Supreme Court Of New Hampshire Adopts An “Injury-In-Fact Trigger” For Occurrence-Based CGL Policies - Property Damage Must Occur During The Policy Period To Trigger Coverage
March, 2004
The New Hampshire Supreme Court adopts an injury-in fact trigger of coverage standard in EnergyNorth Natural Gas, Inc. v. Underwriters at Lloyd’s, 2004 N.H. Lexis 576 (N.H.).
Facts
EnergyNorth is the successor to companies that operated manufactured gas plants (MGP’s) at sites in Laconia and Nashua, New Hampshire. These plants began operating before 1900 and ceased MGP operations in 1952. In approximately 1996, the New Hampshire Department of Environmental Services notified EnergyNorth of pollution damage at the MGP sites and required EnergyNorth to investigate and remediate the pollution.
EnergyNorth brought a declaratory judgment action against its insurers seeking indemnification for costs associated with investigating the pollution damage at the MGP sites and remediating the property. Underwriters at Lloyd’s, Utica Mutual Insurance Company, St. Paul Fire and Marine Insurance Company and Century Indemnity Company issued the CGL policies to Energy North. The policies became effective in 1958 and provided coverage for liabilities associated with property damage from “occurrence(s)” or “accident(s).” The policies provided coverage until 1983.
EnergyNorth argued that the pollution was caused by inadvertent leaks and spills from underground gas holders and piping, and from unlined tar pits and that the toxic wastes discharged into the environment continuously and migrated through soil and groundwater, causing continuous property damage as they moved. According to EnergyNorth, the continued migration of toxic wastes resulted in property damages due to “accident(s)” or “occurrence(s)” as those terms are used in the various CGL policies. EnergyNorth argued that the CGL policies were triggered and should provide coverage for the clean-up costs it incurred. The insurers argued that their respective CGL policies were not triggered.
The federal district court certified to the New Hampshire Supreme Court a question of law concerning what trigger of coverage standard should be applied under New Hampshire law to determine when an “accident” or “occurrence” causing “property damage” took place within the meaning of the policy provisions at issue.
I. The St. Paul and Utica Occurrence-Based Policies
St. Paul issued two occurrence-based policies in effect between 1978 and 1982. Utica issued an occurrence-based policy between 1974 and 1978. One of the St. Paul policies and the Utica policy contained language stating that “The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of (bodily injury, property damage) to which this insurance applies, caused by an occurrence . . .
An “occurrence” was defined as “an accident, including continuous or repeated exposure to conditions which results in bodily injury or property damage neither expected nor intended from the standpoint of the Insured. Further, “Property damages” means “1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or 2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.”
The third occurrence-based policy, issued by St. Paul, provided excess coverage and had slightly different wording. It stated that “ The Company will indemnify the Insured for all sums which the Insured shall become legally obligated to pay as damages . . . on account of: 1. Personal Injuries, 2. Property Damages, or 3. Advertising Offense, to which this Policy applies, caused by an occurrence.
An “occurrence” means “ . . . with respect to property damages, an event, including injurious exposure to conditions, which results during this policy period in such personal injury, or property damages neither expected nor intended from the standpoint of the Insured.
The term property damage was not defined in the latter St. Paul policy. The Court looked to the decisions in Cessna Aircraft Co. v. Hartford Acc. and Indem. Co., 900 F. Supp. 1489 (D. Kan. 1995) and Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins. Co., 868 F. Supp. 1278 (D. Utah 1994). In reviewing the policy language in Cessna, the court held that the policies were unambiguous. The policies stated that “property damage clearly must occur during the policy period.” Thus, “coverage under these policies is “triggered” by a showing that property damage occurred during the policy period.” The court found that the “injury in fact” trigger was more consistent with the language of the policies than the manifestation theory. In Quaker State, the court also adopted the “injury in fact” trigger because it was “consistent with the pertinent policy language.”
The court was persuaded by the drafting history of the policy language and the interpretation of the policy language in Cessna and Quaker State. The court found no ambiguity in the St. Paul or Utica occurrence-based policies and held that these three policies “clearly provide that the occurrence of property damage during the policy period is the operative event that triggers coverage.” Citing to the definitions of “occurrence” and “property damage” in each of the three policies, the court held that the language of the three policies embodied an “injury-in-fact” trigger. The court also held that “where the alleged contamination and property damage are continuing, “injuries-in-fact” triggering coverage are also continuing.
