DON'S BUILDING SUPPLY, INC. v. ONEBEACON INSURANCE COMPANY, AS ASSIGNEE OF POTOMAC INSURANCE COMPANY OF ILLINOIS (Majority)

SUPREME COURT CASES

Laws-info.com » Cases » Texas » Supreme Court » 2008 » DON'S BUILDING SUPPLY, INC. v. ONEBEACON INSURANCE COMPANY, AS ASSIGNEE OF POTOMAC INSURANCE COMPANY OF ILLINOIS (Majority)

State: Texas

Court: Supreme Court

Docket No: 07-0639

Case Date: 08/29/2008

Judge: Don R. Willett

Plaintiff: DON'S BUILDING SUPPLY, INC.

Defendant: ONEBEACON INSURANCE COMPANY, AS ASSIGNEE OF POTOMAC INSURANCE COMPANY OF ILLINOIS (Majority)

Preview:DON'S BUILDING SUPPLY, INC. v. ONEBEACON
INSURANCE COMPANY, AS ASSIGNEE OF
POTOMAC INSURANCE COMPANY OF ILLINOIS
(Majority)
IN THE SUPREME COURT OF TEXAS
No. 07-0639
Don s Building Supply, Inc., Appellant,
v.
OneBeacon Insurance Company, as Assignee of Potomac Insurance Company of Illinois, Appellee
On Certified Questions from the United States Court
of Appeals for the Fifth Circuit
Argued February 7, 2008
Justice Willett delivered the opinion of the Court.
This insurance-coverage dispute presents two certified questions from the United States Court of Appeals for the Fifth
Circuit. The Fifth Circuit asks generally when property damage occurs under Texas law for purposes of an occurrence-
based commercial general liability insurance policy, a question this Court has never answered. More specifically, is an
insurer s duty to defend triggered where damage is alleged to have occurred during the policy period but was
inherently undiscoverable until after the policy expired? As to this policy, which focuses on when damage comes to
pass, not when damage comes to light, we answer yes the insurer s duty is triggered under Texas law; the key date is
when injury happens, not when someone happens upon it.
I. Background
The relevant facts are set out in the Fifth Circuit s opinion certifying the questions to us.[1] Don s Building Supply,
Inc. (DBS) sells and distributes a synthetic stucco product known as an Exterior Insulation and Finish System (EIFS).
This siding system was installed on various homes from December 1, 1993 to December 1, 1996, during which DBS
was covered by comprehensive general liability (CGL) policies issued by Potomac Insurance Company of Illinois and
assigned to OneBeacon Insurance Company (OneBeacon).[2] From 2003 to 2005, various Texas homeowners filed
state-court lawsuits against DBS, alleging the EIFS was defective and not weather-tight, thus allowing moisture to
seep into wall cavities behind the siding and causing wood rot and other damages. The homeowners argue these
injuries actually began to occur on the occasion of the first penetration of moisture behind the EIFS, which they say
was within six months to one year after the application of the EIFS. [3] The alleged result of this ongoing moisture
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exposure was extensive damage to the homes, reduced property values, and the need to retrofit or replace the EIFS.[4]
In their suits alleging negligence, fraud, and violations of the Texas Deceptive Trade Practices Act,[5] the homeowners
seek to avoid the statutes of limitations for their various claims by pleading the discovery rule, arguing the home
damage was hidden from view by the siding s undamaged exterior and not discoverable or readily apparent to someone
looking at that surface until after the policy period ended. [6]
OneBeacon initially provided a defense to DBS but then filed a declaratory judgment action in federal district court
seeking a ruling that it had no duty to defend and indemnify under the CGL policies. The court agreed with OneBeacon
that the duty does not arise until the damage becomes identifiable.[7] DBS appealed to the Fifth Circuit, which
certified the coverage trigger-date questions to us.
II. Discussion
A. First Certified Question
The Fifth Circuit first asks:
When not specified by the relevant policy, what is the proper rule under Texas law for determining the time at which
property damage occurs for purposes of an occurrence-based commercial general liability insurance policy?
