Guest Post By Linda Foster of Weissman, Nowack, Curry & Wilco. P.C.

The year 2000 brought a number of interesting decisions to the insurance coverage bar on allocation issues. This article highlights some of those decisions. To suggest that we are any closer to a consistent understanding of these issues following the 2000 decisions would be a lie indeed.

Ninth Circuit U.S. Court of Appeals

Any review of recent developments on any coverage issue must start or end in California. The Ninth Circuit did its best to create some controversy in 2000. In K F Dairies, Inc. & Affiliates v. Fireman’s Fund Insurance Co., 224 F3d 922 (9th Cir. 2000), the Ninth Circuit Court of Appeals rejected the reasoning in two California Court of Appeals decisions: A.C. Label Co. v. Transamerica Ins. Co., 48 Cal.App.4th 1188, 56 Cal.Rptr.2d 207 (1996) and FMC Corp. v. Plaisted and Companies, 61 Cal.App.4th 1132, 72 Cal.Rptr.2d 467 (1998).

Let’s start by refreshing your recollection of A.C. Label and FMC. In A.C. Label, the carrier issued to the policyholders a policy in effect from May 1981 to May 1982. The policyholders purchased a parcel of real property in 1984 and a cleanup and abatement action was brought against them in 1987 for groundwater contamination on that real property which had begun in 1967. In 1992, the carrier refused to defend or indemnify the policyholders in the cleanup and abatement action, so the policyholders brought a breach of contract and bad faith action against in 1993. The carrier’s demurrer was granted without leave to amend. On appeal, the policyholders claim that the trial court erred in granting the demurrer because coverage under the CGL policy was “triggered” during the policy period. The appellate court affirmed the judgment in favor of the carrier.

Thus, the appellate court faced the thorny issues of how to deal with both the concepts of retroactive strict liability and a complete lack of connection between the policyholder and the liability creating site during the policy period. The court reasoned:

Coverage questions arising under a CGL occurrence policy must be resolved based on the facts in existence at the time that the damage occurred. (Montrose at p. 669, 42 Cal.Rptr.2d 324, 913 P.2d 878.) The facts in existence at the time that the 1981 and 1982 groundwater contamination occurred on the real property herein in question did not trigger coverage under plaintiffs’ CGL policy because, although the damage allegedly occurred during the policy period, plaintiffs, the insureds, were not, and had not been, associated with the property or the groundwater contamination in any way at the time this damage occurred, and therefore plaintiffs were not liable for and could not have been held liable for this damage at the time that this damage occurred. Plaintiffs became connected to the damage only through their 1984 acquisition of the property. Because a CGL occurrence policy only covers the insured’s liability for damage caused by an occurrence, the fact that plaintiffs were not liable for the damage when it occurred results in the absence of coverage for that damage. This absence of coverage is not a consequence of the third party’s delayed discovery of the damage or any policy limitation on when the insured or the third party asserts its claim. Instead, the absence of coverage in this case is the natural consequence of the fact that CGL occurrence policies cover only the liability of the insured during the relevant policy period. As plaintiffs were not liable for the damage when it occurred, their liability insurance coverage was inapplicable.

48 Cal.App.4th at 1192-1193.

Although the policyholders argued that Montrose required a different outcome, the appellate court noted that Montrose did not involve an insured’s post-policy period acquisition of liability for damage that had occurred during the policy period. Consequently, the holding in Montrose did not resolve the issue.

While the appellate court admitted that it could not locate any caselaw involving similar facts, it cited what is thought to be an analogous situation in Cooper Companies v. Transcontinental Ins. Co., 31 Cal.App.4th 1094, 37 Cal.Rptr.2d 508 (1995). Cooper had an “occurrence” liability insurance policy from 1982 to 1985. In 1987, Cooper purchased two other companies and acquired their liabilities. Cooper asserted that its policy should cover damages incurred during the policy period for which these subsequently purchased companies were liable.

