On October 10, 2017, the New Jersey Appellate Division handed down a decision in Air Master & Cooling, Inc. v. Selective applying to construction defect claims the “continuous trigger” theory of determining the time of an “occurrence” under a commercial general liability policy, under which all policies in place from the time damage starts until the time the damage is first discovered are “triggered.”

The principal holdings of the decision are:

1. The “continuous trigger” theory applies to third-party liability claims made under a CGL policy that involve progressive damage to property caused by the insured’s allegedly defective work;
2. The end point of the continuous trigger ( i.e., the last “pull” of the trigger), for the purpose of determining when the last “occurrence” happened, and thus, which policies are triggered, is when the essential nature and scope of the property damage first becomes known, or when one would have sufficient reason to know of it; and
3. It is not necessary for the property damage to be attributable to the specific insured’s work, for the damage, once manifest, to constitute the last “pull” of the trigger under the insured’s policy.

Briefly, the insured, an HVAC subcontractor, did work on a condominium complex in New Jersey from November 2005 through April 2008. This work, in part, involved the installation of condenser units on the building’s roof. In February 2008, a resident of the building noticed water leaks, although at that point, the source of the leaks was not identified. In April 2010, the condominium association retained an expert, who in turn determined that the leaks originated from the building’s roof. The association then filed a lawsuit against the developer and other defendants, and these parties then sued the insured and other subcontractors.

The insured was covered under policies issued by Penn National (effective 2004/05 through 2009), Selective (effective 2009 through 2012), and Harleysville (effective 2012 through 2015). Penn National agreed to defend the insured under a reservation of rights, whereas Selective and Harleysville disclaimed coverage based on the lack of any “occurrence” during their policy periods, premised on the argument that even if the continuous trigger theory applied, the last “pull” of the trigger was February 2008, when the leaks were first discovered. The insured argued that since it was not until April 2010 that the association first learned that the damage may be attributable to the insured’s work, that date should be considered the last pull of the trigger, so that there was an “occurrence” under every policy in place prior to that date.  The trial court granted summary judgment to both Selective and Harleysville, and the insured appealed the decision as to Selective.

The Appellate Division first concluded that the continuous trigger theory, rather than either the exposure theory or the manifestation theory, was the appropriate theory to use in determining when an “occurrence” takes place under a CGL policy for construction defect claims involving progressive property damage. Previously, the continuous trigger theory had largely been confined by New Jersey courts to cases involving asbestos-related claims, environmental contamination, and exposure to other toxic substances.

With regard to the end point of the continuous trigger, i.e., the last “pull” of the trigger, the Appellate Division rejected the insured’s argument that the end point did not occur until it first appears, or reasonably could be known, that the damage is attributable to the specific insured’s work. Principally, the Appellate Division found that applying such an insured-specific test to the last pull of the trigger would likely cause lengthy and collateral litigation over coverage every time there was a construction defect lawsuit involving progressive damage. Rather, the court found that “using a date of initial manifestation that is common to all parties – regardless of which contractor or subcontractor may be ‘at fault’ for the occurrence – promotes efficiency and certainty.” The court then ruled that to determine the manifestation date, the trial court must determine the date of the “essential” manifestation of the damage, meaning the date on which the inherent nature and scope of the damage become known.

Applying its holdings to the motion record before it, the Appellate Division concluded that there were insufficient facts in the record to establish exactly when the essential nature of the property damage, i.e., the water leaks, became known. Thus, the Appellate Division concluded that summary judgment should not have been granted to Selective, and thus, remanded the matter to the trial court for further factual findings concerning the timing of the damage.

Perhaps the three biggest “takeaways” from the decision are:

1. The Appellate Division’s extension of the continuous trigger theory to construction defect claims involving progressive property damage caused by an insured’s allegedly defective work;
2. The court’s rejection of the insured’s argument that the last pull of the trigger does not occur until it is determined that the manifested property damage is attributable to the specific insured’s work; and
3. The court’s refusal to decide the issue of manifestation without sufficient evidence concerning when the inherent nature and scope of the damage became known.

For more information, please contact:

• Christian A. Cavallo
• David L. Brown
• Jeffrey L. Kinglsey
• Or any member of the Global Insurance Services Practice Group

The decision:

• Air Master & Cooling, Inc. v. Selective