The Supreme Court of Pennsylvania recently interpreted the trigger of coverage applicable to property damage, including the first manifestation and multiple trigger approaches. The Supreme Court held in Pennsylvania National Mutual Casualty Insurance Co. v. St. John, 2014 WL 7088712 (Pa. Dec. 15, 2014), that, under the “first manifestation” theory, an injury triggers coverage under the policy in effect when the injury or damage is discovered, regardless of the insureds’ knowledge to its cause. Additionally, the court refused to extend the “multiple trigger” theory beyond its application in asbestos-related and toxic tort cases.
Dairy farm owners, represented by the St. Johns, appealed a lower court judgment determining that Pennsylvania National Mutual Casualty Insurance Company (“Penn National”) was liable to its insured, LPH Plumbing and Heating, under only one CGL Policy in effect from July 1, 2003 to July 1, 2004. LPH was hired in 2002 by the St. Johns to install a new plumbing system for their expanding facilities. The plumbing system was designed to maintain separate tanks for a wastewater drainage system and a freshwater drinking system. Construction of the new system was completed on July 1, 2003, and the farm began operating immediately.
Unbeknownst to the parties, the piping in the new plumbing system was cracked. Contaminated gray water, unfit for drinking, escaped the drainage system and infiltrated the freshwater holding tank. As a result, the farmers’ herd of cows began drinking the contaminated water. In April 2004, the farmers noticed a decrease in milk production and that the cows were getting sick. However, they did not learn the cause of these maladies until March 2006, when they noticed the cows were thrashing their heads in their drinking troughs and refusing to drink the water. An investigation into the plumbing system was then performed and the gray water contamination discovered. The dairy farmers sued LPH & its subcontractor, obtaining a verdict for $3.5 million plus delay damages. Penn National agreed to pay the limit of the triggered policy and its share of the delay damages, which amounted to $1.2 million.
Penn National then sought a declaration from the Court of Common Pleas that only one policy was triggered. LPH held three annual, successive CGL policies, effective from July 1, 2003 to July 1, 2006. Each policy had a $1 million limit. LPH also had an umbrella insurance policy from July 1, 2005 to July 1, 2006.
While the farmers argued that multiple policies were triggered, specifically the 2005-2006 umbrella policy, the Court of Common Pleas, and subsequently the Superior Court, applied the “first manifestation” theory and concluded that the only triggering occurrence was when the farmers noticed the cows’ sicknesses and drop in milk production in April of 2004. Thus, the courts held only the 2003-2004 policy was triggered.
The St. Johns appealed the adverse rulings, arguing that the injury first manifested in 2006 when they discovered the cause of the injury. They alternatively argued that a “multiple trigger” theory applied due to the repeated exposure to the gray water, thereby triggering each successive policy. The parties stipulated that there was only one occurrence here, i.e., the negligent installation of the plumbing system. The parties further stipulated that the “first manifestation” theory is the correct approach when determining when an occurrence triggers the policy in question. The St. Johns disagreed with the trial court’s application of that theory. The St. Johns argued that manifestation only occurs once facts arise associating the injury with unusual events that would attribute liability to another party. Essentially, the St. Johns argued that injury or damage does not first manifest until the insured knows of events causing the injury, subjecting someone to blame.
The Supreme Court disagreed rejected the St. Johns’ argument, ruling that the lower courts properly determined the first manifestation of an injury occurs when a reasonable person would notice the injury. The Supreme Court reasoned that the St. Johns were conflating the trigger of coverage analysis with the discovery rule applicable to statute of limitations analyses. Also, the Supreme Court found compelling that the policy language stated that coverage applies when damage, defined as physical injury or sickness, occurs during the policy period. The Supreme Court also outlined three “modest advantages” to applying the first manifestation rule this way. First, he noted it denies an injured party the possibility of insuring itself for an event that has already taken place. Second, it “adds certainty and predictability to a trigger of coverage analysis.” And third, an insured would have a better chance of avoiding the problem of an insolvent insurer. Thus, the Supreme Court determined that only the 2003-2004 policy, when the cows experienced a significant drop in milk production and began experiencing higher incidents of various illnesses, was triggered here.
The Supreme Court also refused the St. Johns’ argument that the “multiple trigger” theory applied due to “continuous, progressive property damage.” The court held that the theory “remains an exception” based on particular contract language and factual circumstances, e.g., asbestos and toxic tort claims where the injuries/diseases lie dormant for a lengthy period. Here, the Supreme Court correctly held there was no excessive latency period with respect to the drinking water necessitating the application of the “multiple trigger” theory.