The A. C. Label court acknowledged that the legal issues primarily involved the meaning of the words “hereafter acquired” in the policy language describing the “named insured.” However, it found the First District Court of Appeals reasoning particularly persuasive:

If Cooper had acquired the Johns-Manville Corporation (a notorious asbestos manufacturer), it would have created coverage for damage caused by this after-acquired company “even though Cooper and Johns-Manville were strangers at the time the policies were written and Transcontinental had no opportunity to underwrite or receive compensation for the increased risk.” (Cooper Companies, supra, at pp. 1103-1104, 37 Cal.Rptr.2d 508.) The First District relied on “the truism that unless coverage has been triggered under these occurrence policies within the policy period, there is no coverage once the policy period has ended.” (Id. at p. 1107, 37 Cal.Rptr.2d 508.)

48 Cal.App.4th at 1194.

The court then presented the analysis that has caused a firestorm of briefing and on which the Ninth Circuit rested its challenge. Again emphasizing that the policyholder had no connection or nexus to the liability inducing site during the policy period, the court reasoned:

The terms of the policy were not ambiguous as to the coverage of the policy: it covered plaintiffs’ liability during the policy period. Coverage for plaintiffs’ after-acquired liability for the damage caused during the policy period by contamination of this property could not possibly have been within the reasonable mutual contemplation of the parties at the time they entered into the insurance contract. No reasonable policyholder could have believed that a CGL policy issued for a policy period in 1981 and 1982 would provide coverage for a loss which was not a liability of the policyholder at any time prior to 1984. Any expectation that plaintiffs may have had that this liability insurance policy would apply to after-acquired liability with which they had no connection during the policy period was unreasonable as a matter of law and therefore cannot support an interpretation of this policy in favor of coverage.


The dissent was vehement that the majority had misconstrued the policy language. The dissent attacked the majority’s use of the reasonable expectation test to justify the outcome, stating that if the language was not ambiguous there was no basis to conduct the reasonable expectation analysis. In the dissent’s opinion, the language was unambiguous and did not indicate a need for a nexus between the liability, the policyholder and the policy period.

The dissent further asserted that “since there is no question that there was an occurrence during the policy period in this case, the policy affords plaintiff coverage,” Id. at 1196. This statement furthers the confusion of what the courts deem that the policy requires. The opinion overall makes clear that the policy language at issue required the property damage during the policy period, not the occurrence.

Two years later, in a case with very similar facts, the appellate court in FMC Corp. v. Plaisted and Companies, 61 Cal.App.4th 1132, 72 Cal.Rptr.2d 467 (1998), followed suit. Once again, the policyholder argued that under the literal language of the policies’ “occurrence” definition it would be entitled to indemnity for its liability for any property damage within a covered policy period, whether or not it had caused the property damage or had otherwise been involved during the policy period.

The appellate court observed:

By definition, coverage under an “occurrence” liability insurance policy such as those before us requires that an event or events relevant to coverage have occurred during the policy period. (Cf. A.C. Label Co. v. Transamerica Ins. Co. (1996) 48 Cal.App.4th 1188, 1192, 56 Cal.Rptr.2d 207.) This concept is encapsulated in the term “trigger of coverage” which the Supreme Court, in Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 42 Cal.Rptr.2d 324, 913 P.2d 878 (“Montrose II “), defined as “a term of convenience used to describe that which, under the specific terms of [a liability] insurance policy, must happen in the policy period in order for the potential of coverage [relevant to the duty-to-defend issues involved in Montrose II ] to arise. The issue is largely one of timing-what must take place within the policy’s effective dates for the potential of coverage to be ‘triggered’?

