Business & Insurance Litigation Newsletter for Indiana

Injury-in-Fact and Multiple Trigger Theories Applied to Determine Coverage

With claims arising from a sudden and obvious event, such as an automobile accident, determining if liability coverage is triggered is as simple as comparing the date of the accident to the policy's effective date. However, analyzing coverage for claims involving latent, progressive property damage or personal injuries caused by long-term exposure to a hazardous substance or defective conditions is more complex. In such cases, as the Seventh Circuit has recognized, there are as many as seven different theories used by courts to determine when coverage is triggered. See Huntzinger v. Hastings Mut. Ins. Co., 143F.3d 302 (7th Cir. 1998). However, courts typically use four popular approaches, depending on the language in a given policy. See, e.g., Allstate Ins. Co. v. Dana Corp., 737 N.E.2d 1177, 1201 (Ind. Ct. App. 2000) (reversed, in part, on other grounds, Allstate Ins. Co. v. Dana Corp., 759 N.E.2d 1049 (Ind. 2001)). If coverage is triggered at the time that a personal injury or property damage becomes known to the victim or property owner, the approach is identified as the 'manifestation theory.' Allstate, 737 N.E.2d at 1177. If coverage is triggered when a personal injury or property damage first occurs, the approach is coined the 'injury-in-fact theory.' Id. If coverage is triggered when the first exposure to injury-causing conditions occurs, then the court is said to have chosen the exposure theory.' Id. Finally, if coverage is triggered in a manner such that insurance policies in effect during different time periods all impose a duty to indemnify, then the approach is labeled a "continuous" or "multiple" trigger theory. See id. Indiana courts have settled on the "injury-in-fact" test, as well as the "multiple trigger" test, which is applied under extraordinary circumstances. Huntzinger, 143 F.3d at 14.

The decision in Dana illustrated application of the "injury-in-fact" theory to trigger environmental coverage. Dana involved a claim for damages from groundwater contamination caused by chemicals that were dumped entirely during one policy period but continued leaching in the groundwater during subsequent policy periods. The Dana court applied the injury-in-fact test, which requires an actual injury to occur during the policy period in order to trigger coverage for property damage. The policy language defined 'occurrence' as an accident or "continuous or repeated exposure to conditions which results, during the policy period," in personal injury or property damage, with such damage and injury "caused by one event or by continuous or repeated exposure to substantially the same conditions being deemed to result from one occurrence." Id. at 1200-1201. The court determined that repeated or continuous exposure to conditions that result in property damage can be an occurrence in one policy period, and, if those conditions persist, can constitute an occurrence for each consecutive policy. Id. at 1201. Under this language, the triggering event is an injury during the policy period caused by an occurrence. Id. (emphasis added).

Furthermore, one important Indiana case has addressed the issue of successive insurers and construction defects. In United States Fidelity and Guaranty Co. v. American Ins. Co., 345 N.E.2d 267 (Ind. Ct. App. 1976), an insured filed a declaratory judgment action to determine the respective liability of its insurers for damages caused by spalling of the insured's manufactured bricks that had been used in the construction of brick structures. Each of the three successive insurers had agreed to pay damages the insured incurred because of "property damage" caused by an "occurrence." An "occurrence" was defined as "an accident . . . which results, during the policy period, in . . . property damage . . ." All agreed that an insurer providing coverage only at the time of the product's manufacture and prior to it being incorporated into the structure, has no liability for damage later caused by the product. Id. at 270. The court emphasized that "the time of the 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." (emphasis added) Id. Therefore, only those insurers which provided coverage at the time the complaining party suffers damage will be liable. Id. at 271; see also Great Lakes Chemical Corp. v. International Surplus Lines Ins. Co., 638 N.E.2d 847 (Ind. Ct. App. 1994). There was no dispute that the bricks had spalled during each of the three policy periods, so the issue before the court was whether each insurer was liable for the damage corresponding to the number of bricks spalling during its period of coverage or whether the insurer during whose period of coverage the spalling was first discovered was liable for all loss to the structure. The court concluded that "property damage" occurred to the entire structure when the spalling first became apparent. United States Fidelity and Guaranty, 345 N.E.2d at 271. Accordingly, only the insurer who provided coverage during such period was liable for the loss.

As the United States Fidelity court recognized, the time of the occurrence within the meaning of an insurance policy is not the time the wrongful act was committed, but the time when the complaining party was actually damaged. United States Fidelity, 345 N.E.2d at 270. The issue of when property damage is deemed to occur when a construction defect causes property damage is complex and not easily answered as a matter of law. It is generally recognized that the issue of when an injury occurs is a question of fact which may require the use of expert evidence. Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's London, 673 A.2d. 164 (Del. 1996); see also Joe Harden Builders, Inc. vs. Aetna Casualty and Surety Co., 486 S.E.2d. 89 (S.C. 1997).

However, there is a further wrinkle. In cases involving progressive property damage where the damage itself is not a result of a definite, discrete event, but rather a design or construction defect, courts often employ the "continuous trigger" test to determine coverage. See Joe Harden Builders, 486 S.E.2d at 89. Indeed, Indiana has adopted the "continuous trigger" test to determine coverage for latent personal injuries caused by continuous exposure over a long period of time. See Eli Lilly and Co. v. Home Ins. Co., 489 N.E.2d 467 (Ind. 1985). Other jurisdictions have specifically applied the "continuous trigger" test to property damage claims involving progressive property damage. See United States Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226 (Ill. Ct. App. 1994).