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Vol. 7, Iss. 5
June 6, 2018


“Continuing Injury Exclusion” Not Upheld In Multiple Plaintiff Case

I’ve been saying this for a while. In general, insurers have had mixed results in construction defect cases when it comes to enforcing exclusions (usually added by endorsement) that are intended to preclude coverage for “property damage” that took place before the policy period, even if such damage is continuing into the policy period, and even if such damage was not known by the insured to exist. These exclusions sometimes go by the name Continuing Injury Exclusion or First Manifestation Exclusion or something else along those lines.

Some courts have interpreted these exclusions narrowly and applied a strict “sameness” test (my term) between the “property damage” that existed pre-policy inception date and that which took place during the policy period, for which coverage was being sought. Further, it has generally been the “property damage” itself that must be known by the insured prior to the policy period -- and not simply the cause of the “property damage.”

One interesting aspect of these cases is that they are sometimes “insurer vs. insurer.” Generally, a defending insurer takes issue with another insurer’s attempt to enforce an exclusion that saddles the defending insurer with greater exposure.
Add Century Surety Company v. United Specialty Insurance Company, No. 17-6589 (C.D. Calif. Apr. 24, 2018) to the list of decisions that has given a narrow interpretation to a Continuing Injury Exclusion (and it’s insurer v. insurer).

In 2016, 55 tenants of an apartment building filed suit against its owners, Bonnie Brae and Ramin Akhavan, alleging “slum conditions,” including uninhabitable units and a lack of security. The complaints alleged that problems at the building existed since 2006: “Consistent deferrals of maintenance allegedly resulted in faulty electrical wiring and plumbing, a lack of hot water, insect and rodent infestations, and other unsanitary living conditions.” Open and dangerous criminal activity in the building was also alleged.

The tenants alleged a host of damages such as (1) bug bites, asthma and other respiratory problems, (2) personal property damage, including having to throw out microwaves, dressers, refrigerators, hot plates, and food due to rodent and insect infestations, (3) being threatened with eviction for making complaints to management and city or county agencies, and (4) invasion of privacy from having their units entered by others without consent.

Bonnie Brae sought coverage from several insurers and there were numerous policies in play. Certain insurers undertook the defense and shared costs. United Specialty Insurance Company disclaimed coverage. One of the defending insurers filed suit against United Specialty for contribution for defense costs.

United Specialty acknowledged that the complaints alleged bodily injury, property damage and personal injury, but denied that it alleged an occurrence on account of the intentional nature of the allegations. At least for duty to defend purposes, the court dismissed this argument: “USIC argues that notwithstanding the tenants’ use of the ‘negligence’ label, there are no factual allegations in the Chavez complaints showing that the insureds’ acts or omissions were accidental, unintended, or unexpected. . . . Although the Chavez complaints allege intentional conduct, and the Xec and Geronimo actions lend support to this allegation, the Court nevertheless finds that coverage depends on the unresolved factual issue of whether at least some part of the insureds’ injury-producing conduct was intentional or rather accidental.”

Turning to trigger of coverage, the court rejected United Specialty’s argument that its policies – on the risk from March 2013 to January 2016 -- were not triggered on account of the Continuous Injury Exclusion, which precluded coverage with respect to “any ‘claim’ or ‘suit’ against any insured which is alleged to be ongoing and continuing in nature, if the ‘bodily injury’ or ‘property damage’ [or ‘personal injury’] is alleged to have existed prior to the effective date of this policy.”

As United Specialty saw it, the exclusion served to preclude coverage because the complaints alleged consistent deferrals of maintenance since at least 2006. Thus, so the argument went, the claim or suit was ongoing and continuing in nature.

However, the court did not see the Continuous Injury Exclusion having across the board applicability: “[N]ot all of the alleged bodily injury, property damage, and personal injury suffered by the tenants is alleged to have existed prior to the effective date of this policy, that is, March 27, 2013 in the case of the first consecutive policy. On the contrary, the action involves 55 individual tenants joined in a single lawsuit who have lived in the apartment building during different time periods. Many of these tenants allege that they first moved into the building after the effective date of USIC’s first consecutive policy, and accordingly suffered bodily injury, property damage, and personal injury for the first time during the policy period. While the continuous injury exclusion may apply to some tenants who have lived in the building and therefore suffered continuous injury prior to the policy period, USIC cannot employ this exclusion to negate coverage with respect to all plaintiffs in the Chavez action.” (emphasis added).

The court held that United Specialty owed the defending insurers an equitable share of all defense expenses incurred to date and, going forward, must contribute an equal share of defense costs until its duty to defend is discharged.

Like several cases before it, the court interpreted the Continuous Injury Exclusion narrowly and applied a strict “sameness” test between the bodily injury and property damage that existed pre-policy inception date and that which took place during the policy period, for which coverage was being sought.

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