In Montrose Chemical Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 42 Cal.Rptr.2d 324 (1995), the California Supreme Court held that a “continuous trigger” applies to liability coverage for property damage claims arising out of pollution where the property damage is allegedly continuous or progressive. All liability policies, from the initial discharge and continuing while the contamination spreads, are triggered for purposes of the duty to defend and may provide indemnity coverage if covered property damage can be shown during each policy period. In State of California v. Continental Ins. Co., 55 Cal.4th 186, 145 Cal.Rptr.3d 1 (2012), the California Supreme Court held that, absent limiting language such as a non-cumulation provision, the “per occurrence” limits of all policies triggered by property damage caused by pollution could be “stacked,” substantially increasing the coverage available for each occurrence.
Montrose and State of California are an incentive for policyholders to attempt to extend the continuous trigger applicable to pollution claims to non-pollution property damage claims. In City of San Buenaventura v. The Insurance Co. of the State of Pa., 2013 U.S. LEXIS 13084 (9th Cir. June 26, 2013) the 9th Circuit rejected the policyholder’s attempt to create a continuous trigger for property damage until the property damage is repaired. Only the policy in effect when the property damage takes place (such as an auto accident) is triggered, even though the damage may not be repaired for years.
City of San Buenaventura arose out of real estate transactions involving the sale of low-income condominiums. Sale and resale prices were subject to ceilings. Several buyers brought suit against the city based on its alleged failure to inform the condominium buyers of the ceilings, alleging that they had overpaid for their condominiums and continued to pay excessive mortgage payments and real property taxes as a result of the city’s alleged failure to inform them of the ceilings.
Several years after the litigation began, the city tendered the suit to its liability insurers during policy periods after the sales of the condominiums. The city asserted that the allegations of continuing damage to the condominium owners triggered coverage under the later policies. The insurers denied coverage, and the city sued the insurers. The district court granted summary judgment on the grounds that any occurrence or wrongful act alleged by the condominium buyers predated the insurers’ policies, so those policies were not triggered. The 9th Circuit affirmed.
The 9th Circuit opinion does not discuss the “general liability” coverage provided to the city by the insurers in detail, although it appears that the insurance included errors and omissions insurance as well as general liability insurance. In particular, there is no discussion of whether the insurers’ general liability coverage had the standard wording requiring tangible property damage for coverage to apply. The economic claims alleged by the condominium buyers would not constitute tangible property damage under California law. In addition it is likely that the acts or omissions of the city would not be considered “accidents” under California law.
In any event, the 9th Circuit found that the wording of the two insurance policies – property damage “first arising out of an Occurrence during the policy period” and “property damage arising out of an occurrence during the Policy Period” – limited coverage to an occurrence – here, the negligent act of the city – during the policy period and held that where that negligent act predated both policies, neither policy was triggered.
The city also argued that allegations that it failed to remedy the situation during subsequent policy periods triggered a policy providing coverage for “wrongful acts,” asserting that the failure to remedy the situation was a wrongful act. Coverage for wrongful acts is typically found in an errors and omissions coverage, not in a general liability policy. However, the 9th Circuit found that merely not changing the status quo to remedy the damage caused by an alleged wrongful act prior to the policy period is not a wrongful act triggering coverage.
Finally, the 9th Circuit rejected the argument that failing to repair property damage did not trigger later policies, citing the “absurd result” that an insured could purchase liability insurance to cover unrepaired property damage even though the accident causing the property damage took place before the policy was issued.
Although City of San Buenaventura is not a model of clarity with respect to the coverages actually provided to the city, its rejection of the insured’s argument that continuing, unremedied property damage does not trigger liability coverage in later insurance policies is correct and should be cited when insureds attempt to extend the continuous trigger concept to property damage claims outside of the pollution context. In addition, the limitation of the wrongful acts coverage to the policy in effect when the wrongful act occurs, even though injury continues during subsequent policy periods, will be helpful in limiting errors and omissions coverage (other than claims-made policies) to the policy in effect at the time of the wrongful act. City of San Buenaventura is a sound decision on California law.