Chapter Two

• Jurisdiction: New York

Chapter Two

Trigger of Coverage

Kevin T. Merriman, Esq.*

* Mary Kay Vyskocil, Esq. previously updated this chapter, with contributions from her Simpson Thacher & Bartlett LLP colleagues, Joan Flaherty, Esq. and Rob Pfister, Esq. Kevin T. Merriman, Esq. gratefully acknowledges the contributions of his Ward Greenberg colleague, Amanda Burns, Esq., in this chapter update.

I. Introduction

Broadly speaking, the term “trigger of coverage” specifies what must take place to implicate coverage provided by an insurance policy.

The word “trigger” is not found in the CGL policies themselves. . . . Instead, “trigger of coverage” is a term of convenience used to describe that which, under the specific terms of an insurance policy, must happen in the policy period in order for the potential of coverage to arise. The issue is largely one of timing—what must take place within the policy’s effective dates for the potential of coverage to be “triggered”? ⁴⁸¹

The simplest answer to the question, “What must happen in the policy period for coverage to arise?,” is that for well over 50 years virtually every third-party insurance policy of the type discussed in more detail below has been written such that it indemnifies against bodily injury or property damage occurring during the policy period.⁴⁸² Conversely, where bodily injury or property damage does not “occur” during a given policy period, coverage in force during that policy period does not respond.

This so-called “trigger” issue becomes relevant when injury or property damage arguably spans many years and different insurers issue policies in successive policy periods during which the injury or property damage is alleged to have occurred, or even where only one insurer is at risk, but terms such as “retention” and “limits” of its policies vary over time.⁴⁸³

A. The Straightforward Case

This threshold temporal issue—whether the injury or damage in question has occurred while the policy was in effect or not—would appear to be straightforward and easy to apply, and in many cases it is. Consider, for example, a personal injury case where the driver of an automobile strikes a pedestrian, causing the pedestrian to fall and break her leg. So long as the driver’s current policy is in force on the date of the accident, there is no question that the pedestrian’s bodily injury “occurred” during the policy period. Accordingly, the driver’s current policy is where indemnity will properly be sought, and neither the driver nor the pedestrian would consider making a claim against the insurance in effect for the prior year (when no bodily injury had occurred), or, in the future, against a policy that was subsequently purchased to cover the following year.

B. The Complex Case

The temporal issue is more vexatious in “long-tail” or latent-injury claims, where bodily injury or property damage appears years after the exposure to the injury-causing agent. In such cases, determining whether bodily injury or property damage has “occurred during the policy period” is far more difficult. This difficulty may be observed by considering the Love Canal tragedy that gained national attention in the 1970s, when families in upstate New York became ill, and properties were recognized as uninhabitable.

Excavated in 1890 as part of a proposed power canal bypassing Niagara Falls, the Love Canal was later abandoned due to an economic downturn. Fifty years later, Occidental Chemical Corporation and its corporate affiliate, Hooker Chemicals, began using the site for waste disposal. Occidental later purchased the site in 1947, continued to dump waste, and in 1953 deeded the site to the local school district for $1—after having buried 42 million pounds of toxic waste there. Once those wastes were discovered in the “surface water, groundwater, soil, the basements of homes, sewers, creeks, and other areas . . . in the 1970s,” a cleanup effort began that required the relocation of many families and the remediation of large swaths of contaminated land.⁴⁸⁴

As the Love Canal case was litigated, an even more complicated fact pattern emerged: the City of Niagara Falls had also dumped waste at the site prior to 1953; Occidental’s deed to the school district expressly recited that hazardous wastes existed at the site; the school district nonetheless installed an invasive drain that may have disrupted the waste; the city installed roads and sewers that could have dislodged containment measures; and the state plowed through clay caps containing waste while building a freeway.

