Yesterday, in Strauss v. Chubb Indem. Ins. Co., – F.3d – , 2014 WL 6435314, 2014 U.S. App. 21794 (7th Cir., Nov. 18, 2014), the Court of Appeals held that the use of the phrase “continuous or repeated exposure” in a Wisconsin first-party property policy’s definition of occurrence meant that the contract of insurance contemplated that the continuous trigger theory determined whether loss was covered.  As a result, a claim for 11 years of gradual water damage under a series of insurance policies was held to be timely even though it was first presented when the damage was initially discovered, five years after the last contract of insurance had expired.

The Strausses had constructed a home in Mequon, Wisconsin in 1994, and they were insured by four separate Chubb carriers from then until October of 2005.  In October of 2010, Mr. and Mrs. Strauss discovered that a defect during construction in 1994 had been allowing water infiltration during every rainstorm over the past 16 years, causing damage to the building’s envelope.  They made claim under the 1994-2005 Chubb policies, but the insurers denied liability, and the Strausses brought suit in federal court in October of 2011, within one year of their discovery of the damage.

The policies covered “all risks of physical loss to [the] house” with coverage limited “only to occurrences that take place while this policy is in effect.”  The term “occurrence” was then defined as”

a loss or accident to which this insurance applies occurring during the policy period.  Continuous or repeated exposure to substantially the same general conditions unless excluded is considered to be one occurrence.

Finally, there was a “Legal Action Against Us” clause mandating that any action against the insurers be brought “within one year after a loss occurs.”

The defendants contended: (1) that there was no coverage because a manifestation trigger applied to first-party property insurance and the damage manifested itself in 2010, five years after their last contract of insurance expired; and (2) that the Strausses’ suit was untimely.  The district court rejected both arguments, and it granted summary judgment to Mr. and Mrs. Strauss.  On appeal, a panel of the Seventh Circuit affirmed on November 18th.

The opinion was written by District Judge Virginia M. Kendall, sitting by designation.  The core issue on appeal was whether a manifestation trigger or a continuous injury trigger applied to the loss.  As the Court of Appeals explained:

The “exposure” theory fixes the date of injury as the date on which the injury-producing agent first contacted the body or the date on which pollution began.  The “manifestation” theory holds that the compensable injury does not occur until it manifests itself in the form of a diagnosable disease or ascertainable property damage.  The “continuous trigger” theory, also known as the “triple trigger” theory, provides that the injury occurs continuously from exposure until manifestation.

The insurers asserted that the continuous injury trigger should be limited to third-party coverage cases and that the manifestation trigger was the only one suitable to analyzing first-party property insurance policies.  The panel declined to adopt such a “bright-line” rule, however, noting that “Wisconsin courts have never adopted a rule that applies the manifestation trigger independent of the language found in a policy in the first-party context or exiled the continuous trigger theory to the third-party liability landscape.”

In addition, the court noted that Wisconsin had “unequivocally held that the language of a policy guides the analysis and determines whether coverage exists.”  According to Judge Kendall, the inclusion of the phrase “continuous or repeated exposure” in the definition of “occurrence” demonstrated that the parties contemplated that there could be a long-lasting occurrence that could give rise to a loss over an extended period of time.  As her decision explained:

Here, while there was only one ongoing occurrence as defined by the Policy, there was continual, recurring damage to the property with each successive rainfall.  The . . . defendants do not dispute that physical damage to the building envelope of the home took place during each policy period from October 1994, when the home was constructed, to October 2010, when the effects of the water infiltration manifested.  Because the Policy language demonstrates that the parties intended for a continuous trigger theory to apply, the benefits of the Policy are now available to the Strausses.

The panel also rejected the insurers’ argument that a bright-line manifestation trigger theory was required by public policy in order to create certainty for insurers and prevent liability from arising under stale contracts of insurance.  In the words of the opinion, “[b]ecause we conclude the Wisconsin Supreme Court would not apply a universal standard, insurance companies remain free to create innovative policies that they draft according to the unique circumstances of each client and policy.”  Finally, the defendants’ contentions that Mr. and Mrs. Strauss did not bring suit in a timely manner foundered because the policy language had departed from Wisconsin’s statutory formulation.  Section 631.83(1)(a) required that a claim must be filed within one year “after the inception of the loss,” and the court noted that “the phrase ‘inception of the loss’ rules out a construction which would postpone the start of the period of limitation until the insured’s loss is discovered, or should have been discovered.”  In the matter at bar, however, the contracts of insurance at issue required claims to be filed “within one year after a loss occurs,” and that phrase was held to be “ambiguous as applied to a progressive loss” and thereby construed in the Strausses’ favor.