Trigger of coverage has been poked, prodded, debated and litigated for decades. For the most part, the disputes center around injury and damage with latency periods. In other words, injury or damage was taking place -- but before anyone knew it. Asbestos is the classic example. A person’s body may be adversely affected by their exposure to asbestos before they are eventually diagnosed with a disease. Thus, for purposes of triggering a liability policy, the debate has been whether injury or damage is considered to have been taking place during this so-called latency period – which can often be many years.

As challenging as this scenario can be, another trigger scenario is usually taken for granted – what I call a “boom event” -- where there is no dispute when the injury or damage took place. For example, when a boiler blows up or someone slips on a banana peel or there’s a car accident, it is usually not difficult to figure out when “bodily injury” took place. When it comes to boom events, the principle behind the continuous trigger has no place. Or could it? While the court didn’t describe it in those terms, that’s the issue that arose in Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., No. C078665 (Cal. Ct. App. Nov. 29, 2016) (published).

Tidwell is a long and detailed opinion but with remarkably easy facts. A fire destroyed a house. The homeowner’s insurer paid for the damages and then brought a subrogation claim against Tidwell Enterprises, the contractor who installed the fireplace several years earlier, claiming negligence. The contractor sought a defense from its liability insurer. However, the liability insurer’s policies were off the risk for twenty months before the fire. As far as the contractor’s liability insurer, Financial Pacific Insurance Company, saw it, it was easy to disclaim coverage. Its policies, like just about all liability policies, required that there be property damage during the policy period. So when a fire takes place twenty months after your last policy expires, how can there be property damage during the policy period?

Since a fire is a boom event, with no debate over when it happened, this seems like an easy case. But since the issue went to the California Court of Appeal, you know there must be more to it.

Making clear that its decision was based on a duty to defend standard – “Facts known to the insurer and extrinsic to the third party complaint can generate a duty to defend, even though the face of the complaint does not reflect a potential for liability under the policy” – the court concluded that there could have been property damage during Financial Pacific’s pre-fire policy periods.

The court based its conclusion on the following possibility: “[B]ased on the allegations and the known facts, there was reason to believe Tidwell might have negligently installed a custom top on the chimney in the Fox house that restricted the flow of air in the chimney, which in turn might have resulted in excessive heat in the chimney every time a fire was burned in the fireplace from the time the house was built, which in turn (through the process of pyrolysis) might have altered the chemical composition of the wood framing the chimney chase, thereby reducing the temperature at which it would ignite, until eventually, on November 11, 2011, the wood framing the chimney chase did ignite, which in turn resulted in the fire that damaged Fox’s house, for which State Farm was obligated to indemnify Fox as Fox’s insurer. If that is what happened, then Financial Pacific would potentially be liable under its policies to pay any sums Tidwell became legally obligated to pay State Farm as damages because the repeated exposure of the wood framing the chimney chase to the excessive heat in the chimney, for which Tidwell was responsible, may have caused physical injury to the wood (by altering its chemical composition and reducing its ignition point) during one or more policy periods, and that physical injury would have caused Tidwell's legal obligation to pay damages for the fire that resulted (at least in part) from the damaged wood.”

Again, the court was quick to point out that this may not be what actually happened, but what might have happened. Therefore, there was a potential for liability under the policies and Financial Pacific had a duty to defend.

The court rejected the insurer’s argument that none of this mattered since “coverage is determined by the damage for which the third party sues the insured (in Financial Pacific’s words, ‘the damage at issue’) and whether that damage occurred during a policy period, and here State Farm did not sue Tidwell for the damage to the wood framing the chimney chase prior to the November 2011 fire but for the damage to the house resulting from the November 2011 fire.”

Tidwell raises the following question: Has the court determined, at least for duty to defend purposes, that a liability policy can be triggered if only the cause of the damage occurred during the policy period?

Policyholders will no doubt say yes based on the following money paragraph in the decision:

“This distinction between ‘the causative event—an accident or ‘continuous and repeated exposure to conditions’—and the resulting ‘bodily injury or property damage’ is entirely unremarkable and does not refute the reasoning set forth above. Here, an initial causative event constituting an ‘occurrence’— namely, the repeated exposure of the wood framing the chimney chase to excessive heat in the chimney—may have resulted in property damage over a period of years—namely, the physical degradation of that wood—which in turn may have led ultimately to the fire in November 2011. It is true that the initial occurrence was, by itself, ‘insufficient to create a potential for covered damage,’ but there is nothing in the relevant policy language, or in the case on which Financial Pacific relies [editor’s note, Montrose] to support the conclusion that the physical injury to the wood that resulted from this initial causal event could not itself have served as a further causal event in the chain of causation between Tidwell’s negligence in installing the custom chimney top and the ultimate fire in November 2011 for which State Farm sought to recover damages from Tidwell. Thus, contrary to Financial Pacific’s assertion, a ‘cause of damage’ may be sufficient ‘to create a potential for covered damage’ if that ‘cause of damage’ constituted physical injury to tangible property that occurred during a policy period, resulted from an ‘occurrence,’ and ultimately led to the insured’s legal obligation to pay damages.”

How wide can Tidwell be applied – especially when the duty to defend standard is as broad as here? That’s the big question. Obviously it will depend on the nature of the damage and its cause. I can see the arguments now – fine-point, scientific-like, comparisons between the cause of the fire in Tidwell and the cause of this and that kind of property damage at issue. Did Tidwell open the door to more efforts being made that “boom events” do not trigger only the policy on the risk at the time of the boom?

And who will make such arguments? Insureds of course – whether they need more limits or had no coverage on the risk at the time of the boom. But insurers may also do so. There is no shortage of evidence (see: litigation over first manifestation, and similar endorsements, in construction defect claims) that when an insurer is the only one triggered, it may now embrace the continuous trigger and argue that other insurers are also liable.