We construe insurance policies according to the same rules of construction that apply to contracts generally.[8]
Effectuating the parties expressed intent is our primary concern.[9] If an insurance contract uses unambiguous
language, we must enforce it as written.[10] If, however, a contract is susceptible to more than one reasonable
interpretation, we will resolve any ambiguity in favor of coverage.[11] Policy terms are given their ordinary and
commonly understood meaning unless the policy itself shows the parties intended a different, technical meaning.[12]
No one phrase, sentence, or section [of the policy] should be isolated from its setting and considered apart from the
other provisions. [13] In addition, we must give the policy s words their plain meaning, without inserting additional
provisions into the contract. [14]
With these principles in mind, we turn to the relevant policy language. The first page provides a one-year policy period
with designated start and end dates. The policy provides bodily injury and property damage coverage as follows:
class=Section2>
We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or
property damage to which this insurance applies. We will have the right and duty to defend any suit seeking those
damages.
class=Section3>
The policy further provides:
This insurance applies to bodily injury and property damage only if:
(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory; and
(2) The bodily injury or property damage occurs during the policy period.
The policy defines an occurrence as an accident, including continuous or repeated exposure to substantially the same
general harmful conditions. We recently noted, in construing the same CGL language, that [a]n accident is generally
understood to be a fortuitous, unexpected, and unintended event. [15] The policy s requirement that property damage
be caused by an occurrence limits coverage in at least two respects. First, because the occurrence must be an accident,
coverage for intentional torts is excluded.[16] Second, because a single occurrence can be an accident and consist of
continuous or repeated exposure to substantially the same general harmful conditions, the definition of occurrence
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serves to limit the number of occurrences an insured can claim for what the policy deems to be a single accident.[17]
This limitation is sometimes important because the dollar limits of the policy include an aggregate limit and also a
lower dollar limit per occurrence.[18]
The policy defines property damage to mean:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be
deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of
the occurrence that caused it.
Considering these provisions together and reading them for their plain meaning, we hold that property damage under
this policy occurred when actual physical damage to the property occurred. The policy says as much, defining property
damage as [p]hysical injury to tangible property, and explicitly stating that coverage is available if and only if property
damage occurs during the policy period. So in this case, property damage occurred when a home that is the subject of
an underlying suit suffered wood rot or other physical damage. The date that the physical damage is or could have
been discovered is irrelevant under the policy.
We recognize, however, the existence of caselaw discussing when the duty to defend is triggered under occurrence-
based and other policies. The Fifth Circuit notes that courts have not uniformly resolved this issue.[19] To some
extent, these varying approaches reflect perceived differences in the policy language under review.[20] The varying
approaches also reflect different factual circumstances, with some courts not facing, for example, the difficulty
encountered in the pending case by an alleged delay between the time of property damage and the discovery of that
damage.[21]
Many courts agree with the analysis we adopt today, sometimes called the actual injury or injury-in-fact approach, that
the insurer must defend any claim of physical property damage that occurred during the policy term.[22] Other courts,
including several Texas appellate courts, have followed a manifestation rule that imposes a duty to defend only if the
property damage became evident or discoverable during the policy term.[23] The manifestation approach takes
different forms, with some courts having the rule turn on when the damage is actually discovered, and others looking
to when the damage could have been discovered.[24] Even those courts favoring the latter manifestation trigger appear
to take differing views of how easily discoverable the damage or injury must be.[25]
We also note that decisions sometimes cited as following the manifestation rule, and which indeed use a form of the
word manifest in their analysis, do not actually follow the manifestation rule as opposed to the actual-injury rule,
because they were not concerned with latent damage where these two rules diverge. Instead, these cases merely hold
that the time of the injury or damage, as opposed to the time of the alleged negligent conduct that caused the injury, is
the triggering event under the policy. These cases, when carefully reviewed, may actually be more aligned with the
actual-injury rule than with the manifestation rule, and appear to use a form of the verb manifests merely as a
synonym for results in or leads to, rather than drawing a distinction between the actual occurrence of damage and the
later discovery or obviousness of damage.[26]
Other courts, including two Texas courts of appeals,[27] follow an exposure rule that finds coverage if the plaintiff is
exposed to whatever agent ultimately results in personal injury or property damage during the policy period. Again,
what some courts call the exposure rule may actually be what others would call the injury-in-fact rule.[28] Still other
courts adopt other approaches, including multiple trigger rules,[29] and a rule that looks to the date of the alleged
negligent conduct rather than the date of the actual injury to the claimant.[30] In cases involving continuous losses,
California follows a manifestation rule for first-party property insurance claims (such as claims under a homeowners
policy) but a continuous-injury rule for liability insurance policies (such as claims under CGL policies).[31] A related
if not overlapping body of law, which we do not explore today, addresses when coverage is triggered on bodily injury
claims under CGL and other policies.[32] As occurred in Lamar Homes, Inc. v. Mid-Continent Casualty Co., we are
again asked by the Fifth Circuit to construe a widely used CGL policy where unfortunately there is no consensus on
the policy s meaning under the circumstances posed here. [33]
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As for the manifestation rule, the rule urged by OneBeacon and followed by most Texas cases to date, the policy
before us simply makes no provision for it. The policy in straightforward wording provides coverage if the property
damage occurs during the policy period, and further provides that property damage means [p]hysical injury to tangible
property. Whatever practical advantages a manifestation rule would offer to the insured or the insurer, the controlling
policy language does not provide that the insurer s duty is triggered only when the injury manifests itself during the
policy term, or that coverage is limited to claims where the damage was discovered or discoverable during the policy
period.
