On October 10, 2017, the Appellate Division determined the “end date” of the “continuous trigger” theory of insurance coverage in third party liability claims. In Air Master & Cooling., Inc. v. Selective Insurance Company of America, the Appellate Division was asked to address the coverage implications commonly occurring in construction defect litigation. Specifically, the plaintiffs included unit owners and the Homeowner Association seeking damages for progressive infiltration of water from the roof and HVAC system.
Air Master, the HVAC installer, was joined as a third party defendant and sought defense/indemnity from three insurers covering it between 2004 and 2015. Evidence disclosed that in early 2008 some of the unit owners began to notice water infiltration and damage in their units. In November 2010, a story was published in the local newspaper that one of the unit owners noticed leaks in February 2008, and that another resident noticed similar damage to her unit in July 2008. Eventually in April 2010, an expert consultant was retained to perform moisture survey and roof mapping for the Association. In a May 2010 report, the expert identified one hundred eleven spots on the roof damaged by moisture and recommended that areas of the roof be removed and replaced.
Based on the timing of the complaints and expert report, Selective (covered Air Master from June 2009 through June 2012), and Harleysville (covering Air Master from June 2012 to June 2015) denied coverage, claiming that property damage had “already manifested” before their policy period began.
Judge Sabatino described the history of the “continuous trigger” theory under New Jersey law in the context of both bodily injury and property damage claims. One issue left open in these cases is when the continuous trigger ends or when the “last pull” of the coverage trigger stops coverage for progressively developing injury. The Air Master Court cited Polarome International v. Greenwich Insurance Company 44 N.J. Super. 241 (App. Div. 2008), certif. denied 199 N.J. 133 (2009) which first addressed the “end point” in a bodily injury action. In Polarome, plaintiff claimed progressive individual injuries from exposure to toxins in microwave popcorn. The Polarome Court determined that the “last pull” ended when the plaintiff was diagnosed with lung disease and bodily injury. The Court determined that diagnosis ended the insured’s coverage for that claimant.
Applying the progressive injury analysis to property damage claims, the Air Master Court first agreed that the continuous trigger coverage principle applies to construction defect cases, and addressed the thornier question of when coverage ends. Air Master attempted to apply the analogous doctrine of “equitable tolling” to argue that coverage should continue until the damage is attributable to the conduct of a specific insured. The Appellate Division expressly rejected this argument and determined that the coverage ends when the Association becomes “aware of the essential difficulties…” The Air Master Court attempted to define “essential” manifestation of an injury to require analysis of the inherent nature and scope of the injury. The Appellate Division did not expressly address the difference between a unit owner’s claim and an Association’s claim. The Appellate Court noted that the record was sparse in this case and remanded the matter to the trial court to explore “the critical factual issues we have spotlighted followed by appropriate renewed motion practice…”
Practical Implications
While not emphasized in the Appellate Division decision, plaintiffs in Air Master included both two individual unit owners and the Association. Based on the court’s analysis, the Appellate Division could have affirmed denial of coverage to Air Master for the individual unit owners based on their actual knowledge of leaks in 2008. Determining whether an Association had “awareness of the essential difficulties” of the leaks is more problematic and raises many difficult questions. Is an individual unit owner’s knowledge imputed to the Association? Does one unit owner in a multi-unit complex impute knowledge of a widespread problem to the Association? How many unit owners complaints are required to demonstrate awareness of a “widespread” construction defect? Do unit owners’ complaints of leaking windows or leaks around windows constitute awareness of a window problem only or possibly roof and other sources of the leaks? If there are complaints about leaks from one source, and experts discover multiple sources of the leaks, is the Association aware of the entire scope of the defects?
Often, plaintiff’s counsel and/or their experts will argue that leaks manifested from day one to support their claims for excessive damages/repairs and to show the length of the problems/harm suffered by the Association/unit owners. Plaintiff’s pleadings and/or expert reports may shortsightedly claim that damage began on “day one.” This damage, along with unit owners’ “awareness” of the problems may end insurance coverage for defendant/contractors for policy periods incepting after those key dates and will minimize coverage for the plaintiff.
While the Air Master decision sets forth a framework of analysis to determine the “end point” or the last pull of the coverage trigger, a multitude of factors going to the plaintiff’s “awareness of the essential difficulties” makes summary disposition on coverage claims difficult. Counsel for both insureds and insurers must be aware of this case when drafting pleadings, answering discovery, and working with experts. Missed steps preparing these items may result in an adverse coverage determination for both insured and the plaintiff.