61 Cal.App. 4th at 1150.

The appellate court then explained:

Our conclusion that a complete factual predicate for a liability subsequently imposed by law must exist during the policy period is based in our perception that while it is indeed appropriate to require that an insurer that writes, and accepts a substantial premium for, general liability insurance assume the risk of expansion in legal theories of liability applicable to facts which occurred in or before the policy period, it is neither reasonable nor consonant with the terms of the general liability policies before us to require such insurers to cover liabilities based on facts which did not occur until after the policy period. A general liability insurer can realistically be said to be in the business of understanding and taking into account the legislative and judicial dynamics that produce changes in legal theories, but cannot be required to be clairvoyant as to the infinite possible future permutations of facts, fundamental to the very existence of coverage but not in existence during the policy period, once the policy period has expired.

61 Cal.App. 4th at 1154-1155. The appellate court did not dwell on the reasonable expectations analysis in FMC.

The Ninth Circuit, however, did dwell on that analysis when it rejected the rationale of both A.C. Label and FMC on this issue. In K F Dairies, Inc. & Affiliates v. Fireman’s Fund Insurance Co., 224 F3d 922 (9th Cir. 2000), a debtor sought a declaratory judgment against a carrier after the carrier refused to defend in the State of California’s proofs of claim for costs of abatement and environmental cleanup of sites owned by the debtor. The U.S. District Court reversed a judgment from the Bankruptcy Court in favor of the debtor, which appealed to the Ninth Circuit.

The Ninth Circuit first certified a question to the California Supreme Court:

Where the state seeks recovery for damage to state-owned groundwater contained within certain property, does the property owner’s comprehensive general liability policy provide coverage if the damage occurred within the policy period, but the insured purchased the property after the policy period (although before the state made its claim)?

However, the certification was denied by the California Supreme Court, so the Ninth Circuit reached its own conclusions-contrary to the California Court of Appeals decisions.

The Ninth Circuit began by noting that the A.C. Label and FMC decisions answer the certified question in the negative. That is, they hold that a property owner’s general liability policy does not provide coverage if the damage occurred within the policy period, but the insured purchased the property after the policy period had expired. However, the Ninth Circuit concluded that both A.C. Label and FMC are in conflict with generally established principles of insurance contract construction as articulated by the California Supreme Court, which would have decided the cases otherwise. Accordingly, they held that coverage is provided under a CGL policy if the damage occurred within the policy period, but the insured purchased the property after the policy period (although before the state made its claim with respect to the property).

The Ninth Circuit was sharply critical of the A.C. Label court’s reference to the reasonable expectation analysis. Noting that the California Supreme Court has established a three-step process for analyzing insurance contracts with the primary aim of giving effect to the mutual intent of the parties, the court explained that if a term is found to be ambiguous after undertaking the first step of the analysis, the court then proceeds to the second step and resolves the ambiguity by looking to the expectations of a reasonable insured. Since the A.C. Label court had concluded that the language was not ambiguous, the reasonable expectation analysis to justify the outcome was improper.

The Ninth Circuit also rejected A.C. Label’s reliance on the Cooper Companies decision involving after acquired companies. The court saw a distinction in the cases, characterizing the after acquired company cases as an instance where the insured is requesting an extension of coverage on behalf of the acquired entity. In contrast in the case before the court, the insured was seeking only coverage for its liability arising from its subsequent acquisition of property. One has to wonder if the A.C. Label court had not included the reasonable expectation analysis whether KF Dairies would have come out the same way.

In its final comments the Ninth Circuit touched on another hotly contested issue-must there be damage to the claimant in the policy period. In other words, in a construction coverage case where the alleged property damage existed prior to the purchase of the structure by the claimant, are those policies “triggered?” Seemingly, the KF Dairies decision supports the conclusion that they are not. The court stated, “The express terms of the policy clearly indicate that damage to the claimant is the event that triggers coverage, and any exclusions or limitations are absent from the policy.” 224 F.3rd at 928.

Interestingly, the KF Dairies case also generated a dissent just as the A.C. Label case did. The dissent summed up the case as follows:

This case boils down to a single question of state law: does a general liability policy provide coverage for liability arising out of real property purchased by an insured after the policy expired? The California Court of Appeals has twice answered this question in the negative. See A.C. Label Co. v. Transamerica Ins. Co., 48 Cal.App.4th 1188, 1193, 56 Cal.Rptr.2d 207, 210 (1996); see also FMC Corp. v. Plaisted & Cos., 61 Cal.App.4th 1132, 1154-56, 72 Cal.Rptr.2d 467, 480-81 (1998).