Similarly, the policy s language does not support adoption of an exposure rule, at least not where there is physical
injury to tangible property as alleged in this case. Again, the policy provides coverage if the property damage occurs
during the policy period. The policy does not state that coverage is available if property is, during the policy period,
exposed to a process, event, or substance that later results in bodily injury or physical injury to tangible property.
We therefore decline to recognize a manifestation rule or exposure rule for the property damage claims alleged under
this policy.[34] This policy links coverage to damage, not damage detection. Engrafting a manifestation rule to limit
coverage by conditioning coverage on the observations of a third-party claimant would blur the distinction between
this occurrence-based policy and a claims-made policy. If the manifestation rule offers advantages of ease of
application or proof for the insurer or insured, insurance companies might consider adopting policies where coverage
depends on manifestation of damage, and seeking approval of such policies by Texas insurance regulators.[35] We
note, however, that the manifestation rule does not eliminate the need to address sometimes nettlesome fact issues. In
fact, the actual-injury rule may well make claims more predictable insofar as one type of manifestation trigger turns
not on when the claimant actually identified the damage but rather on when the damage was capable of
identification.[36]
Pinpointing the moment of injury retrospectively is sometimes difficult, but we cannot exalt ease of proof or
administrative convenience over faithfulness to the policy language; our confined task is to review the contract, not
revise it. Our prevailing concern is not one of policy but of law, and we must honor the parties chosen language
covering third-party claims if damage to the claimant s property occurred during the policy period. The policy asks
when damage happened, not whether it was manifest, patent, visible, apparent, obvious, perceptible, discovered,
discoverable, capable of detection, or anything similar. Occurred means when damage occurred, not when discovery
occurred. In this case, property damage occurred when the home in question suffered wood rot or some other form of
physical damage.
Looking to the date of actual injury, besides being consistent with the policy terms, is also consistent with scholarly
authority. To quote one leading insurance law treatise, the time of the occurrence of the accident within an indemnity
policy is generally not considered to be the time the wrongful act was committed but the time when the complaining
party was actually damaged. [37] To quote the other leading treatise,
Focusing on the date injury manifests itself basically operates to provide certainty to insurers, but the injury-in-fact
approach probably is more technically in tune with the spirit of the parties actual intentions, and with the insured s
expectations, based on frequently encountered policy language tying bodily injury or property damage to the concept of
occurrence. [38]
This treatise goes on to state that the manifestation rule obviously gives short shrift to the specific terms inserted in the
policy to address the risk exposure. [39] Texas law does not. Our goal is to effectuate the parties intent as expressed in
the contract they executed.[40]
Finally, we stress that we do not attempt to fashion a universally applicable rule for determining when an insurer s
duty to defend a claim is triggered under an insurance policy, as such determinations should be driven by the contract
language language that obviously may vary from policy to policy.
B. Second Certified Question
The Fifth Circuit next asks:
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Under the rule identified in the answer to the first question, have the pleadings in lawsuits against an insured alleged
that property damage occurred within the policy period of an occurrence-based commercial general liability insurance
policy, such that the insurer s duty to defend and indemnify the insured is triggered, when the pleadings allege that
actual damage was continuing and progressing during the policy period, but remained undiscoverable and not readily
apparent for purposes of the discovery rule until after the policy period ended because the internal damage was hidden
from view by an undamaged exterior surface?
