Last week, the Commonwealth Court of Pennsylvania held in a unanimous decision that latent environmental property contamination triggered several comprehensive general liability (“CGL”) insurance policies despite the fact that the contamination was not discovered until at least a decade later. In doing so, the Court resolved a question left open by two earlier Pennsylvania Supreme Court decisions over whether latent property damage in “occurrence” policies is triggered at the time the damage occurs or when the damage first manifests itself.    

In the case, Pennsylvania Manufacturers Association Insurance Co. v. Johnson Matthey, Inc., et al, the Pennsylvania Manufacturers Association Insurance Co. (“PMA”) sought a declaratory judgment that it had no obligation to defend or indemnify a company, Johnson Matthey Inc. (“JMI”) with respect to an underlying lawsuit filed by the Pennsylvania Department of Environmental Protection (“DEP”) against JMI seeking recovery of costs for cleanup of environmental contamination.  No. 330 M.D. 2015 (Pa. Cmmw. Ct. April 21, 2017).  DEP alleged that the environmental contamination stemmed from the use of hazardous substances, including trichloroethylene, known as TCE, by JMI’s predecessor companies and another unaffiliated company at the property from 1969 to 1974.  PMA argued in its motion for summary relief (a Pennsylvania appellate procedural rule with the same standard as a summary judgment motion) that the contamination at issue was not within the coverage period of the applicable policies issued in the 1960’s and 1970’s because the contamination at the property was not detected during the period that those policies were in effect.

In its decision, the Court considered the “central issue” of what event must take place within the policy period to trigger coverage under PMA’s insurance policies. In resolving this issue, the Court first noted that the applicable insurance consisted of “occurrence” policies, which provide coverage for liabilities arising while the policy is in effect.  The trigger for coverage under such “occurrence” policies is ordinarily the “first manifestation of the injury” that is alleged to have been caused by the insured.  The Court next navigated between two prior Pennsylvania Supreme Court cases addressing this “first manifestation” trigger rule as it relates to latent injuries.  

In J.H. France Refractories Co. v. Allstate Insurance Co., 626 A.2d 502 (Pa. 1993), the Pennsylvania Court expanded the trigger of coverage with respect to asbestos bodily injury claims by holding that all “occurrence” policies from the date of exposure to the first manifestation are triggered for such claims.  The J.H. France Refractories Co. Court reasoned that because asbestos causes undetected injury at the time of exposure and continues to cause undetected injury up to the time of manifestation of recognized disease, all periods from exposure to manifestation satisfy the requirement that bodily injury occur during the policy period.  This is known as the “multiple trigger” theory of coverage.  A year later, in Pennsylvania National Mutual Casualty Insurance Co. v. St. John, 106 A.3d 1, 14 (Pa. 2014), the Court limited the purview of J.H. France Refractories Co. by holding that the case was an exception to the general rule that first manifestation of injury is the trigger of coverage and that its “multiple trigger” of coverage did not apply to property damage claims where the harm became apparent within a short period of time after the insured’s tortious acts.

Here, PMA argued that the St. John decision limited J.H. France Refractories Co. to asbestos injury and similar bodily injury claims and thus, only first manifestation of the contamination in the instant case could trigger coverage.  The Court disagreed, finding that the St. John Court considered only whether coverage continued to be triggered under policies in effect after property damage was known to have occurred.  Indeed, the St. John Court reasoned that the justification for the multiple trigger theory of coverage was not the unique nature of asbestos disease but the long latency of the claim for which coverage was sought.  Thus, the St. John Court left open the issue of whether there is coverage under policies in effect while environmental contamination is in progress and before any manifestation has occurred.  And the instant Court reasoned that the damage alleged in DEP’s underlying complaint was environmental contamination that occurred gradually at indefinite points in time and therefore presented a “long latency of continuing, undetected injury or damage” that supports application of the “multiple trigger.”   

The Court provided further support for its decision by demonstrating that a plain reading of the insurance policies at issue supported the multiple trigger. The Court noted that the policies at issue provide coverage for “property damage which occurs during the policy period,” and not only property damage that was discovered or manifested itself during the policy period.  And the term “property damage” was not limited to visible or detected harm to property.  Thus, the Court found that if contamination occurred during the policy period, coverage is triggered regardless of whether the contamination was detected or known at the time.  Finally, the Court noted that limiting coverage for environmental contamination claims to policies in effect at the time that contamination was first detected would present the “problematic scenario” of permitting insurers to limit or terminate coverage in anticipation of future claims that have not yet materialized but could be anticipated.  

The decision is a win for insured companies required by regulators to clean up historical environmental contamination that occurred at old industrial sites, although there is likely still room for dispute over the factual scenarios for which the multiple trigger applies. The insurance industry developed a pollution exclusion in the 1970’s to exclude some environmental damage claims and in the 1980’s, following the enactment of the Comprehensive Environmental Response, Compensation, and Liability Act, the industry began applying a pollution exclusion to CGL policies to exclude the actual or alleged discharge of pollutants at any time.  The Court’s decision will allow policyholders with “occurrence” policies in place prior to the application of the pollution exclusion to seek coverage for historical environmental contamination that occurred during the policy period.