A federal court in North Carolina recently held that five insurers must share equally in the defense and indemnity of their mutual insureds with respect to three underlying construction defect lawsuits where the actual date of injury in each of the lawsuits was unknown. Harleysville Mut. Ins. Co. v. Hartford Cas. Ins. Co., 2015 WL 859586 (E.D. N.C. Feb. 27, 2015).
The insured was sued in three separate lawsuits regarding defective roofing work at three multi-family residential construction projects. Five separate insurers provided CGL insurance to the insured during and after construction was completed on each of the projects. After the underlying lawsuits settled, one of the insurers sought a declaration of the rights and obligations of each insurer with respect to the three underlying lawsuits. On cross-motions for summary judgment, four of the insurers argued that coverage should be triggered according to the date of completion of construction (such that the fifth insurer would bear the brunt of coverage), relying on multiple North Carolina Court of Appeals decisions in support of their position. The fifth insurer argued that coverage should be triggered according to the date of injury-in-fact and, since that actual date was unknown, that coverage should be afforded under each of the policies on a pro rata time on risk basis.
The court rejected the argument that the completion dates triggered coverage, finding that the intermediate appellate court decisions relied upon by the insurers could not be reconciled with an opinion from the North Carolina Supreme Court establishing an “injury-in-fact” trigger. The court explained that because it was it not clear when the damage began, it was reasonable to infer that the damage could have begun at any time from completion date to the date of the lawsuits such that coverage was triggered under all the policies. The court also held that each of the insurers had to share equally in both defense and indemnity, regardless of the number of years each insurer had coverage (or when the individual buildings were completed). The court declined to adopt a time-on-risk allocation, finding that the pro rata method could not be applied where there was uncertainty whether the damage occurred during one policy period or throughout all policy periods.