TRIGGER AND NUMBER OF OCCURRENCES BACK IN THE SPOTLIGHT AGAIN
Written by Tom Hagy
Corrected July 17, 2009
Speaking on a recent and well-attended HB teleconference, Matthew Jacobs, a partner with Jenner & Block feels that a primary focus of drywall coverage disputes will center on the trigger of coverage. And with more than 30 class actions and individual lawsuits pending against builders and contractors for damage and bodily injuries, the insurance fights are inevitable. Jacobs drew on his extensive knowledge of asbestos coverage actions, outlining the various triggers of exposure, injury in fact, manifestation and the continuous trigger.
His co-panelist, Robert Horst of Nelson Levine de Luca & Horst said courts examining coverage claims will need to do so in light of the science (see further down in this story).
Jacobs said installation is one trigger in the exposure trigger category, as is the point at which the materials started to give off a gas. The first appearance of a black residue on copper wires could serve as another trigger. But, he added, drywall continues to off-gas for some time and causes continual property damage, and “I frankly think this is well suited for the continuous trigger.”
“All policies in place from the date of installation to the date of manifestation are going to be triggered and are going to have to respond on a joint and several basis up to their policy limits to respond to any Chinese drywall property damage or bodily injury claims.” He said litigants may have to get into expert testimony as to whether Chinese drywall off-gases immediately and whether the strength fluctuated and whether damage takes place to the same extent along the way.
Also finding comparisons to asbestos coverage litigation, Jacobs said the number of occurrences will be critical. In asbestos coverage litigation, carriers said each exposure was a separate occurrence, and this already is being seen in the drywall matters where some carriers are saying each installation of drywall is a separate occurrence. If each installation is a separate occurrence, the deductibles or retentions will never be exceeded. Jacobs said this position will be met with significant resistance, and predicted the courts will not treat each installation as a separate occurrence.
Jacobs noted that one major carrier has said in a reservation of rights letter that the entire Chinese drywall problem — that is the decision to import drywall from China and subsequently install it — was a single occurrence.
Jacobs said that in past construction defect coverage litigation, the question was whether the installation of defective construction was an occurrence. He doesn’t see that being a realistic issue in the case of Chinese drywall where we have homebuilders installing drywall, usually through subcontractors, and as a result of building a home people are alleging that bodily injury and property damage occurred.
“If that’s not a classic accident, I don’t know what is,” he said. “While it’s foreseeable that a subcontractor may have done something in a defective or faulty manner, what’s not foreseeable is the damage resulting from the subcontractor’s activities.”
“What were homebuilders, of all people, buying, if they bought policies that don’t cover the installation of a common building material in the building of every home that they put on the market? If that’s the case, I think that some insurance commissioners around the United States have to start asking themselves ‘how can it be that this insurance product is going to apply to bar coverage for to me what looks like a classic accident arising out of the building of these homes?'”
WHAT WAS ONCE PURE . . .
Robert Horst of Nelson Levine de Luca & Horst focused the meaning and scope of the term “contaminant.” The exclusions bar coverage for things including vapors, which is the issue in drywall claims. He predicted that courts will, as they have in the past, focus on the “loss of purity” as part of the definition of contamination. “There was purity before and there isn’t purity now,” he said, a position that must be examined with a better understanding of the science.
When we take a stance without better comprehending the relevant science, he said, important judgments may be premature. He also said that in determining whether a substance is a contaminant, there is more to do than merely consulting a dictionary.
In the case of drywall a numerous variety of factually unique situations exist, requiring a thorough analysis of causation.
“To say that the contamination exclusion applies only when the contamination is not proximately caused by a covered peril, well, we’ve literally opened a Pandora’s Box of coverage analysis.”
Horst predicts that courts presented with coverage cases are going to be heavily reliant on the scientific conclusions presented to them. Without a considered and deliberate investigation by the appropriate experts on causation, either regarding bodily injury or property damage, “many cases may be doomed to failure.”
Hear Matt Jacobs & Robert Horst
Chinese Drywall Insurance Coverage
Recorded Live on June 1, 2009
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