There is something funny about California when it comes to coverage for construction defects. Not funny ha-ha, but funny strange. Despite the prevalence of construction defect litigation in the Golden State, California courts have generally not approached the coverage issues in the traditional manner. More specifically, most states that address coverage, for construction defects, start with the fundamental question – does an insured’s faulty workmanship qualify as an “occurrence?” The answer to that question then sets the stage for addressing the possible application of various exclusions and determining which particular property damage may be covered.

But California courts have generally approached the topic in a more principled, and less policy language-centric, manner. In other words, the courts address coverage for construction defects with no mention of the “occurrence issue.” This is sometimes done with a citation to the 1990 California Court of Appeal’s seminal decision in Maryland Casualty Co. v. Reeder, which explained that “liability policies . . . are not designed to provide contractors and developers with coverage against claims their work is inferior or defective. The risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer. Rather liability coverage comes into play when the insured’s defective materials or work cause injury to property other than the insured’s own work or products.” But, quite recently, see Global Modular, Inc. v. Kadena Pacific, Inc., 15 Cal. App. 5th 127 (2017) (calling it a decision that rejected an invitation “to ignore policy language in favor of a general principle against insuring against ‘business risks’”).

Not long ago a California federal court took up construction defect coverage in First Mercury Ins. Co. v. Kinsale Insurance Co., No. 18-71 (N.D. Cal. Aug. 21. 2017). At issue was coverage for contractors, for construction defects associated with the renovation of a large residence in San Francisco. The alleged defects included “a black, viscous substance oozing from various window and door assemblies,” as well as oxidation (rusting) and discoloration of stucco and the paint that had been applied to the stucco.

The court addressed some of the issues you would expect to see in a case of this type, such as the “your work” exclusion and determining covered vs. uncovered damages. It did so with a nod to Reeder, no mention of the “occurrence issue” and a quick pivot to the possible application of exclusions.

I’ll skip the discussion of these California issues. Those who swim in this pond can check them out. The issue addressed here, which may offer lessons wider than simply California, is how the court resolved trigger of coverage.

One of the insurers, First Mercury, sought a determination that any potentially coverage damage, i.e., outside the business risk exclusions, such as, the discoloration to surface paint applied to stucco, is not covered because it did not occur during the First Mercury policy periods. As First Mercury say it, its policy period ended in November 2014 and the paint damage was both alleged and proven to have occurred in late 2016 or early 2017. An insured and another insurer opposed First Mercury’s motion for summary judgment.

In making its argument, First Mercury acknowledged that California’s Montrose decision applied, to wit: “where the damage at issue is alleged to be a continuous and progressive injury, the date of discovery of the damage or injury is not controlling. It is only the effect -- the occurrence of bodily injury or property damage during the policy period, resulting from a sudden accidental event or the ‘continuous or repeated exposure to conditions’ -- that triggers potential liability coverage.”

However, First Mercury’s argument was, essentially, that paint discoloration is not in the nature of a continuous injury: “First Mercury asserts, without citation, that ‘[p]aint discoloration, unlike, for example, structural damage to a home, is not a latent defect. Consequently, the date on which the paint discoloration was first observed is at least presumptively the date of occurrence absent the presentation of evidence to the contrary.’”

First Mercury’s argument had the sense of “we know what the continuous trigger is designed to addressed, and this isn’t it.” And maybe it’s not. But summary judgment was not the right place for it.

But the court was not convinced: “First Mercury’s argument rests on the assumption that the Sluskys [homeowners] observed the paint discoloration at the same time when it first occurred. But there remains the possibility that the paint discoloration occurred earlier. As with ‘improper piling of dirt against [a] building’ that results in dry rot damage or a crack in a swimming pool that eventually leads to leakage, it is possible that here the occurrence of the paint damage began far earlier than when the Sluskys first observed it.” Thus, First Mercury’s motion for summary judgment was denied.

The continuous trigger was born out of a legal fiction. At least one court has said as much. “The continuous trigger theory is a legal fiction permitting the law to posit that many repeated small events occurring over a period of decades are actually only one ongoing occurrence. In cases where property damage is continuous and gradual and results from many events happening over a long period of time, it makes sense to adopt this legal fiction for the purposes of determining what policies have been triggered.” Pub. Serv. Co. of Colo. v. Wallis & Cos., 986 P.2d 924, 939 (Colo. 1999).

So perhaps it is no surprise that paint discoloration could trigger multiple policies, despite that it can be identified with the naked eye, unlike many other types of construction defect-related property damage, the happening of which cannot be.