As to the duty to defend, we answer this question yes. [41] Under the eight corners rule of Texas insurance law, the
insurer s defense duty turns on the policy s terms and the plaintiff s allegations. The duty is triggered if the plaintiff
alleges facts that would give rise to any claim against the insured that is covered by the policy.[42] The OneBeacon
policy itself imposes a duty to defend without regard to the merits of the underlying claim against the insured; it
imposes on the insurer a duty to defend any suit[43] seeking damages for bodily injury or property damages covered
by the policy, regardless of whether the plaintiff in the underlying action has a legally meritorious claim. By
purchasing the policy, DBS acquired a contractual right to a defense against both meritorious and nonnmeritorious
claims for property damage.[44]
Based on our answer to the first certified question, the insurer s duty to defend DBS depends on whether the
homeowners pleadings allege property damage that occurred during the policy term. Under the actual-injury rule
applicable to this policy, a plaintiff s claim against DBS that any amount of physical injury to tangible property
occurred during the policy period and was caused by DBS s allegedly defective product triggers OneBeacon s duty to
defend.[45] This duty is not diminished because the property damage was undiscoverable, or not readily apparent or
manifest, until after the policy period ended. Nor does it depend on whether DBS has a valid limitations defense. The
parties could have conditioned coverage on identifiability, but the contract imposes no such limitation.[46]
Today s decision rests upon the specific language of these parties CGL policies regarding property damage in the
construction-defect context, and it is directed only to the specific questions posed by the Fifth Circuit. We intend no
position as to whether plaintiffs claims in the underlying suits are meritorious.
Don R. Willett
Justice
OPINION DELIVERED: August 29, 2008.
[1] OneBeacon Ins. Co. v. Don s Bldg. Supply, Inc., 496 F.3d 361 (5th Cir. 2007).
[2] Id. at 362. The coverage consisted of three consecutive one-year policies.
[3] Id. (quoting the homeowners petitions).
[4] Id.
[5] See id. at 363 n.5.
[6] Id. at 365.
[7] OneBeacon Ins. Co. v. Don s Bldg. Supply, Inc., 516 F. Supp. 615, 629 30 (N.D. Tex. 2006).
[8] Nat l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008).
[9] See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
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[10] See Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984).
[11] Id. at 938.
[12] Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 736 (Tex. 1990).
[13] Forbau, 876 S.W.2d at 134.
[14] Nat l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (footnotes omitted).
[15] Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex. 2007).
[16] See id. ( We have further said that an intentional tort is not an accident and thus not an occurrence regardless of
whether the effect was unintended or unexpected. ).
[17] See, e.g., Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 853 54 n.21 (Tex. 1994) (noting that language in
policies defining an occurrence or a claim occurrence as an accident including continuous or repeated exposure to
substantially the same general conditions or a series of acts or occurrences arising out of one event is intended to limit
the number of claims the insured can make for what the policy deems a single occurrence).
[18] The policy covering December 1993 to December 1994, for example, has a $1 million aggregate limit and a
$500,000 limit per occurrence.
[19] 496 F.3d at 364; see also Garcia, 876 S.W.2d at 853 n.20 (noting that courts across the nation considering the
coverage trigger issue for continuing occurrences have disagreed considerably in recent years ).
[20] See, e.g., Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., ___ S.W.3d ___, ___ (Tex. App. Houston [14th
Dist.] 2006, pet. granted) (rejecting manifestation rule adopted in earlier cases in part because definition of occurrence
in the policy under review was different from policy language in earlier cases); EnergyNorth Natural Gas, Inc. v.
Underwriters at Lloyd s, 848 A.2d 715, 719-23 (N.H. 2004) (applying injury-in-fact rule to three occurrence-based
policies in issue and exposure rule to two accident-based policies).
[21] See 7 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d 102:22 (2005) (hereinafter Couch on Insurance )
(noting particular policy construction difficulties encountered where there is a lengthy interval between an injury from
a wrongful act and the manifestation of that injury and that in delayed manifestation of injury cases, there is a marked
difference of opinion, sometimes within the same jurisdiction, as to when coverage is triggered ).
