No discussion is required of the terms “sudden and accidental” and their role in several decades of pollution exclusion litigation. It is the giant tortoise of coverage litigation. The cases move slowly and the issue will live for a hundred years.

The only coverage issue as abundant as the pollution exclusion is that involving construction defect. In Assurance Company of America v. Ironshore Specialty Insurance Company, No. 13-2191 (D. Nevada Sept. 30, 2014) these behemoths of the coverage world come face to face.

The facts of the case are like so many in Nevada. Owners of residences sued developers and contractors alleging “damages stemming from, among other items, defectively built roofs, leaking windows, dirt coming through windows, drywall cracking, stucco cracking, stucco staining, water and insect intrusion through foundation slabs, and other poor workmanship.” One of the defendants, Centex Homes, filed a third-party complaint against allegedly responsible subcontractors, including Champion Masonry. Champion was insured by American Guarantee under a commercial general liability policy in effect from 2001 to 2002. Champion was also insured under a CGL policy issued by Ironshore Specialty Insurance Company from 2009 to 2010.

Ironshore maintained that “undisputed and incontrovertible proof exists that all work on the residences in the Garcia action, including work performed by Champion, was completed many years before the Ironshore Policy inception date of May 31, 2009.” Therefore, Ironshore, in response to a claim by American Guarantee -- which was defending Champion -- argued that its policy did not owe coverage based on the Continuous or Progressive Injury or Damage exclusion, which precluded coverage for property damage “which first existed, or is alleged to have first existed, prior to the inception of this policy. ‘Property damage’ from ‘your work’, or the work of any additional insured, performed prior to policy inception will be deemed to have first existed prior to the policy inception, unless such ‘property damage’ is sudden and accidental and takes place within the policy period.”

In essence, Ironshore maintained that, under the Continuous or Progressive Injury or Damage exclusion, since the work was performed prior to the policy inception, any property damage is deemed to have first existed prior to the policy inception. This may have been so. However, the court concluded that the Continuous or Progressive Injury or Damage exclusion did not apply, because the exception, for property damage that is sudden and accidental and takes place within the policy period, did apply.

The court noted that the underlying complaint alleged that “[w]ithin the last year, Plaintiffs have discovered that the subject property has and is experiencing additional defective conditions, in particular, there are damages stemming from, among other items, defectively built roofs, leaking windows, …” As a result, the court concluded that the underlying complaint was vague as to the temporal implications of the alleged damages, and therefore, “it is not clear on the face of the Garcia Complaint whether the alleged damages were or were not sudden and accidental. Accordingly, this exclusion alone did not preclude all possible or arguable coverage.”

It would be wrong to make too much of Assurance v. Ironshore because the decision is without much analysis and it was decided based on a duty to defend standard. On the other hand, it would be wrong to ignore it. Cases addressing the applicability of Continuous or Progressive Injury or Damage exclusions – or similar exclusions with different names – have become legion in the past few years. I don’t know how many involve an exclusion that contains a “sudden and accidental” exception. However, I do not believe that such exceptions are out of the ordinary. So Assurance v. Ironshore is not without potential relevance – both to other courts and policy drafters.

Damages at issue in construction defect claims generally have a gradual nature to them. In other words, some defective construction takes place and it causes damages to occur, which then plod along over time, until corrected. However, as Assurance v. Ironshore could be read, this on-going damage could qualify as being “sudden and accidental,” within a Continuous or Progressive Injury or Damage exclusion – as long as it is not specifically alleged that it is not sudden and accidental. In other words, damages that are surely gradual could qualify as being “sudden and accidental.” Where have I heard that before?