Continuous impact: an Arizona court case may have set a precedent in accepting the continuous trigger theory of insurance coverage.

Time and cause of an event are key elements in determining whether an insurance claim is covered under the terms of a specific policy, so cases deciding how these elements are defined can have a wide impact on the insurance industry. One such case in Arizona, Associated Aviation Underwriters vs. Wood, is notable because the Arizona Court of Appeals accepted the continuous trigger theory of insurance coverage. Continuous trigger, which means that the injury began at the first instance of exposure continuing until injury manifests, could, in some instances, result in greater liability for insurance companies underwriting the policy. Not only is this case significant on a state level, but it could influence other jurisdictions that have not yet addressed similar basic issues of insurance coverage.

But before everyone pencils Arizona into the column of states that have accepted continuous trigger on a wide scale, a word of caution. Under close examination, it's difficult to find justification for applying a continuous trigger in any context other than the limited circumstance of a toxic tort bodily injury case.

Surprisingly, until just recently, the state's trigger of coverage rule was unclear. An examination of Arizona insurance cases would lead to the conclusion that it was an "actual injury" state which held that coverage is determined not at the time of the negligent act, but at the time the injury or damage actually occurs [Outdoor World vs. Continental Cas. Co.]. No case yet had decided which of the many accepted theories controlled the temporal question of when the injury happened.

The Decision

In the Wood decision, Arizona adopted a "triple-trigger" or continuous trigger theory in the context of what was an underlying toxic tort bodily injury. As background, the underlying suit in this case was filed in 1985 and involved more than 1,600 individuals. The cause of the suit was groundwater contamination caused by the use of the chemical trichloroethylene by the Hughes Aircraft Co. and the Tucson Airport Authority to clean planes. TCE used from the mid-1940s through the early 1950s had leached into the ground over the years, contaminating one of Tucson's aquifers. The plaintiffs, who lived in the vicinity of the airport, drank the contaminated city drinking water, which eventually resulted in a variety of injuries and diseases, including cancer.

The airport authority sought insurance coverage from Associated Aviation Underwriters under occurrence policies issued between 1960 and 1972. However, AAU reserved rights, contending its policies did not cover the underlying claim, and filed a declaratory judgment in 1988. In 1989, as the declaratory action was progressing, the plaintiffs offered to Settle the underlying claim with the airport authority. AAU refused to settle, so the airport authority confessed judgment in the amount of $35 million, and assigned its rights to the plaintiffs in return for a covenant not to execute the judgment directly against the authority. After this agreement, the plaintiffs intervened into the AAU declaratory judgment action and requested that they be permitted to execute their judgment directly against AAU.

The plaintiffs claimed they were injured over a long period of time, beginning as early as 1960 through 1972, but were not aware of their injuries until the mid-1980s as increasing instances of cancer occurred. Commenting on the latent nature of the plaintiffs' injuries, the court stated: "The events of this case resemble a slow bullet and the image it creates. Things were happening but not at the speed normally contemplated with the discharge of a firearm. The events of migration, dispersal and ingestion [of TCE] in this court's mind [sic] come within the definition of an 'accident' as contemplated by the policies ... " [Wood, 98 P.2d 593]

The court struggled with evidentiary and scientific issues about how toxic chemicals can cause unique injuries in which a person is harmed over a long period of time before actually becoming aware of the problem. The unique form of injury, latent within the body but progressing toward a diagnosable disease, required that the appellate court address the trigger of coverage question in order to determine what circumstances qualify as an occurrence.

Three Theories

The three most prominent trigger theories manifestation, exposure and continuous--usually applied to toxic tort claims causing bodily injury, were considered. The court rejected the "manifestation" rule, which holds that a bodily injury occurrence happens when the injury manifests itself because it would limit coverage to only those who could show they had been diagnosed with injury or disease during AAU's policy periods. The court regarded this theory as too restrictive.

