A “hot topic” for insurance carriers who underwrite construction defect policies is, when does the coverage come into effect, or “trigger” coverage, thereby causing the Carrier’s duty to defend and/or indemnity the insured? There are different legal theories on triggering, as follows:
1. The Injury-In-Fact Trigger of coverage theory provides that the occurrence of actual damage creates the Carrier’s duty to defend.
2. The Manifestation Trigger Theory provides that when damage manifests itself, (or is discovered or discoverable), at this point, the Carrier’s duty to defend is created or triggered.
In the construction defect context, these theories can have different results as to whether a Carrier has a duty to defend the insured. For example, a Carrier would have a duty to defend the insured if the damage “occurred” during the policy period but was not “manifested” or discovered until after the policy period under the Injury-In-Fact theory. However, under the Manifestation Theory – there would be no duty to defend because the damage was not discovered until after the policy period expired
There is no Florida Supreme Court ruling as to which theory applies in Florida. However, it is my professional opinion that the Florida Supreme Court will likely hold that the Injury-In-Fact trigger theory will apply. My opinion is based upon a case rendered by the United States District Court for the Middle District of Florida in Axis Surplus Insurance Co. v. Contra vest Construction Co., et. al., 2012 U.S. Dist. LEXIS 77489 (M.D. Fla. June 5, 2012).
In Axis a condominium association filed suit against Contra vest, (Axis’s insured), for construction defects, claiming the property suffered severe water intrusion and other defects that were not readily discoverable. Unit owners complained of property damage. The association then retained construction experts who inspected the premises and issued reports in August and September of 2008. The Association claimed that even though the expert reports identified property damage – the damage occurred after the expiration of the Axis policies, and thus, there was no coverage. Axis argued the Injury-In-Fact trigger theory and the Middle District agreed based upon the Eleventh Circuit’s ruling in Trizec Properties, Inc. v. Biltmore Construction, Co., 767 F.2d 810, 813 (11th Cir. 1985), wherein that court, in evaluating policy language similar to that in the Axis policy, determined the “Injury-In-Fact” theory applied. The policy provided that coverage was triggered as a result of “an occurrence during the policy period.”
Remember these Federal Jurisdiction cases are not binding on Florida State Courts. Florida state courts will interpret this “coverage trigger issue” based upon Florida Law. However, the Federal decisions do carry persuasive weight. Also, the Axis court included language in its opinion that constrains its holding to the specific policy in that case. So it is still possible for an insurance carrier to face the manifestation trigger theory – if their policy language is different than that in the Axis case.
Carriers would be wise to adopt language similar to the following based upon these rulings:
This insurance applies to “bodily injury” and “property damage” only if:
1. The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; [and]
2. The “bodily injury” or “property damage” occurs during the policy period.
The Axis holding may allow Carriers whose insured’s have been sued to argue that the moment when actual damage occurs, as opposed to when it is discovered, is the relevant date for determining coverage. However, adopting the appropriate policy language appears to be prerequisite.