While it was not necessary for the court to deal with trigger-of-coverage issues in the Love Canal case, similar fact patterns—multiple owners, pollutants dumped by several entities and the passage of decades between the deposit of waste and the manifestation of property damage—have presented courts throughout the country with the difficult task of deciding which insurance policies must respond to a claim and cover a given insured’s liabilities to third parties.⁴⁸⁵

A similar case from another jurisdiction, Montrose Chemical Corp. v. Admiral Insurance Co., squarely confronts this question.⁴⁸⁶ Montrose, a chemical manufacturer, deposited waste at the Stringfellow acid pits in Riverside County, California, between 1968 and the site’s closure in 1972. “As early as 1970, toxic wastes were detected seeping from the site, and in 1975 the Santa Ana Regional Water Quality Control Board declared the site a public nuisance.”⁴⁸⁷ A host of lawsuits followed, including a tort action asserting that 27 wrongful deaths occurred between 1982 and 1986 as a result of the release of contaminants from the Stringfellow site.

The insurance coverage case that would ultimately reach the California Supreme Court in 1995 involved seven different insurance companies that had each insured Montrose at some point between 1960 and 1986, some for as few as six months. The policies issued by these insurers had different terms, depending on the date they were issued.

The task of the Montrose court was to determine which of the quarter-decade worth of policies could be called upon to defend and indemnify Montrose (i.e., which policies were “triggered”) in connection with its liability for its 1968 through 1972 dumping of chemicals at the Stringfellow site, which had resulted in injury and death into the 1980s. The court was confronted with a thicket of varying policy terms and a body of case law that can charitably be described as complicated. The court’s task was further complicated by the passage of time: as in many other insurance coverage disputes, the events giving rise to liability had occurred decades earlier.

Similar issues regarding when bodily injury or property damage “occurs” arise in cases of exposure to other toxins (including asbestos and lead paint), harmful pharmaceuticals (such as DES), and even medical devices (such as breast implants and prosthetic devices). In short, wherever an insured may be liable for bodily injury or property damage manifesting years after contact with the causative agent or process, a potential trigger-of-coverage issue is present.

C. When an “Occurrence” Occurs

“Trigger of coverage” is a legal theory argued by lawyers or used by courts to explain why long-term bodily injury or property damage has or has not “occurred” during any given policy period. The inquiry is often sensitive to policy considerations, and sometimes is avowedly result-oriented.

Case law in New York and elsewhere reveals four generally accepted trigger-of-coverage approaches:

• Under the exposure theory, a claimant’s contact with the hazardous substance or condition triggers a policy, even if that exposure does not immediately cause bodily injury or property damage.

• Under the manifestation theory, by contrast, a policy is triggered only when bodily injury or property damage becomes apparent or “manifest,” even if it is the result of exposure to injurious substances or conditions long ago.

• A third theory, continuous trigger, posits that damage occurs at exposure, at manifestation and at all points in between.

• Finally, a fourth theory—injury in fact—was developed by New York courts and remains the prevailing doctrine in New York law. Put simply, the injury-in- fact trigger means that an injury happens when it actually happens—essentially requiring a rigorous, fact-intensive and case-specific inquiry for each injury.

Each of these theories will be discussed in detail below. Before doing that, however, it is helpful to briefly review the policy language that gives rise to these trigger-of-coverage debates.

II. The Changing Language of Commercial General Liability Insurance Policies

Trigger-of-coverage issues can arise in connection with almost any type of insurance policy.⁴⁸⁸ They are most frequently litigated, however, in the context of commercial general liability (CGL) policies, which (subject to the terms and conditions of the parties’ agreement) insure policyholders for liability they may have to third parties for bodily injury or property damage.

In the era before Rachel Carlson’s landmark Silent Spring (1962) ushered in a new awareness of the long-term effects that human actions can have on the environment and individuals’ health, CGL policies were often viewed in the same way as the typical automobile policy discussed at the outset: A company would purchase a CGL policy for a specified term (e.g., January 1, 1960 through December 31, 1960), would pay a set premium, and would tender any claims that arose during the policy period to the insurance company that issued the policy. When claims consisted largely of discrete accidents (perhaps a workplace injury or damage to a consumer’s property during a specific industrial operation), it was relatively easy to determine which policy’s coverage was implicated.

The language of that era’s insurance policies tracked this reality. “Prior to 1966, general liability policies covered liability ‘because of bodily injury...