224 F.3rd at 928.

The dissent observed that the A.C. Label court may have unnecessarily injected the reasonable expectations analysis into the case and noted that it appeared to do so solely in an effort to bolster the conclusion it had already reached, namely, that an insured’s liability must occur during the policy period.

Tenth Circuit U.S. Court of Appeals

The Tenth Circuit Court of Appeals briefly provided some good dicta on allocation issues interpreting Colorado law in Signature Development v. Royal Insurance Company, 230 F.3d 1215 (10th Cir. 2000). In that case, Signature was a developer of custom homes to which Royal had issued a general liability insurance policy for the period January 1, 1989 to August 1, 1990 after which time Travelers issued a policy.

In April 1996, a group of homeowners that lived in Highlands Ranch Colorado sued Signature in Colorado state court, alleging that swelling and expanding soils caused property damages to their homes purchased on or after August 3, 1987 (the “Wernli litigation”). The plaintiffs, later certified as a class, alleged several claims against Signature including negligence, breach of contract, breach of warranties, and violation of the Colorado Consumer Protection Act. A separate lawsuit, filed by an individual family in a separate development and county, alleged similar breaches (the “Long litigation”).

Signature notified Travelers of the Wernli and Long litigations within two weeks of the filing of the Wernli litigation. Travelers hired defense counsel to defend Signature, subject to a reservation of rights, and advised Signature that, because some of the allegations in the Wernli and Long litigations preceded Travelers’ coverage period, prior carriers ought to receive notification.

Signature’s counsel notified Royal about the Wernli and Long litigations on June 24, 1996, and Royal agreed to defend signature in both litigations subject to a detailed reservation of rights Specifically, Royal’s letter stated:

The Complaints are silent as to the timing of any alleged property damage for which damages are sought. Royal expressly reserves its right to disclaim coverage should it be determined that all or part of the damages which may be obtained against the Insured are determined to be on account of property damages which took place either before the policy period or subsequent to the policy period.

230 F.3rd at 1215.

Royal and Signature became crosswise when Royal refused to contribute $1 million dollars toward a $4 million settlement. Signature sued Royal and the trial court granted summary judgment to Royal, which was affirmed by the Tenth Circuit.

The decision addresses a number of issues, but is interesting from an allocation standpoint on two grounds. First, the houses that the court assigned to the Royal policies were just the fifty-one homes that were closed upon during Royal’s policy during the period. This point is stated by the court as a conclusion without discussion.

Second, the court rejected Signature’s effort to avoid having to prove actual property damage to the homes during the policy period. Signature contended that it produced such evidence, relying primarily on (1) the slow and progressive nature of the damages; (2) the reports from Royal’s adjuster that provide evidence of these damages; and (3) Royal’s offers of settlement and reserve ratios that serve as admissions of liability. The court held that the mere fact the damage was slow and progressive did nothing to show actual property damage during the policy period. In essence, it appeared that the court held that the evidence proffered in response to the summary judgment was either inadequate or non-existent. Signature was not permitted to rest on the contention that damages existed so there must have been damage during all the policy periods.

Fourth Circuit U.S. Court of Appeals

The Fourth Circuit Court of Appeals weighed in on allocation related issues in a big way in Stonehenge Engineering Corporation v. Employers Insurance of Wausau, 201 F.3d 296 (4th Cir. 2000). Stonehenge, a general contractor, sued Wausau, one of its general liability insurers that did not participate in the settlement of an underlying case. The Fourth Circuit addressed application of the known loss doctrine under South Carolina law and discussed the period of allocation.

