Continuous Trigger Theory, A ‘Grand Slam’ Approach to Recovery Under CGL Insurance?
Construction and Procurement Law News, Q4 2020
It behooves construction professionals, be they materials manufacturers, general contractors, or lower-tier subcontractors, to carry some form of commercial general liability insurance (“CGL Insurance”). Having such coverage alleviates some of the potential risk and financial exposure a construction professional carries on a particular project. That is, of course, unless the construction professional gets sued and the insurer refuses to pay.
One of the most common responses construction professionals receive as part of a denial for coverage under a CGL policy is that the injury sustained by the party suing the insured did not take place during the policy period. Said differently, the “occurrence” triggering the insured’s liability (and any coverage) did not take place while the CGL policy was active. It is a frustrating conundrum that many in the construction industry deal with far too often. Complaints about defective work on a particular project frequently come years after the job has ended and the relevant CGL policy has expired. Even further, the “defect” in the work may not be traceable to one feature of the Project, one subcontractor, or even one single instance. Instead, the defect may be a continuous defect that is progressively worsening such as water-infiltration or mold.
One court in New Jersey recently addressed when and how a CGL insurer can be made to “pay up” for construction defects that may be “continuous defects” that injure clients over a span of years – and trigger a number of CGL policies. In Travelers Lloyds Insurance Company v. Rigid Global Builders, LLC, et al., the owner of an indoor tennis complex, Grand Slam, sued a metal building manufacturer, Rigid Building Systems, Ltd. (“Rigid”), for alleged defects in a building it designed and engineered for the complex. Installed in 2007, the metal building sustained alleged water leaks between 2009 and 2011 following two hurricanes, and then a partial collapse in 2014 following a snowstorm. Grand Slam sued Rigid and alleged, among other things, that the pre-engineered metal structure was not built to code to sustain the correct ground snow load. Before trial, Grand Slam’s counsel agreed that it would not introduce any “receipts or costs for damages between 2009 and 2011.” Ultimately, the jury awarded Grand Slam $1.6 million in damages because the evidence showed the building had partially collapsed in 2014, its rod bracings were loose, and its frame was deflected and deformed in 2014 following the snowstorm (the “Grand Slam Action”).
Soon after, Rigid’s CGL insurer filed an action seeking a declaration that the $1.6 million awarded to Grand Slam was not covered by the two, occurrence-based CGL policies (the “Policies”) it issued to Rigid between 2009 and 2011 (the “Policy Period”). Specifically, under the Policies, Travelers would only cover an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same harmful conditions,” during the Policy Period – not “occurrences” following the snowstorm in 2014.
In one of its arguments, Rigid claimed that Travelers must indemnify it for the $1.6 million under the Continuous Trigger Theory. Championing this theory created to “address the difficulties of establishing . . . when [a] harmful effect of a progressive disease or injury  occurred,” Rigid argued the damages sustained to Grand Slam’s building were ongoing from installation in 2007 all the way through 2014. It believed that the harmful defects spanned the years of 2009 through 2011 and beyond.
The Travelers court chose to apply the theory to this construction defect case, but ultimately found for Travelers on the coverage issue. Courts applying the theory contend that “when progressive indivisible injury or damage results from exposure to injurious conditions, [they] may reasonably treat the progressive injury or damage as an occurrence within each of the years of a CGL policy.” Thus, the theory allows construction professionals to seek coverage from each of the CGL policies implicated during the time period in which the “defect” injured the client.
The Travelers court found that Rigid was not entitled to coverage under the Continuous Trigger Theory because the Grand Slam Action’s record was devoid of any evidence of “occurrences” of defects between 2009 and 2011 that were indivisible from the snowstorm damage in 2014. In fact, the Grand Slam Action attorney specifically excluded such evidence from this timeframe before trial. Further, even if the facts on the record did suggest that “occurrences” took place during those years, there was a “wholesale lack of any [proof of] damages” during those years; the alleged damages of “water leaks” were “merely tentative” in nature.
Importantly, the Travelers court did not eliminate the Continuous Trigger Theory from the theories through which a construction professional can attempt to hold a CGL insurer liable. Instead, it confirmed another avenue for potential recovery from an insurer who tries to obviate its responsibilities under a CGL policy. This case provides some level of comfort, in the jurisdictions where Continuous Trigger Theory has been applied to construction defect cases, to contractors who may be able to seek coverage from their CGL insurers for “defects” that injured clients over a period of time and while the contractor held a number of different policies. In the end, this theory may prove to be a “Grand Slam” approach for contractors.