Armstrong Revisited: Another Very Significant Weapon In The Policyholder's Arsenal
Armstrong World Indus. Inc. v. Aetna Casualty & Surety Co., (1st Dist. 1996), 45 Cal.App.4th 1
Rumors of the death of continuous trigger of liability insurance coverage have been greatly exaggerated.
TRIGGER:
No, "Trigger" is not the answer to a movie trivia question about some 1950's TV western. It is that event which must happen to activate an insurer's obligation to provide coverage under its policy of insurance. The triggering event is stated in each policy: For example, comprehensive or commercial general liability policies (hereinafter "CGL" policies or coverage) insure businesses against liability to third parties. When triggered, these policies indemnify the policyholder for its liability and in many cases provide a defense against the third-party lawsuit. Almost all CGL policies state that the insurer will "pay all sums" or "those sums" for which the insured may become liable by reason of an occurrence that results in injury to a third party "during the policy period." That is, injury will trigger coverage if it takes place during the policy period.
Although California courts have long recognized that third-party injury triggers CGL coverage [See, Remmer & Glens Falls Indem. Co. 140 Cal.App.2d 84 (1956); and Montrose Chem. Corp. of California v. Admiral Ins. Co., 10 Cal.4th 643, 669-73 (1995).], insurers and policyholders have recently locked horns over how their policies apply when the injury lasts longer than one policy period, as in case of environmental pollution and asbestos injury. In these continuing-injury cases, the damage may take place over a number of years and may go unnoticed for long periods of time. Refusing to acknowledge that all policies spanning the injury period are triggered pursuant to their terms, insurers have sought a narrow, bright-line trigger of coverage based upon the occurrence of actual injury during their policy periods.
The recent decision in Armstrong World Indus. Inc. v. Aetna Casualty & Surety Co., 45 Cal.App.4th 1 (1st Dist. 1996), rejects this narrow trigger argument and confirms that continuing injury triggers continuous coverage. Any injury -- even a "peppercorn" -- during the policy period will trigger the insurer's obligation to pay all sums that the insured shall become liable to pay as damages. Armstrong constitutes a double victory for policyholders on two hotly debated issues, trigger and scope of coverage. It also provides strong authority for the policyholder in the battle over the defense to such claims. Armstrong basically lays to rest the competing trigger theories espoused by most carriers in progressive or continuing loss situations. One theory, as reflected by the 6th U.S. Circuit Court of Appeals in Insurance Co. of North America v. Forty-Eight Insulations Inc., 633 F.2d 1212 (6th Cir. 1980), is that coverage is triggered by exposure to a toxic substance and not by the injury's subsequent progress. This "exposure trigger" limits coverage to the policy in effect when the exposure took place.
In Montrose, an environmental cleanup case, the insurance industry unsuccessfully sought to have the California Supreme Court adopt a "manifestation trigger," limiting coverage to the year in which the environmental damage first manifested itself. While acknowledging that a rule limiting continuing injury claims to a single policy year would be easier to administer, the Court concluded that "unambiguous" policy language triggered all policies in effect during the continuing injury. Montrose, at pp. 686-89.
After Montrose, the battleground in California shifted to the asbestos arena. The original Armstrong decision had adopted the functional equivalent of a continuous trigger for asbestos bodily injury claims. The California Supreme Court remanded Armstrong in light of Montrose, and the unique facts surrounding asbestos injuries. With the manifestation trigger defeated, the Armstrong defendants switched theories and proposed the "injury-in-fact," or "actual injury trigger."
The injury in fact test focuses coverage on the insurance policy in effect at the moment actual injury occurs, that is, when the injury reaches some measurable level of severity. Armstrong rejected this narrow trigger in favor of a broader standard: "Coverage is triggered when any part of the damage takes place" during the policy period. Armstrong, at p. 98. Armstrong involved both bodily injury claims for asbestos-related disease and property-damage claims arising from the presence of asbestos in buildings. The Armstrong court reviewed the factual record to see whether any part of the injury took place during the policy period. For each type of claim, the court asked, "When did the injury commence and how long did it last?" For the bodily injury claims, the trial court found, based on the medical evidence that the injury commenced on exposure and continued until death. Finding continuing injury, the court applied a continuous injury trigger, and as a result, all policies in effect from the date of exposure to the insured's asbestos product until the date of death were triggered. Id. at pp. 43-45.
Property-damage claims yielded yet another continuous trigger. The trial court found that property damage occurred upon installation of the asbestos products, and episodically thereafter whenever asbestos fibers were released into the air. Finding multiple episodes of damage, the court applied a "multiple trigger" in stating: "Insurance coverage is triggered if any part of the underlying property damage -- installation, release or re-entrainment -- took place during a policy period." Id. at pp. 98-102.