II. Lloyd’s and Century Indemnity Accident-Based Policies
Lloyd’s and Century Indemnity each issued one policy to EnergyNorth. The Lloyd’s accident- based policy agreed to indemnify EnergyNorth for accidents occurring during the policy period commencing at the beginning of the policy and ending on the policy end date, for all sums which EnergyNorth became obligated to pay as damages . . . (b) for damage or destruction of property of others (excluding property under the Assured’s care, custody or control) caused by accident, hereinafter referred to as “property damage,” arising out of the hazards covered by and as defined in the underlying policy/ies specified in the Schedule herein and issued by the (Primary Insurers) hereinafter called the “primary insurers.” The word “accident” under this policy was understood to mean “an accident or series of accidents arising out of one event or occurrence.”
The Century Indemnity policies will “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident. This policy applies only to accidents which occur during the policy period . . ..”
The court once again found no ambiguity in the policies. The Lloyd’s policy unambiguously states that it covers “accidents occurring during the policy period,” while the Century Indemnity policy “applies only to accidents which occur during the policy period.” The court stated that “the accident must occur within the policy period; the resulting damage, however, does not necessarily have to occur during the policy period.” The court concluded that coverage is triggered under these policies when an “accident” occurs during the policy period.
Century Indemnity argued that the “accident” triggering coverage was limited to a “discrete causative event.” The court stated, however, that neither of the accident-based policies specifies when an “accident” is deemed to have occurred. The court had previously interpreted “accident” to mean an “undesigned contingency, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” The court stated that because this definition does not include a temporal component, the term “accident” is not limited as Century Indemnity would like it to be.
III. Underwriter’s at Lloyd’s Occurrence-Based Policy
The final policy considered was an occurrence-based policy issued by Lloyd’s. This policy states that Lloyd’s agrees to indemnify the insured for any and all sums which the Insured shall become liable to pay as damages . . . to property (excluding damage to property owned by the insured) by reason of an occurrence resulting from or because of the Insured’s business, ownership, maintenance, operation . . . it being understood that the term “occurrence” shall mean one happening or series of happenings arising out of or due to one event.”
EnergyNorth argued that it was the “occurrence” within the policy period which triggers coverage and since the term “occurrence” is ambiguous, it could reasonably be interpreted to mean property damage or injury. EnergyNorth therefore argued that it was the continuous property damage occurring within the policy period which triggers coverage. Lloyd’s argued that coverage was not triggered under the policy by damage to the property which took place during the policy period “but rather when a discrete causative event takes place during the policy period.” Lloyd’s maintained that language within the policy stood for the proposition that it is the causative event that must occur within the policy period. Paragraph four of the Lloyd’s policy states:
This policy covers the Liability of the insured under agreements with any person, firm, corporation . . . provided always, however, that no liability shall attach to the Underwriters by virtue of this paragraph, in respect of any event which occurred prior to the attaching of this policy.
Lloyd's argued that if the policy was deemed to be triggered by property damage occurring within the policy period, then the injury-in-fact trigger of coverage should be applied. The court disagreed, noting that paragraph 4 “is limited by its own terms to liability by virtue of this paragraph. Because paragraph four solely concerns the scope of coverage regarding contractual liability assumed by the insured, it does not implicate the trigger of coverage under other relevant provisions of the policy providing coverage for liability imposed by law.”
The court looked to the relevant provisions of the Lloyd’s policy which states that coverage is triggered by “occurrences happening during the currency hereof.” Thus, it was clear to the court that the “occurrence” giving rise to the property damage must have taken place during the policy period; the policy, however, does not require that the resulting property damage take place during the policy period.” Since the court held that the “occurrence” must take place during the policy period, the court then had to interpret the term “occurrence.” The policy defines “occurrence” as “one happening or series of happenings arising out of or due to one event.” EnergyNorth argued that the term “happening” was ambiguous and could be interpreted to mean property damage. The court disagreed and interpreted the term happening consistent with its “natural and ordinary meaning,” which is something that occurs unexpectedly and without design.” The court ultimately held that the occurrence-based policy at issue is triggered by a “happening or series of happenings” within the policy period, which is not limited to a single, discrete event. Under New Hampshire law, “the language of the policy clearly embodied an exposure trigger, and where the alleged migration of toxic wastes is continuing, multiple exposures triggering coverage are also continuing.”
Learning Point:
Under EnergyNorth, occurrence-based policies are triggered by a happening or a series of happenings which occur during the policy period and are not limited to any single, discrete event. The court ultimately held that it is the damage, not the accident causing the damage, that must occur during the policy period. ¨
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