[22] See Transcon. Ins. Co. v. W.G. Samuels Co., 370 F.3d 755, 758 (8th Cir. 2004) ( The Kansas Supreme Court has
adopted an injury-in-fact rule for purposes of determining when coverage is triggered under a CGL policy. Under this
rule, insurance coverage is triggered on the date when an actual injury and damage occurs, even if the injury has not
yet been discovered or become manifest. (citing Scott v. Keever, 512 P.2d 346, 351 52 (Kan. 1973))); Trizec Props.,
Inc. v. Biltmore Constr. Co., 767 F.2d 810, 813 (11th Cir. 1985) (holding under Florida law that actual injury rule
applies to CGL policy); Mut. Fire, Marine & Inland Ins. Co. v. Safeco Ins. Co., 473 So.2d 1012, 1013 14 (Ala. 1985)
(reversing summary judgment for insurer where homeowner suing insured claimed that termite damage had occurred
during policy period, even though damage was not discovered until after policy expired, because the insurance carrier
with the policy in effect at the time of damage is responsible for the defense and indemnity of the insured ); Hoang v.
Assurance Co. of Am., 149 P.3d 798, 80 01 (Colo. 2007) (holding that the CGL policy in effect at the time of property
damage to the foundation of the home built by the insured covered claim by homeowner, even though damage was not
discovered until after policy expired and even though plaintiff had purchased the home after policy expired); Sentinel
Ins. Co. v. First Ins. Co. of Haw., 875 P.2d 894, 915, 917 (Haw. 1994) (adopting injury-in-fact trigger for all standard
CGL policies, and also recognizing that continuous trigger rule may be employed where injury occurs continuously
over a period covered by different insurers or policies ); Travelers Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481, 502 03
(Ill. 2001) (holding, under CGL policies covering physical injury to tangible property, that claims against insured that
it manufactured defective plumbing system were covered if the buildings in issue suffered water damage due to leaks
during the policy period, regardless of when the plumbing systems were installed, because plain language of policies
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state that the insurable event which gives rise to the insurers obligation to provide coverage is the physical damage to
tangible property ); Gelman Scis., Inc. v. Fid. & Cas. Co. of N.Y., 572 N.W.2d 617, 628 (Mich. 1998) ( The standard
CGL policy language, providing coverage for property damage occurring during the policy period, unambiguously
dictates application of an injury-in-fact trigger of coverage. ), reh g granted on other grounds, 576 N.W.2d 168 (Mich.
1998), overruled on other grounds by Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (Mich. 2003); N. States Power
Co. v. Fid. & Cas. Co. of N.Y., 523 N.W.2d 657, 662 (Minn. 1994) (stating that Minnesota follows the actual injury or
injury-in-fact theory to determine which policies have been triggered by an occurrence causing damages because this
theory is the most consistent with standard CGL policy language ); EnergyNorth Natural Gas, 848 A.2d at 719 23
(applying injury-in-fact rule to occurrence-based CGL policies); Kief Farmers Coop. Elevator Co. v. Farmland Mut.
Ins. Co., 534 N.W.2d 28, 35 36 (N.D. 1995) (rejecting manifestation rule in first-party insurance case, and holding that
a real but undiscovered loss or damage, proved in retrospect to have commenced during the policy period, triggers
coverage, irrespective of the time the loss or damage became manifest ); St. Paul Fire & Marine Ins. Co. v.
McCormick & Baxter Creosoting Co., 923 P.2d 1200, 1209 11 (Or. 1996) (holding injury-in-fact rule applicable to
various CGL policies where insured sought coverage for costs incurred in investigating and correcting environmental
contamination); Joe Harden Builders, Inc. v. Aetna Cas. & Sur. Co., 486 S.E.2d 89, 91 (S.C. 1997) (holding that
coverage under occurrence policy is triggered at the time of an injury-in-fact and continuously thereafter to allow
coverage under all policies in effect from the time of injury-in-fact during the progressive damage ); Transcon. Ins. Co.
v. Wash. Pub. Utils. Dists. Util. Sys., 760 P.2d 337, 345 (Wash. 1988) ( Washington case law hold[s] that the time of
an occurrence for insurance coverage purposes is determined by when damages or injuries took place. ).
[23] E.g., Summit Custom Homes, Inc. v. Great Am. Lloyds Ins. Co., 202 S.W.3d 823, 827 (Tex. App. Dallas 2006,
pet. filed) (holding, in case where home builder sought coverage for EIFS claim under CGL policies, that [i]f
[property] damages are not manifested during the policy period, then there is no occurrence during the policy period. );
State Farm Fire & Cas. Co. v. Rodriguez, 88 S.W.3d 313, 322 23 (Tex. App. San Antonio 2002, pet. denied) (following
manifestation rule and stating that property damage is manifested under homeowners policy when it becomes apparent
); Closner v. State Farm Lloyds, 64 S.W.3d 51, 53 (Tex. App. San Antonio 2001, no pet.) (holding that covered losses
under homeowner s policy are deemed to occur when the damage first becomes apparent and therefore homeowners
have the burden to prove their loss manifested during the policy period they plead ); State Farm Mut. Auto. Ins. Co. v.
