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(Article from Insurance Law Alert, April 2015)

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Applying Florida law, the Eleventh Circuit ruled that a district court did not err in applying an injury-in-fact trigger to determine general liability coverage for property damage claims. Carithers v. Mid-Continent Cas. Co., 2015 WL 1529038 (11th Cir. Apr. 7, 2015).

The coverage dispute arose out of construction defect claims. The homeowners (as assignees of the builder’s rights to insurance proceeds) sued Mid-Continent, seeking coverage under four consecutive liability policies issued between 2005 and 2008. Mid-Continent argued that it had no duty to defend because the underlying complaint alleged that the defects could not have been discovered until 2010, after the expiration of the last policy period. A Florida federal district court disagreed, ruling that the determination of whether property damage occurred during any Mid-Continent policy period was based on "the date of the actual damage" rather than the date of manifestation or discovery of damage. The district court found that actual damage caused by wood rot occurred in 2005 and thus that the 2005- 2006 policy was triggered. The Eleventh Circuit affirmed.

The Eleventh Circuit ruled that Mid- Continent had a duty to defend the underlying suit in light of the uncertainty as to Florida trigger law in this context. Noting that Florida law is unclear as to which trigger applies to insurance claims for property damage, the Eleventh Circuit found that "Mid-Continent did not know whether there would be coverage for the damages sought in the underlying action because Florida courts had not decided which trigger applies. Mid-Continent was required to resolve this uncertainty in favor of the insured and offer a defense to [the builder]." Turning to the issue of indemnity, the court held that based on the factual record presented, the district court properly applied an injury-in-fact trigger. The court reasoned that property damage occurs "when the damage happens, not when the damage is discovered or discoverable." Significantly, the court declined to establish a bright line rule and expressly limited its holding to the facts presented—namely, a situation in which the date of actual damage was discernable. The court cautioned that it had "no opinion on what the trigger should be where it is difficult (or impossible) to determine when the property was damaged."