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Vol. 5, Iss. 11
November 9, 2016

Federal Court Says Definition Of “Commenced” Is Ambiguous: Impact On CD Claims


Temperature Service Co. v. Acuity, No. 16C2271 (N.D. Ill. Oct. 14, 2016) involves coverage for damage to a building under a property policy. At issue was interpretation of the word “commenced.” While it’s a property case, I can’t see how it’s not potentially applicable to a liability coverage case where the meaning of “commenced” -- in the context of a “first manifestation” or “loss in progress,” etc. endorsement -- is at issue.

A commercial building was constructed in or around 1980. In August 2013, Plaintiff, Temperature Service Company, excavated around the building for the construction of a storage addition. “During the excavation process, Plaintiffs discovered that the soil around and under the insured property contained ‘urban backfill’ construction debris, asphalt, concrete and other manmade materials that cause ‘differential settlement’ of the earth.” It was determined that the “urban backfill” causes – and continues to cause -- cracks in the building foundation, steps, drywall and damage to the window frames and doors.

Temperature Service Company sought coverage for stabilization measures and other repairs under an Acuity property policy that insured against “loss or damage commencing during the policy period.”

As Acuity saw it, if “commencing” is construed to refer to “the single moment in time when all of the alleged damage to the insured property began or originated,” no coverage is owed because the insured cannot establish (and seems to admit it) that such date falls within the period of coverage. More specifically, Acuity maintained that the “property damage alleged to share a common cause—here, the alleged presence of ‘urban backfill’—can only begin once, presumably at the time the topsoil at the insured premises began to settle differentially.”

However, the court concluded that there was another – broader -- way to define “commenced” -- “each identifiable instance of new damage or loss, regardless of whether similar damage or loss, or damage or loss with a common but chronologically distinguishable cause, commenced prior to the policy period.”

Based on two possible definitions of “commenced,” the court concluded that the term was ambiguous (or at least agreed with other courts that so held) and construed it against the insurer.

Summary judgment was not appropriate, which the court explained as follows: “[T]he Court cannot reach the conclusion here that there is no evidence of damage commencing in the coverage period. On the incomplete record in this case, Plaintiffs have minimally established that a number of parties, including experts, observed multiple types of property damage in a variety of locations on the insured.”

Temperature Service Company has potential implications on claims under liability policies. It has become fairly routine for liability policies to include endorsements designed to minimize the impact of the continuous trigger on construction defect claims. These endorsements, going by such names as First Manifestation Endorsement, Claims in Progress Exclusion, Discovered Injury or Damage Exclusion and Prior Damages Exclusion were essentially designed to preclude coverage for “bodily injury” or “property damage” that took place before the policy period, even if the insured did not know that injury or damage had taken place and even if the injury or damage was continuous or progressive. As a result, coverage is effectively limited to “bodily injury” or “property damage” that first commences during the policy period – and that did not commence prior to the policy period. These exclusions may use the term “commenced” to describe this differentiation between potentially covered and non-covered “property damage.” Even an endorsement that does not use the word “commenced” may conclude that other words for “first occurs” have these two meanings.

Based on the definition of “commenced” adopted in Temperature Service Company, it is not all or nothing for the insured. In other words, even if some property damage caused by an insured commenced prior to the policy period (and is not covered), other property damage – even if related to the earlier property damage -- may have commenced during the policy period.

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