Kelly, 945 S.W.2d 905, 910 (Tex. App. Austin 1997, writ denied) (holding that loss under automobile policy occurs
when the injury or damage to the property is manifested ); Cullen/Frost Bank of Dallas, N.A. v. Commonwealth Lloyd
s Ins. Co., 852 S.W.2d 252, 258 (Tex. App. Dallas 1993) (holding that occurrence under CGL policies takes place
when the property damage manifests itself ), writ denied, 889 S.W.2d 266 (Tex. 1994) (per curiam); Dorchester Dev.
Corp. v. Safeco Ins. Co., 737 S.W.2d 380, 381, 383 (Tex. App. Dallas 1987, no writ) (holding, under policy providing
coverage for property damage . . . caused by an occurrence, that claim against general contractor was not covered
because coverage is not available unless the property damage manifests itself, or becomes apparent, during the policy
period ); see also Am. Home Assurance Co. v. Unitramp Ltd., 146 F.3d 311, 313 14 (5th Cir. 1998) (holding that
manifestation rule is applicable to occurrence-based policy governed by Texas law); Textron, Inc. v. Aetna Cas. & Sur.
Co., 723 A.2d 1138, 1142 44 (R.I. 1999). We note that arguably the leading case adopting the manifestation approach,
Eagle-Picher Indus., Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12 (1st Cir. 1982), concerned asbestos-related bodily injury
claims, and as discussed below, see infra note 32 and accompanying text, we express no view on whether the rule for
determining the triggering of coverage is the same for bodily injury and property damage claims under the OneBeacon
policy.
[24] See Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 853 n.20 (Tex. 1994) (discussing Dorchester, 737
S.W.2d at 383, see supra note 23, and noting, in case involving personal injury claim, that some courts have followed a
pure or strict manifestation rule based on actual discovery of injury, while others have followed relaxed manifestation
rule based on when discovery of injury was possible).
[25] Compare Dorchester, 737 S.W.2d at 383 (stating that coverage is available if damage or injury becomes
identifiable within the policy period) with Unitramp, 146 F.3d at 311 (stating that under manifestation rule [t]he date of
occurrence is when the damage is capable of being easily perceived, recognized and understood ).
[26] For example, it appears that two cases discussed by the court of appeals in Dorchester did not actually adopt the
manifestation rule. In Millers Mut. Fire Ins. Co. of Tex. v. Ed Bailey, Inc., the Idaho Supreme Court held that where
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the insured installed foam in a building during the term of a CGL policy, and a fire allegedly caused by the foam
occurred after the policy expired, the property damage claim was not covered because the policy defined property
damage as physical injury to or destruction of tangible property which occurs during the policy period and no actual
physical damage to the structure in this case occurred within the policy period. 647 P.2d 1249, 1250, 1253 (Idaho 1982)
(discussed in Dorchester, 737 S.W.2d at 383). The court did make reference to the time that the alleged negligence
manifests itself, but was merely distinguishing the time of the negligent conduct from the time that the damage occurs,
id. at 1253; it was not choosing between the actual-injury rule and the manifestation rule. The same can be said for
Travelers Ins. Co. v. C.J. Gayfer s & Co., 366 So.2d 1199 (Fla. Dist. Ct. App. 1979) (discussed in Dorchester, 737
S.W.2d at 383). In Gayfer s, the Florida court held that a claim against a plumbing contractor was not covered where a
plumber s allegedly negligent work on a drainage system took place during the policy period but the system failed and
water damage to plaintiff s store occurred after the policy had expired. Id. The court did state that an occurrence under
the policy is commonly understood to mean the event in which negligence manifests itself in property damage or
bodily injury. Id. at 1202. But again, read in context, the court was not adopting the manifestation rule in lieu of the
injury-in-fact rule, but was distinguishing between the date of the insured s alleged negligent work, which occurred
during the policy period, and the date of the property damage, which occurred and became immediately evident upon
occurrence, after the policy period had expired. The Eleventh Circuit has since held that the injury-in-fact rule applies
to CGL policies under Florida law. Trizec Props., Inc. v. Biltmore Constr. Co., 767 F.2d 810, 813 (11th Cir. 1985).
