the acts that caused the “damage” took place nine months before the term of the policy began.
The SJC rejected the insurer’s argument, saying an injury arising from the use of property during the term of the policy is not removed from the risk insured merely because the condition which caused the injury antedated the policy.
As a result, the SJC ruled that coverage existed under the insured’s policy.
Alternatively, Massachusetts courts have held that damage which predates the policy term is not covered under a first-party property damage policy.
In Pirie v. Federal Ins. Co., 45 Mass. App. Ct. 907 (1998), the insureds sued their homeowner’s insurer seeking property coverage for lead abatement. The insurer denied coverage.
The Appeals Court sided with the carrier on two independent bases: (1) the presence of lead did not rise to the level of a “physical loss” under the policy; and (2) the offending substance had its origin before the plaintiffs “had an insurable interest in the property.”

Ownership interest
The Pirie case is also significant because it holds that coverage is not available for a loss that precedes the date of the insured’s ownership of the property allegedly damaged. Other Massachusetts courts have adopted this reasoning. In HRG Dev. Corp. v. Graphic Arts Mut. Ins. Co., 26 Mass. App. Ct. 374 (1988), an insured brought an action under its “all risk” insurance policy seeking a declaration that the insurer defend the insured against a title defect claim.
The Appeals Court said the insured could not show that the “risk” occurred within the period covered by the policy (indeed, the “loss” preceded the insured’s ownership of the property).
The court ultimately upheld the insurer’s denial of coverage on the basis that the insured’s policy only applied to “physical losses.” The court also said the loss was not compensable because it occurred before the insured “had an insurable interest” in the property.
Alternatively, there is support for the proposition that an insurable interest at the time of the “loss” (however that is determined) need not be a prerequisite to coverage. In Tufts University, the insurer contended that no coverage existed because the “harm” occurred two years prior to the insured’s acquisition of the subject property.
The court rejected this contention, saying, “The policy language does not require that [the insured] have a property interest in the contaminated property during the policy period, but only that the property damage itself occur during that time. Had the insurers intended to exclude coverage whenever the underlying plaintiff did not own the property at the time of the occurrence, the insurers could have expressed such an exclusion. … Even assuming that the policies are susceptible to the interpretation of the insurers, where there are two rational interpretations of policy language, the insured is entitled to the benefit of the one that is more favorable to it.”
Given the split in authority in Massachusetts, it is nearly impossible to predict which trigger of coverage theory a court would apply under the circumstances of any particular case.
The U.S. District Court in Massachusetts has observed that “nearly all possible approaches to resolving the timing of the onset of the actual damage remain viable.”
In light of the strict notification requirements contained in most insurance contracts, it is vital that in-house counsel report losses to any and all insurers who may have covered the insured property at any time during the life of the insured property.
Anthony L. Deprospo Jr. is an associate at Sherin and Lodgen LLP. He practices in all areas and phases of civil litigation, including complex business disputes, professional liability, legal malpractice defense, insurance coverage, probate and anti-trust litigation.