A recitation of the facts is necessary to understand the significance of the decision on the known loss doctrine. During the early to mid-1980s, Stonehenge constructed Phase III of a condominium project known as “Yacht Cove” in South Carolina. Stonehenge completed construction of Phase III in March 1987.

In approximately 1989, the owners of the units noticed buckled siding, cracks in foundations, and sagging balconies. So, the Owners Association hired an expert to inspect the buildings and prepare a report. On March 19, 1990, the report, which identified defects in the balconies, roofs, foundations, basement walls, porches, decks, handrails, pickets, stairs, siding, and flashing, was submitted to the Owners Association. In the fall of 1996, the expert also identified defects in the subflooring of Phase III buildings.

The Owners Association subsequently sent a copy of the report to the developer which in turn sent a copy to Stonehenge on September 25, 1990. Stonehenge investigated the alleged defects and responded in writing to the report on November 12, 1990, completely denying any responsibility for the alleged defects on the basis that it constructed Phase III in accordance with the building code and that the damage identified resulted from lack of proper owner maintenance and/or owner alteration of certain portions of Phase III buildings. Stonehenge admitted the existence of a “riser” code violation on the front of a particular Phase III building, but attributed its existence to settlement of the right corner of the adjacent sidewalk.

Four carriers issued policies to Stonehenge or related companies from November 1, 1986 until November 1, 1995. Maryland Casualty issued a policy from July 1, 1986 to November 1, 1987. Aetna Casualty and Surety Company issued polices from November 1, 1987 to November 1, 1991. Home Insurance Company insured Stonehenge from November 1, 1991 to November 1, 1992 and. Wausau insured Stonehenge November 1, 1992 to November 1, 1995.

On April 6, 1993, the Owners Association sued Stonehenge, alleging that Stonehenge was negligent and breached its implied warranty to perform work in a careful, diligent, and workmanlike manner. The Owners Association sought $1.27 million dollars in damages, with the bulk of this figure constituting the amount the Owners Association believed would be necessary to reside the exterior of every building in Phase III and replace the light-weight concrete floors in every villa unit.

By March 1996, the Owners Association could not afford to pay the ongoing fees generated by its attorneys, who had taken the case on an hourly-rate basis, rather than on a contingency-fee basis. As a result, the Owners Association offered to settle its suit against Stonehenge for $400,000 with a “drop dead” date to accept the offer by April 11, 1996. Stonehenge refused the settlement offer.

Wausau did not receive notice of the Owners Association’s suit against Stonehenge or its presuit claims until late March 1996, just after Stonehenge received the March settlement offer.

Just prior to trial and after extensive trial preparation, the Owners Association was willing to accept $625,000 to settle its $1.27 million suit. Maryland Casualty agreed to contribute $100,000, Aetna agreed to contribute $300,000, and Home agreed to contribute $75,000. These amounts totaled $475,000.

On March 17, 1997, Stonehenge entered into a settlement agreement with the Owners Association in which Stonehenge confessed judgment for $750,000, (as opposed to the actual $625,000 settlement). In accordance with the amounts each carrier agreed to contribute toward the $625,000 settlement figure, Maryland Casualty made a $100,000 cash payment, Aetna made a $300,000 cash payment, and Home made a $75,000 cash payment. This left a balance of $150,000 still owed to the Owners Association pursuant to the Settlement Agreement. Wausau was given notice and opportunity to participate in the discussions that led to the Settlement Agreement, but did not participate.

The parties stipulated that the amount of Wausau’s allocated contribution towards the settlement Stonehenge reached with the Owners Association was a matter for the district court to decide. The district court allocated $190,500 to Wausau, representing 25.4% of $750,000. In making its determination as to this amount, the district court found that the trigger period of coverage under the Three Wausau Policies ended on March 17, 1997, the date Stonehenge and the Owners Association executed the Settlement Agreement and the district court used the amount that Stonehenge had included in the confession of judgment rather than the actual settlement amount.