The "exposure" theory holds that coverage is triggered when a person is exposed to a harmful toxic substance during the policy period and that exposure eventually results in bodily injury. While more accepted, the court also considered this too restrictive in trying to reconcile the policy language that covers not only bodily injury, but also disease, since that can be caused by an occurrence but not manifest itself immediately. Since exposure is the mechanism determining what policy may apply, under this theory an insured could be exposed to the chemical prior to the policy period, but have a disease result from this exposure within the policy period, and yet not be covered because the period of exposure was prior to the policy period.

Finally, the court looked at "triple-trigger," or "continuous trigger" theory in which all three events qualify as a covered occurrence. Under this theory, the exposure to a toxic substance, exposure in residence and manifestation of injury or disease, all qualify as a single injurious process and occurrence. An important concept introduced under this theory is coverage for "exposure in residence." This is defined as the period between initial exposure to the harmful substance and the time of manifestation of injury. This event is imperceptible where the claimant suffers damage sometimes on a cellular level. With this definition, the court followed the highly influential reasoning found in Keene Corp. vs. Ins. Co. of N. America, and Montrose Chem. Corp. vs. Admiral Ins. Co., which each separately dealt with the trigger of coverage for latent injuries that progress over time.

A Limited Application

It remains to be seen whether this case is representative of a developing trend of broad acceptance of continuous trigger that will influence other courts nationally. It is unlikely that the Wood ruling means Arizona has adopted a continuous trigger of coverage for all types of damage that occurs over an extended period of time. The reasoning that supported a triple-trigger finding for bodily injury resulting from ingestion of a toxic chemical does not apply to either first- or third-party property damage cases where damage is caused by a long-continuing condition. The only factor that is the same in these instances is that the damage occurred over a period of time.

A typical example of property damage is a construction defect claim in which a structure is damaged over a prolonged period of time due to poor soil condition and subsidence. Over time, the house sinks, the foundation moves, walls crack, and other problems result. But the damage does not happen all at once, or even simultaneously. In cases like this, it is difficult to pinpoint precisely when damage first began or allocate what part of the damage occurred during any applicable policy years. As a result, states including California, New Jersey and Wisconsin, to name a few, have decided as a matter of policy to spread the risk over the damage period under a continuous trigger theory.

No one could say that the Wood case means Arizona has made that quantum leap. It only resolved the controversy over what the trigger of coverage is in a toxic tort case. The decision reveals that the trigger the Arizona court selected was based primarily on the specific scientific and evidentiary factors applicable only to a toxic tort bodily injury claim. One aspect that heavily influenced the decision was the expert testimony that the plaintiffs suffered injury on a molecular and cellular level from the very first moment they drank the TCE contaminated water. That circumstance set in motion a continuing injury which ultimately led to a diagnosable disease. The evidence specific to this type of case fit precisely within the definition of exposure in residence.

Obviously, people and property are not the same, so what constitutes bodily injury to a person must be evaluated differently from damage to an inanimate object. Nevertheless, courts have found, in both the bodily injury and property damage context, that a policy is triggered when actual injury occurs. The logic consistent in this determination is that in both instances the claimant can point to a distinct point in time when the injury occurred. The problem with attempting to apply the Arizona court's view of continuous trigger to a property damage claim lies in the strained logic required to accept the exposure in residence element.

In the context of property damage, it is difficult to conceive of property being damaged by exposure in residence similar to the way that human cells were damaged in the Wood case. Non-organic property simply lacks the characteristics to give exposure in residence any meaning as a basis to trigger property damage coverage.

The Wood case is significant in that it answers a basic issue of insurance law for Arizona and could widely impact insurance coverage in other states where the trigger of coverage rule is still an open issue. However, applying this decision to other types of cases should be cautiously measured because of the unique set of circumstances a toxic injury case presents.

Key Points

* The continuous trigger theory could, in some instances, result in greater liability for insurance companies.

* Justifying applying a continuous trigger in any context other than a toxic tort bodily injury case is difficult.

* It remains to be seen whether Associated Aviation Underwriters vs. Wood represents a developing trend of acceptance of continuous trigger that will influence other courts nationally.

Contributor Kurt M. Zitzer is a partner with Meagher & Geer, P.L.L.P., a law firm with offices in Minneapolis and Phoenix.