Insurance Claims
Seventh Circuit Rejects Bright-Line Trigger Of Coverage Approach In First-Party Property Disputes
Traub Lieberman Straus & Shrewsberry LLP
February 18, 2015
In Strauss v. Chubb Indem. Ins. Co., 771 F.3d 1026, 1030 (7th Cir. Wis. 2014), the Seventh Circuit Court of Appeals applying Wisconsin law set forth an analysis for determining trigger of coverage in first-party property insurance claims. The insured homeowners procured insurance for their home from various Chubb-related insurers from October 1994 to October 2005. The insureds’ home sustained continuous and progressive water damage from construction of the home in 1994 through the insureds’ discovery of the damage in 2010. Chubb denied the insureds’ claim made in December 2010.
The Chubb Policy provided coverage for “all risk of physical loss to [the] house or other property covered under this part of [the Policy], unless stated otherwise or an exclusion applies.” The policy limited coverage to “occurrences that take place while the policy is in effect” and defined “occurrence” to mean “a loss or accident to which this insurance applies occurring within the policy period. Continuous or repeated exposure to substantially the same general conditions unless excluded is considered to be one occurrence.” The court found these provisions to be unambiguous.
The central issue in Strauss was the trigger of coverage. Chubb argued that the court should adopt a “manifestation trigger” approach whereby only the insurer that bears the risk at the time the loss manifests or can be discerned is responsible for indemnification. Chubb further argued that a manifestation trigger should be universally applied to all first-party property damage insurance claims. The insureds argued that the court should adopt a “continuous trigger” approach whereby all policies in effect from the time the loss begins until the time the loss manifests owe coverage.
The court rejected Chubb’s proposal for a bright-line test for first-party property insurance coverage disputes. Instead, the court held that “Wisconsin has unequivocally held that the language of a policy guides the analysis and determines whether coverage exists.” This policy-language approach, the court held, applies in both first-party and third-party disputes. The court looked to the language in the Chubb Policy, specifically to the “continuous or related exposure” language in the definition of “occurrence,” to hold that the parties intended for the continuous trigger theory to apply. The court concluded that the latent water infiltration constituted a single “occurrence” under the Chubb Policy and that, while there was only one ongoing occurrence, there was continual, recurring damage to the property with each successive rainfall.
The court concluded its analysis by dispelling Chubb’s argument that public policy requires a bright-line manifestation trigger theory in all first-party property insurance disputes. The court stated that the Wisconsin Supreme Court would not apply a universal standard and that insurance companies “remain free to create innovative policies that they draft according to the unique circumstances of each client and policy.”
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