In a very interesting analysis of the known loss doctrine the Fourth Circuit concluded that even the filing of the underlying lawsuit did not prevent triggering of the policies issued after that date. Wausau argued that it was not obligated to indemnify Stonehenge for any portion of the confessions of judgment because the record contained uncontradicted evidence showing that Stonehenge had notice of the Owners Association’s pre-suit claims prior to the respective effective dates of the Three Wausau Policies and had notice of the resulting lawsuit prior to the effective dates of the second and third Wausau Policies

The court acknowledged that the known loss doctrine in common law insurance jurisprudence excludes coverage of a loss to the insured of which the insured had actual knowledge prior to the policy’s effective date or knew was substantially certain to occur. The court framed the question on the known loss doctrine as:

[W]hether the evidence, when viewed in the light most favorable to Wausau, establishes that Stonehenge (1) actually knew that it was legally liable for the property damage claimed by the Owners Association at the time one or more of the Three Wausau Policies took effect or (2) knew that such liability was substantially certain to occur.

201 F.3rd at 302.

Surprisingly, the court then concluded that the doctrine did not bar coverage:

When the record is viewed in the light most favorable to Wausau, the evidence establishes that Stonehenge’s receipt of both the Moore Report in September 1990 and the Owners Association’s April 16, 1992 letter threatening legal action against Stonehenge served to put Stonehenge on notice that the Owners Association intended to hold it legally liable for the alleged defects in the Phase III buildings. Nevertheless, such notice does not trigger applicability of the known loss doctrine, as it does not establish that Stonehenge actually knew that it was legally liable for the property damage claimed by the Owners Association at the time one or more of the Three Wausau Policies took effect or knew that such liability was substantially certain to occur.

Id. at 302-303.

Moreover, the fact that the Owners Association filed suit against Stonehenge in April 1993, prior to the effective dates of the second and third Wausau policies, did not trigger application of the known loss doctrine in the Fourth Circuit’s opinion. According to the Fourth Circuit, at that time, the Owners Association had not shown by a preponderance of the evidence that Stonehenge owed a duty to the Association, that Stonehenge breached that duty by a negligent act or omission, and that there was damage proximately resulting from the breach. Under the Fourth Circuit’s analysis it appears that the carrier must show that the policyholder either has admitted liability or has been found liable in order to trigger the known loss doctrine. It should be noted that the court appeared to invite further inquiry into the “known risk” doctrine.

Armed with that conclusion on the application of the known loss doctrine, the Fourth Circuit then addressed Wausau’s argument that the allocation period had to end at the time of the discovery in 1990 of the damage to the Phase III buildings. The court rejected that argument and held that under South Carolina law, the policies continue to be triggered until there is no more injury in fact. So, in an environmental case, clean up would end the trigger period. In a construction defect case, repair would end the trigger period.

Finally, the Fourth Circuit reversed the District Court’s decision to use the confession of judgment figure ($750,000). Interestingly, the majority chose to use the amount paid by the other carriers ($475,000) to calculate Wausau’s obligation, which it calculated at $120,650. In rejecting the use of the confession of judgment figure, the court reasoned that an insured should not be allowed to seek indemnity from a liability carrier for amounts that the insured does not expect to pay out of its own resources. To allow full recovery against the liability carrier would set a precedent allowing any insured left to defend himself not only to settle at a reasonable amount, but to give away an additional amount up to the liability limit of the policy conditional on a successful indemnity suit against the insurance company.

As to this last point, the dissent expressed confusion. The dissent stated that it would have used the confession of judgment figure, but in no event could it understand why the total that the other carriers had paid should be the figure against which Wausau’s percentage was applied to arrive at its obligation.

North Carolina Supreme Court

For a number of years North Carolina was a viewed as a “Manifestation Trigger” state as a result of the North Carolina Court of Appeal’s decision in West Am. Ins. Co. v. Tufco Flooring East, 104 N.C. App. 312, 409 S.E.2d 692 (1991), disc. rev. improvidently allowed, 332 N.C. 479, 420 S.E.2d 826 (1992). While there were those who challenged whether the courts in North Carolina intended for the manifestation trigger to be used in all instances, the Court of Appeals made it clear that until the Supreme Court told it otherwise, manifestation would be the trigger. Home Indemnity Company v. Hoechst Celanese Corporation, 494 S.E.2d 765 (1998).

