In Strauss v. Chubb Indem. Ins. Co., the Seventh Circuit U.S. Court of Appeals (applying Wisconsin law) declined to adopt the “manifestation” trigger theory in all first-party property insurance claims, and instead found that the policy terms unambiguously required application of a “continuous” trigger theory.
The insureds constructed a home in 1994. They purchased insurance for the residence from a number of insurers from October 1994 to October 2005 (collectively, “the Chubb Defendants”). Water infiltrated and damaged the home as the result of construction defects, but the damage was not discovered until 2010. The Chubb Defendants denied the insureds’ request for coverage because the damage first manifested in 2010, well after the last of the Chubb Defendants’ one-year policies expired. The Chubb Defendants’ maintained that a “manifestation trigger” applied to first-party property insurance, meaning that the insureds should seek coverage under the policy it had in place at the time it discovered the damage. The Chubb Defendants also asserted that the claim was time barred under Wisconsin statutory law and a suit limitation clause.
The insureds filed suit within one year of their discovery of the damage caused by the water intrusion. In cross-motions for summary judgment, the Chubb Defendants argued that public policy and case law from across the country supported application of a “manifestation” trigger. The insurers also argued that the insureds filed suit too late, past either a statutory deadline or a time limit imposed by the policies. The district court disagreed and concluded that the “continuous” trigger theory applied to the “occurrence-based” policies at issue. Since the “continuous” trigger theory applied, the district court also found that the insureds’ claim was not time-barred.
The Seventh Circuit affirmed. While acknowledging that jurisdictions across the country utilize the manifestation trigger in first-party claims, the court explained that no Wisconsin court had so held. Rather, the court noted that in Miller v. Safeco Ins. Co of Am., 683 F.3d 805, 810-11 (7th Cir. 2012), the court had declined to adopt a bright-line rule requiring use of the manifestation trigger theory in all first-party property insurance coverage disputes. Instead, the court looked to the policy language and its definition of “occurrence,” as “a loss or accident to which this insurance applies occurring within the policy period. Continuous or repeated exposure to substantially the same general conditions unless excluded is considered to be one occurrence.” This language unambiguously contemplated a long-lasting occurrence that could give rise to a loss over an extended period of time. The court dismissed public policy concerns raised by the Chubb Defendants that by not adopting a bright-line manifestation trigger, it created uncertainty for insurers because it allowed liability arising on stale policies. Finally, because the loss was ongoing and occurred with each rainfall, the loss was continuous from the date of faulty construction until the damage manifested in October 2010 for purposes of the statute of limitations.
Arguably, the occurrence definition was designed to apply to the liability coverage part of the policy. However, the first-party portion of the policy also referenced the word “occurrence,” so the court found it applicable in the first party context as well.