First-Party Property Policy Covers 16 Years of Home Water Damage.

The Seventh Circuit, applying Wisconsin law, ruled that Chubb Indemnity Insurance Co. (“Chubb”) was liable to its insureds who were seeking recovery for continuous water damage that their home sustained for over 16 years.  Based upon the policy language, the court held that coverage was triggered under Wisconsin’s continuous trigger theory which provides that the injury occurs continuously from exposure until manifestation, or when the property owner discovers the damage.

The insured constructed a home in 1994. Water damaged the home from the time of the completion of construction, but went undiscovered until 2010. Chubb issued the insured first-party property insurance from 1994 to 2005. Upon discovery of the water damage, the insureds submitted a claim to Chubb, which was denied because the damage was discovered after the expiration of the policy. The insured filed suit and the district court concluded that the Chubb policy was triggered, because the “continuous trigger” theory applied.

Chubb appealed and argued that the manifestation theory applied to first-party property insurance.  Under the manifestation theory, an injury doesn’t occur until it manifests itself as ascertainable property damage.  Chubb argued that the continuous trigger theory should be limited to third-party coverage cases and sought a bright-line rule requiring the manifestation trigger theory to be applied in all first-party property coverage disputes, regardless of policy language. The Seventh Circuit refused to apply such a bright-line rule, because there was no evidence to support the prediction that the Wisconsin Supreme Court would embrace such a rule.  In addition, the Court found that Wisconsin law has unequivocally held that the language of a policy guides the analysis of whether coverage exists, regardless of whether the disputed policy is for first-party or third-party liability.

The Chubb policy defines “occurrence” as “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.” A “covered loss” includes “all risk of physical loss to [the] house or other property.” The Seventh Circuit found the policy language unambiguous and reasoned that it contemplated a long-lasting occurrence that could give rise to a loss over an extended period of time.  According to the language, coverage is triggered when a “loss” “occurrence” takes place during the policy’s term and, once such an “occurrence” takes place, the policy protects against “all risk of physical loss” to the home. Therefore, the water infiltration constituted a single occurrence and because the policy covered all risk of physical loss, the water damage triggered coverage and Chubb was liable to the insureds.  Strauss v. Chubb Indem. Ins. Co., No. 13-2580 (7^th Circ. Nov. 18, 2014).