February 18, 2015 Practice Points

Manifestation Trigger for Property Damage to Dairy Cows

Whether this 3-2 decision will be extended to overturn longstanding precedent in coverage cases involving asbestos and other similar long-tail liabilities, or whether it will be confined to its own idiosyncratic facts, remains to be seen

by John Buchanan and Suzan Charlton

In Pennsylvania National Mutual Casualty Insurance Co. v. St. John, No. 86 MAP 2012, 2014 Pa. Lexis 3313 (Dec. 15, 2014), the Pennsylvania Supreme Court recently applied a manifestation trigger to damage sustained by a herd of dairy cows over a three-year period. Whether this 3-2 decision will be extended to overturn longstanding precedent in coverage cases involving asbestos and other similar long-tail liabilities, or whether it will be confined to its own idiosyncratic facts, remains to be seen.

In St. John, a contractor installed a plumbing system that allowed “gray water” to poison a dairy herd’s drinking water, resulting in decreased milk production and diseases in the cows. Health problems were noticed within the first year, but the cause was not determined until two years later. The dairy sued the plumbing contractor, which sought coverage from its liability insurer, Penn National, under three years of general liability insurance issued between installation of the plumbing system and discovery of the cause of the damage, plus an umbrella policy issued in the third year. The dairy and the contractor settled for an amount equal to the full limits of the contractor’s first liability policy; the dairy then proceeded directly against the insurer to recover more under the remaining policies. On appeal, the dairy argued that a continuous trigger applied (which would have provided coverage under all three policy periods), or, alternatively, if a manifestation trigger applied, that manifestation occurred when the cause of the damage was discovered (i.e., during the third policy period when higher insurance limits were available), not when the damage first appeared.

A narrow majority of the court rejected both arguments, holding that only the first policy —the policy in effect “when either bodily injury or property damage becomes reasonably apparent”—was required to cover the contractor’s liability. Id.,  at *42 (citing D’Auria v. Zurich Ins. Co., 507 A.2d 857, 861 (Pa. Super. 1986)). The majority declined to apply a “multiple trigger” like that adopted in J.H. France Refractories Co. v. Allstate Insurance Co., 534 Pa. 29, 37-39, 626 A.2d 502, 507 (1993), on two principal grounds.

First, St. John involved observable, short-term property damage—a herd of dairy cows sickened within a year after first drinking contaminated water—rather than latent, long-term damage or injury. The majority thus distinguished multiple-trigger cases like J.H. France and the seminal Keene decision (Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034 (D.C. Cir. 1981), because, unlike the asbestos cases, the dairy’s “damage was not concealed and undiscoverable for decades,” and “did not lay dormant for an extended period.” St. John, 2014 Pa. Lexis 3313, at *51, *61. The majority also emphasized a key justification for the multiple trigger theory in long-term damage cases:

The “multiple trigger” theory is applied in latent disease cases, like asbestosis or mesothelioma, because such injuries may not manifest themselves until a considerable time after the initial exposure causing injury occurs. The overriding concern in latent disease cases is that application of the D’Auria “first manifestation” rule would allow insurance companies to terminate coverage during the long latency period (of asbestosis); effectively shifting the burden of future claims away from the insurer to the insured (manufacturers of asbestos), even though the exposure causing injury occurred during periods of insurance coverage.

Id. at *60 (citations omitted).

Second, the contractor’s policies in St. John contained language limiting coverage for any known “continuation, change or resumption of that ‘bodily injury’ or ‘property damage’ after the end of the policy period,” id., at *55-56, whereas the older CGL policies in J.H. Francecontained no such limitation. The St. John court observed that this provision “lends support to the interpretation that only the policy in effect when an occurrence first arises is answerable for the ensuing bodily injury or property damage.” Id.,at *56.

The majority in St. John stated that the Pennsylvania Supreme Court’s earlier, multiple-trigger decision in J.H. France “remains an exception to the general rule under Pennsylvania jurisprudence,” whose application was not warranted under “the circumstances of the damage to Appellants’ dairy herd, coupled with the language of the Penn National policies.”Id.,at *61-62.

The dissent criticized the majority’s reasoning on several grounds.

First, it “does not hew to the policy language.” Id.,at *64 (Saylor, J., dissenting). For example, all parties agreed that the damage to the herd occurred continuously during three years of exposure to contaminated drinking water. The policies covered property damage during the policy period. Therefore, under the policies’ plain language, each policy should have provided coverage, even with the newer restrictive language the majority cited to distinguishJH France.

Both the dissent and the majority expressly acknowledged the conceptual difference between an “occurrence” and a “trigger of coverage.” But, the dissent noted, “the majority cites affirmatively to cases which conflate these insurance-law concepts.” Id.,at *67-68.

The dissent also observed that the majority acknowledged at least two reasonable interpretations of the policy language, thus “discern[ing] a critical ambiguity in the policy language,” id.,at *69, but failed to apply contra proferentem, the rule of construction—long-standing in Pennsylvania—that requires the policy to be construed in the policyholder’s favor and against the insurer. Id., at *54-55 (“Fairly read, this language can be given one of two meanings.”). Similarly, the majority relied on “the parties’ reasonable expectations” to defeat the policyholder’s interpretation rather than to uphold it. The dissent pointed out that the doctrine of reasonable expectations would dictate the opposite result. Id.,at 69-70.

Finally, the dissent observed that the court in St. John has done little to “fashion an opinion which would offer meaningful guidance beyond the idiosyncratic parameters set by the arguments.” Id., at *65. If that view of the case prevails, coverage litigators should not expect a widespread revival of the manifestation trigger.

Keywords:  insurance, coverage, litigation, Pennsylvania, coverage, commercial general liability, CGL, long-tail, trigger, manifestation, continuous trigger, multiple trigger

John Buchanan and Suzan Charlton  are with Covington & Burling LLP, Washington, DC.
The authors’ views are their own and not that of their firms or their clients.

Copyright © 2015, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).