Armstrong effectively establishes that insurance coverage should be determined, first and foremost, not by some artificial bright-line rule transplanted from tort law, nor as a result of some public-policy discourse; but rather by applying the insurance-contract language to the facts. The Armstrong Court stated: "In suits between an insured and an insurer to determine coverage, interpretation of the policy language ... will typically take precedence." Montrose, at p. 665.
Armstrong gave effect to the terms of each policy the insured purchased. The policyholders essentially won the benefit of their bargain.
SCOPE OF COVERAGE:
Once a policy is triggered by "any part" of a continuing injury, questions naturally arise as to how much of that injury must any individual policy cover? Once again, Armstrong properly referred to the policy language.
Observing that "the basic insuring agreement of the CGL policies obligates the insurer to pay 'all sums which the insured shall become legally obligated to pay as damages,'" the court concluded that "the event which triggers an insurance policy's coverage does not define the extent of the coverage." Although a policy is triggered only if [bodily injury or] property damage takes place during the policy period, once a policy is triggered, the policy obligates the insurer to pay all sums which the insured shall become liable to pay as damages for bodily injury or property damage. The insurer is responsible for the full extent of the insured's liability (up to the policy limits), not just for the part of the damage that occurred during the policy period." Armstrong, at pp. 56-57. As stated by the Armstrong, Court, even a "peppercorn" of injury during the policy period triggers coverage under that policy for "the full extent" of the policyholder's liability. The court thereby rejected the insurer's argument that a triggered policy need only pay for the damage that took place during its policy period. Such a position "confuses the trigger of coverage with the scope of coverage" where "the plain language of the policies require that each triggered policy respond in full." Id. at pp.104-07.
For these reasons, the insured is not required to pay a pro rata share for periods when it was uninsured or self- insured. Id. at pp. 55-57. An insurer that responds in full, however, may seek contribution from the other triggered policy carriers pursuant to their "other insurance" clauses or under equitable principles. Id. at pp. 105- 06. While apportionment amongst the various insurers may concern the policyholder for exhaustion reasons, they are nonetheless entitled to full coverage independent of any other insurance rights: "Allocation among insurers does not reduce their respective obligations to their insured. ... The insurers' contractual obligation to the policyholder is to cover the full extent of the policyholder's liability (up to the policy limits)." Id. at p.106.
This portion of Armstrong evidences a significant divergence from two other recent Court of Appeal decisions, IMCERA Group Inc. v. Liberty Mutual Ins. Co.,42 Cal.App.4th 1754 (2d Dist. 1996) (review granted May 22, 1996) and Aerojet- General Corp. v. Transport Indemnity Co., 96 Daily Journal D.A.R. 6079 (1st Dist. May 28, 1996). IMCERA and Aerojet considered the scope-of-coverage issue in the context of an insurer's duty to defend; not its duty to indemnify the policyholder. In contrast to Armstrong, IMCERA suggested that if the insurer was able to prove that some of the defense expenses were attributable to damage occurring in uninsured years, the policyholder would be required to bear those defense expenses. Aerojet then held that the insurers could apportion defense expenses to an insured that expressly agreed to pay defense costs if a particular policy year were triggered. The Supreme Court's review of IMCERA (and its likely review of Aerojet) is expected to follow Armstrong. Why? Because established precedent has long prevented an insurer from seeking contribution from an insured. See, Truck Ins. Exchange v. Amoco Corp., 35 Cal.App.4th 814, 828 (1995); and Metro U.S. Service Inc. v. Los Angeles, 96 Cal.App.3d 678, 683 (1979).
IMCERA can be distinguished, moreover, because it evaluated an insurer's defense obligation in hindsight after development of facts showing that damage occurred in uninsured years and that certain defense expenses were attributable only to those years. California courts have long held that the duty to defend is to be determined prospectively, at the outset of the third-party lawsuit. As long as a potential for coverage exists at that time, the insurer must pay the insured's entire defense. See, Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 91993); and Haskell Inc. v. Superior Court, 33 Cal.App.4th 963, 976 n.9. (1995).
IMPLICATIONS:
The Armstrong' decision has significant coverage implications beyond its trigger of multiple policies. The text of the Armstrong decision offers persuasive authority for the proposition that the insured, once a policy is triggered, can demand any particular insurer to provide a full and complete defense. It provides authority for the insured to extract itself from the inevitable inter-insurer "other insurance" battles, and to affirmatively refuse to allocate the defense for any reason whatsoever, including the existence of uninsured or self insured periods during which the continuing injury or damage occurred.
For a discussion of other implications of the Armstrong decision, contact:
Ira James Harris, Esq. at 925-258-5100 or by e-mail at ira@iraharris.com.
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April 1996