[27] See Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., ___ S.W.3d ___, ___ (Tex. App. Houston [14th Dist.]
2006, pet. granted) (adopting exposure rule in case involving coverage for EIFS claims under CGL policies); Pilgrim
Enters., Inc. v. Md. Cas. Co., 24 S.W.3d 488, 497-99 (Tex. App. Houston [1st Dist.] 2000, no pet.) (adopting exposure
rule for deciding whether physical injury and property damage claims are covered by CGL policy, where claims are
based on continuous or repeated exposure to dry cleaning fluid).
[28] E.g., Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1222 n.18 (6th Cir. 1980) ( [W]hen courts
are dealing with property damage situations where damages slowly accumulate, courts have generally applied the
exposure theory. So long as there is tangible damage, even if minute, courts have allowed coverage from that time. ),
clarified in part, 657 F.2d 814 (6th Cir. 1981).
[29] E.g., Harford County v. Harford Mut. Ins. Co., 610 A.2d 286, 294 95 (Md. 1992) (holding that coverage under
CGL policies for environmental contamination claims is available if either the property damage occurred or discovery
or manifestation of the damage occurred during the policy period); Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d
974, 984 (N.J. 1994) (holding that claims of asbestos-related property damage from installation through discovery or
remediation (the injurious process) trigger the policies on the risk throughout that period ). The leading case adopting
the multiple trigger approach, Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981) (Bazelon, J.)
concerned asbestos-related bodily injury claims, and as discussed below, see infra note 32 and accompanying text, we
express no view on whether the rule for determining the triggering of coverage is the same for bodily injury and
property damage claims.
[30] See Audubon Coin & Stamp Co. v. Alford Safe & Lock Co., 230 So.2d 278, 279 80 (La. Ct. App. 1969) (holding,
where customer of insured safe company sued for negligent installation of safe, that policy in effect at time of alleged
negligent installation of safe, rather than policy in effect at time of burglary, covered claim).
[31] See Montrose Chem. Corp. of Cal. v. Admiral Ins. Co., 913 P.2d 878, 880, 904 (Cal. 1995) (distinguishing
Prudential-LMI Commercial Ins. v. Superior Court, 798 P.2d 1230 (Cal. 1990)).
[32] See, e.g, Guar. Nat l Ins. Co. v. Azrock Indus., Inc., 211 F.3d 239, 243 48 (5th Cir. 2000) (discussing various
theories of coverage in progressive disease context, and concluding that rules for coverage of personal injury and
property damage claims are different); Md. Cas. Co. v. W.R. Grace & Co., 23 F.3d 617, 627 (2d Cir. 1994) (agreeing
that concepts of bodily injury may not be imported wholesale into the property damage context when determining
when damage occurs under CGL policy); but see Montrose Chemical, 913 P.2d at 888 (concluding that coverage is the
same for bodily injury and property damage claims under CGL policy). We express no opinion on whether the
coverage rule for determining if a claim occurs during the term of the OneBeacon policy is the same for bodily injury
and property damage claims.
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[33] 242 S.W.3d 1, 5 (Tex. 2007).
[34] In this case there may be little practical difference between an actual-injury rule and an exposure rule, because, as
the Fifth Circuit notes, the homeowners petitions alleged that injury to the home actually began to occur on the
occasion of the first penetration of moisture behind the [EIFS] which would have been at such time as the improperly
installed sealant joints and sealants began to fail, allowing moisture within the system. OneBeacon, 496 F.3d at 362. If
the homeowners are alleging that wood rot or other physical damage to their homes began immediately or almost
immediately after the initial moisture exposure occasioned by EIFS leakage, there may be no real-world distinction
between application of an exposure rule and an actual-injury rule in this case. See EnergyNorth Natural Gas, Inc. v.
Underwriters at Lloyd s, 848 A.2d 715, 718 (N.H. 2004) (recognizing little difference between injury-in-fact and
exposure theories where contamination begins almost immediately after release of hazardous materials).
[35] See 7 Couch on Insurance 102:22 ( The parties may, of course, make their intent explicit in the contract of
insurance by stating that coverage will be triggered by the occurrence of the harm producing event, by initial
manifestation of damages, or by requiring that both occur within the policy period. ).
[36] See Cullen/Frost Bank of Dallas, N.A. v. Commonwealth Lloyd s Ins. Co., 852 S.W.2d 252, 257 (Tex. App.
