Insurance Coverage Triggers: When Does Faulty Work Cause Insurable Damage?
If wood rots in a garage and nobody is there to see it, does property damage still occur? When it comes to general commercial liability insurance, the answer is yes. Sort of.
In Carithers v. Mid-Continent Casualty Company, the 11th Circuit Court of Appeals recently considered the question of when property damage “occurs” for the purposes of a general commercial liability (GCL) insurance policy. Applying Florida law, the Court of Appeals affirmed the district court’s ruling that the damage occurred at the time of the damage itself, rather than at the time the damage was either discovered or reasonably discoverable.
In that case, the plaintiffs hired a construction company to build a house, and a number of defects in the construction (including the incorrect construction of a balcony that allowed water to seep in and cause wood rot) led to damage to the house. The homebuilder was insured by Mid-Continent Casualty Co. for general commercial liability, but that insurance policy only provided coverage for work through 2008. The damage was not discovered until two years later.
Mid-Continent argued it should not have to defend the homebuilder or provide coverage because, it argued, property damage does not “occur” until the damage was either discovered or reasonably discoverable. The district court, however, agreed with the plaintiffs that the “trigger” for insurance coverage is when the injury actually occurred. The Court of Appeals affirmed this ruling, noting that Florida courts have not yet decided which trigger applies but that the district court’s ruling was in line with a previous federal case applying Florida law to a similar policy.
Alabama law is a bit clearer. Since 1984, the Alabama Supreme Court has recognized that, “as a general rule the time of an ‘occurrence’ of an accident within the meaning of an indemnity policy is not the time the wrongful act is committed but the time the complaining party was actually damaged.” U.S. Fidelity & Guaranty Co. v. Warwick Dev. Co., 446 So. 2d 1021 (Ala. 1984). The Alabama Supreme Court has upheld that same standard as recently as 2002, and federal courts applying Alabama law have done the same.
However, what Alabama courts do not seem to have yet decided is when coverage is triggered in situations where the actual date of damage is uncertain. The 11th Circuit in Carithers discussed a similar problem, and specifically limited its holding so as not to decide that issue. In the Carithers case, the district court had found as a fact that the property damage occurred in 2005, and it appeared that Mid-Continent was not challenging that finding on appeal. In that case, then, it was easy to tell that the damage occurred before the insurance policy expired in 2008. Whether insurance coverage will trigger in situations where it is difficult or impossible to tell when the damage actually occurred is an open question.
Especially in developing areas of law such as this, it is important to have an experienced attorney help you review your coverage and fill gaps when needed. Insurance isn’t helpful if it doesn’t cover what you think it covers, and the future of your business may depend on you having the coverage you need if something goes wrong.