Enter the Supreme Court in Gaston County Dyeing Machine Company v. Northfield Insurance Company, 524 S.E.2d 558 (N.C. 2000). In the underlying case, Sterling sought to recover damages in excess of $20 million from Gaston County Dyeing Machine Company and Rosemund. Allegedly, there were defects in the design and manufacture of pressure vessels fabricated by Gaston for Rosenmund and sold by Rosenmund to Sterling for use in production of contrast media dyes for diagnostic medical imaging. On June 21, 1992, Sterling modified the production process, increasing the operating pressure in one of the pressure vessels. On August 31, 1992, Sterling discovered that ethylene glycol, a chemical used in connection with the heating process, had leaked into the vessel and contaminated over sixty tons of the contrast media dye. As these things tend to happen, the policies for Gaston renewed effective July 1 each year, making it appear that there potentially was damage in two policy periods.

Gaston sued all of its insurers, the plaintiffs from the underlying action, and Rosenmund. As an additional insurer for Rosenmund, United was allowed to intervene. Northfield filed a parallel declaratory judgment action in Puerto Rico. In 1995, the underlying action was resolved by settlement agreement, and Gaston and Rosenmund dismissed their claims against the insurers. The four insurance carriers contributed to a settlement fund of $11 million as follows: Liberty Mutual, $2 million; United, $2 million; Northfield, $5 million; and International, $2 million. Pursuant to a stipulation of the insurers a number of issues were reserved for judicial determination including trigger of coverage.

The carriers filed summary judgment motions on the issues to be addressed. Among other findings, the trial court concluded that there was a discrete event on June 21, 1992, that caused damage to Sterling’s product, which was not discovered until August 31, 1992, such that the policies on the risk on June 21, 1992 were the ones applicable. The policies in effect after July 1, 1992, were not applicable.

The issues of interest to us addressed by the Supreme Court were: whether application of an “injury-in-fact” or a “date-of-discovery” trigger of coverage is appropriate where the date of property damage is known and undisputed and whether there was a single occurrence or multiple occurrences triggering the first policy year, the second policy year, or both.

The court reviewed the Court of Appeal’s Tufco decision, but rejected its holding under these facts. The court concluded that where the date of the injury-in-fact could be known with certainty, the insurance policy or policies on the risk on that date are triggered.

The court observed that one of the reasons given by the Court of Appeals to support the manifestation trigger was its conclusion that “for insurance purposes property damage ‘occurs’ when it is first discovered or manifested.” 409 S.E.2d at 696. However, the Supreme Court concluded that there was well-established North Carolina law that the language of the insurance policy controls, and that property damage occurred for purposes of the applicable policies at the time of the injury-in-fact. The court held that to the extent that Tufco purported to establish a bright-line rule that property damage occurs “for insurance purposes” at the time of manifestation or on the date of discovery, the decision was overruled.

Based on the wording of the case, one has to wonder whether the concepts of “occurrence” as a term of art and the verb “occur” were mixed. The policies required property damage during the policy period, not an “occurrence.” If anything, the court seems to have equated the facts of this case with the typical insurance case involving a discrete event which causes injury. Despite the allegations that the dye continued to be contaminated in the second policy period, the court held that only one policy was triggered. This misapprehension of the policy wording seems apparent in the court’s conclusion:

When, as in this case, the accident that causes an injury- in-fact occurs on a date certain and all subsequent damages flow from the single event, there is but a single occurrence; and only policies on the risk on the date of the injury-causing event are triggered.

524 S.E.2d at 565.

What 2001 will bring remains to be seen. However, the consistency and clarity that we seek will probably continue to evade us.