Dallas 1993, writ denied).
[37] 7A John Alan Appleman, Insurance Law and Practice 4491.01 (Walter F. Berdal ed., 1979).
[38] 7 Couch on Insurance 102:22 (footnote omitted); see also Gelman Scis., Inc. v. Fid. & Cas. Co. of N.Y., 572
N.W.2d 617, 623 (Mich. 1998) ( The manifestation trigger simply is not supported by the policy language. ), reh g
granted on other grounds, 576 N.W. 168 (Mich. 1998), overruled on other grounds by Wilkie v. Auto-Owners Ins. Co.,
664 N.W.2d 776 (Mich. 2003); Kief Farmers Coop. Elevator Co. v. Farmland Mut. Ins. Co., 534 N.W.2d 28, 35 36
(N.D. 1995) (noting that [t]he policy language does not even hint that property damage must be known to anyone in
order to trigger coverage, and that [w]e will not rewrite this contract of insurance to exclude coverage on the basis of a
manifestation theory ).
[39] Id. at 102:28.
[40] Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
[41] Insofar as the second question asks whether the pleadings have triggered the duty to indemnify, we do not reach
that issue because the duty to indemnify is triggered not by the allegations in the pleadings but by whether a plaintiff
ultimately prevails on a claim covered by the policy. See Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1,
5 (Tex. 2007) (stating, in certified question case inquiring whether duty to defend or indemnify is triggered by
allegations in petition, that [w]e do not reach the duty to indemnify . . . as that duty is not triggered by allegations but
rather by proof at trial ); Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821 (Tex. 1997) ( The duty to
indemnify is triggered by the actual facts establishing liability in the underlying suit. ).
[42] Utica Nat l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 201 (Tex. 2004).
[43] The policy defines a suit as any civil proceeding in which damages because of bodily injury, property damage,
personal injury or advertising injury to which this insurance applies are alleged. We express no opinion as to when a
claim for bodily injury, personal injury, or advertising injury occurs under the policy, or whether the rules for
determining coverage for these claims are different from the rule we adopt today for property damage claims under the
policy.
[44] See Argonaut Sw. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973) ( The . . . duty to defend is determined by
the allegations of the petition . . . without reference to the truth or falsity of such allegations. ).
[45] Because as to all of the underlying claims, the EIFS was installed during the three-year policy period of the
OneBeacon policies, see supra note 2 and accompanying text, this case does not require an analysis of coverage
questions in circumstances where property damage occurred in the course of a continuing process, but began before the
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inception of the term of the policy in issue. Nor do we understand the Fifth Circuit to have asked how OneBeacon s
indemnity obligations are determined if the facts ultimately show that property damage began during the OneBeacon
policy period but continued beyond that period, perhaps into periods covered by other policies. We express no opinion
on these questions, but see Am. Physician s Ins. Exch. v. Garcia, 876 S.W.2d 842, 855 (Tex. 1994) ( If a single
occurrence triggers more than one policy . . . all insurers whose policies are triggered must allocate funding of the
indemnity limit among themselves according to their subrogation rights. ); 7 Couch on Insurance 102:23 (discussing
loss in progress doctrine); Montrose Chem. Corp. of Cal. v. Admiral Ins. Co., 913 P.2d 878, 885 906 (Cal. 1995)
(adopting continuous trigger rule and discussing loss in progress rule); N. States Power Co. v. Fid. & Cas. Co. of N.Y.,
523 N.W.2d 657, 662, 664 (Minn. 1994) (following actual injury rule for determining when coverage is triggered in
environmental cleanup case, but recognizing that where the damages occurred over multiple policy periods, the trial
court should presume that the damages were continuous from the point of the first damage to the point of discovery or
cleanup ); Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835, 840 42 (Ohio 2002) (discussing all
sums versus pro rata approaches for allocating losses among policies triggered by continuous occurrence); Joe Harden
Builders, Inc. v. Aetna Cas. & Sur. Co., 486 S.E.2d 89, 91 (S.C. 1997) (adopting injury-in-fact rule and recognizing
the rule allows for the allocation of risk among insurers when more than one insurance policy is in effect during the
progressive damage ).
[46] In any event, while we believe an injury-in-fact trigger is the only theory of coverage consistent with the policies
plain wording, at minimum it cannot be argued that the policies unequivocally dictate another trigger, and under Texas
law terms that are susceptible to multiple reasonable interpretations must be construed in the policyholder s favor. See
Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984).
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