A New Jersey trial court granted summary judgment in favor of Selective Insurance Company holding that the “continuous trigger” theory does not provide insurance coverage subsequent to the manifestation of damages that arose from a subcontractor’s negligence in the construction of a condominium development. The issue arose in the matter of Cypress Point Condominium Association v. Selective Way Insurance Company, et al., Docket No. HUD-L-936-14, 2015 N.J. Super. Unpub. LEXIS 721 (N.J. Super., Hudson Cnty. Mar. 30, 2015) (“Cypress Point”).
“The ‘continuous trigger’ theory holds that an occurrence occurs under an insurance policy each time damage accrues over a continuous period of time, from ‘exposure to manifestation’.” Cypress Point, at *12. Courts developed the “continuous trigger” theory to counter scientific uncertainties surrounding initial manifestations of damages typically at issue in environmental, toxic tort, and delay manifestation property damage claims. Id.
In Cypress Point, the Cypress Point Condominium Association (the “Association”) filed a Declaratory Judgment Action against Selective Way Insurance Company (“Selective”) seeking a declaratory judgment that Selective owed a duty to indemnify its insured, MDNA Framing, in connection with an underlying construction defect action filed by the Association. The Association filed an amended complaint in the underlying action on June 12, 2012, bringing claims against MDNA Framing, which was contracted to perform framing and window installation work in connection with the construction of the Cypress Point condominium development. Construction of the development commenced in 2002 and was substantially completed in 2004. Subsequent to the completion of construction, unit owners began to experience water infiltration around the interior windows. The Association’s liability expert found numerous defects related to MDNA Framing’s work, including missing flashings, a lack of a continuous water management system, and improper sealant application around the windows. The Association’s liability expert issued his initial report opining on these deficiencies on June 30, 2012.
Approximately eight years after the construction of the Cypress Point condominium development, Selective issued a commercial general liability insurance policy to MDNA Framing in or around August 2012, for the period of August 27, 2012 through August 27, 2013. After MDNA Framing failed to respond to the Association’s complaint in the underlying construction defect action, on December 7, 2012, default judgment was entered against it and a proof hearing was scheduled to determine the amount of damages. The Association’s counsel notified Selective of the pendency of the proof hearing; however, Selective informed the Association that it would not defend or indemnify MDNA Framing because an occurrence did not occur pursuant to MDNA Framing’s insurance policy. A proof hearing was held in February 2014, at which time the trial court found that MDNA Framing was 44% liable for the Association’s damages, totaling approximately $1 million including interest.
The Association then filed a Declaratory Judgment Action against Selective seeking a declaratory judgment that Selective owed a duty to indemnify MDNA Framing for the total amount recovered by the Association in the underlying construction defect action. Both the Association and Selective filed motions for summary judgment, which were initially denied by the court. On reconsideration of the parties’ summary judgment motions the overriding question was whether, pursuant to the continuous trigger theory, the Association’s damages constituted an occurrence under the policy issued by Selective to MDNA Framing eight years after Cypress Point was constructed.
The trial court ultimately granted summary judgment in favor of Selective and dismissed the Association’s Declaratory Judgment Complaint with prejudice holding that because the Association’s damages manifested prior to the issuance of the Selective policy, the damages did not trigger an occurrence that obligated Selective to indemnify MDNA Framing. The court reasoned that once the alleged damage manifests itself, the continuous trigger theory no longer provides coverage. In the case of the Cypress Point development, the court found that the alleged damages manifested prior to the issuance of the Selective policy because: (1) shortly after construction of the development unit owners began experiencing water infiltration issues; (2) the Association’s liability expert found substantial water damage no later than June 30, 2012, the date on which he issued his expert liability report; and (3) the Association filed claims against MDNA Framing approximately one month prior to the issuance of the Selective policy.