To say that environmental tort claims often (and perhaps usually) involve an irritant in the environment to which a plaintiff is exposed over a long period of time is hardly a remarkable insight – anyone who has ever dealt with claims of personal injury resulting from exposure to lead paint, asbestos, fuel leaks, radon gas, sulfurous off-gassing from drywall, or other environmental contaminants or irritants is well familiar with that fact. In such cases, it is not unusual for the period of alleged exposure to an irritant to span a number of years, and quite often during the period in question a defendant’s insurance carriers change or the defendant’s insurance even lapses, if only temporarily. What such changes and lapses mean in terms of allocating liability to pay a judgment in an environmental tort case generally involves applying the appropriate “trigger rule” under the law of the jurisdiction that governs each particular case. States have taken varied approaches to crafting such “trigger” rules and to applying those rules to allocation of judgments. Within the last year Maryland’s highest court formally adopted a pro rata allocation method for such judgments under the state’s “continuous-trigger rule”. The adoption of that rule has enormous implications for insurers writing coverage in Maryland and for the litigation of environmental tort claims. It also points up neighboring Virginia’s remarkable dearth of jurisprudence on this question, which remains very much in play in insurance litigation in the Commonwealth.
“Trigger Rules” – What they are and Why they matter
As one commentator has expressed it, “[w]here a continuous occurrence results in injury or damage that triggers coverage under more than one policy, an appropriate method for allocating the losses among the multiple policies (and the policyholder) must be devised.” Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 9.04 (19th ed. 2019), quoted in Rossello v. Zurich Am. Ins. Co., 468 Md. 92, 103, 226 A.3d 444 (2020). Thus, for example, if a plaintiff proves that she was exposed to lead paint in a residential dwelling for a period of years during her childhood and suffered bodily injury as a result, allocating liability to pay a judgment in her favor must account for the continuous nature of her injury during the period of lead exposure. It is possible that a different insurer might have written liability insurance for the property owner each year during the period of the plaintiff’s residence in the hazardous dwelling, and it is also possible that for at least part of that period, the property owner was uninsured. A court presented with such a situation would have to determine the number of insurers on the subject risk, the period of exposure, and apply the “trigger” rule adopted by the law of the jurisdiction in question.
“A liability insurance policy is ‘triggered’ upon the occurrence of an event that causes the policy to respond to a claim. In other words, a trigger is a legal rule designed to determine when a policy must respond.” Rossello, 468 Md. at 105 (int’l punct. & cit. omit’d). Commercial general liability (CGL) insurance contracts “generally define the occurrence of ‘bodily injury’ as a trigger.” Id. For this reason, determining “when coverage is triggered is important because only a triggered policy potentially covers the injury.” Id., quoting The Progression of Trigger Litigation in Maryland: Determining the Appropriate Trigger of Coverage, Its Limitations, and Ramifications, 53 Md. L. Rev. 220, 222 (1994).
“There are four general approaches to the determination of when coverage is triggered under CGL policies in extended exposure cases, each with their respective benefits and pitfalls. These four trigger theories have been characterized as: (1) manifestation theory; (2) exposure theory; (3) continuous trigger; and (4) injury-in-fact theory.” Id. at 106. “Under a manifestation trigger, courts define coverage under policies that were in effect when damage or injury manifests, i.e., when the harm becomes ‘reasonably capable of medical diagnosis.’” Id. (cit. omit’d). On the other hand, “[u]nder an exposure trigger, the policies triggered are those in effect when the claimant’s person or property was exposed to the substance that produced the damage.” Id.
“A continuous trigger implicates policies in effect from the date of first exposure to the harmful substance through manifestation or discovery. Lastly, the injury-in-fact trigger commences coverage when actual injury occurs, whether harm is manifest or not.” Id. at 106-07. It was well established that prior to the Court of Appeals’ decision in Rossello, “Maryland’s appellate courts ha[d] . . . made clear that in extended exposure cases, continuous or progressive damage will constitute an ‘occurrence’ within the policy period that the [environmental irritant] remains present.” Id. at 111 (punct. omit’d). What remained disputed prior to Rossello was how a personal-injury judgment was to be allocated between different insurers and/or uninsured defendants under the continuous-trigger rule.
Rossello and Maryland’s Adoption of Pro Rata Apportionment
Rossello arose from litigation in the trial court over the plaintiff’s bodily-injury claims based on his contracting mesothelioma at his place of employment in Baltimore, where he was exposed to asbestos for a period of years. The plaintiff, Patrick Rossello, won a $2.68 million judgment against the defendant, Lloyd E. Mitchell, Inc. (“Mitchell”), and he sought to collect the entire judgment from Zurich American Insurance Company, successor in interest to Maryland Casualty Company (“MCC”). MCC had insured Mitchell for four consecutive policy periods extending from January 1, 1974 to July 31, 1977, terminating just after Mitchell ceased its business operations. Mitchell remained uninsured thereafter. See id. at 97-99. Evidence at trial established that Rossello’s period of asbestos exposure spanned nearly forty years. See id. at 100.
To try to collect from Zurich as MCC’s successor, Rossello argued that the entire judgment should be paid under the insurance contract issued for the January 1, 1974, to January 1, 1975 policy period, irrespective of per-occurrence and aggregate limits, because it was during that period when Rossello was first exposed to asbestos. See id. at 99. The trial court declined to do so, and instead applied the continuous-trigger rule adopted by Maryland’s intermediate appellate courts and by federal courts applying Maryland law, pro-rating Zurich’s liability to pay Rossello’s judgment based upon the amount of time that MCC had insured Mitchell compared to the total period of Rossello’s asbestos exposure. Rossello appealed, and the Court of Appeals granted his petition for a writ of certiorari, by-passing the Maryland Court of Special Appeals.
On appeal, Zurich again argued for pro-rata allocation based upon time on the insured risk, and Rossello again argued for an “all-sums” or “joint-and-several” approach, under which Zurich would be required to pay the entire judgment but would be allowed to pursue contribution claims against other insurers who had insured Mitchell for other times within Rossello’s exposure period. The Court of Appeals agreed with Zurich and held that the pro-rata allocation method was appropriate for environmental tort claims such as Rossello’s, an allocation method which the court noted is the majority rule in the United States. See id. at 105. The court noted that the MCC insurance contracts were, like most CGL insurance contracts, keyed upon the happening of an “occurrence,” which the contracts defined as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury.” Id. at 119. Read in conjunction with the contract’s insuring agreement under which MCC had agreed to insure Mitchell for “all sums which [Mitchell] shall be become legally obligated to pay as damages because of . . . bodily injury . . . to which this insurance applies, caused by an occurrence” id. at 118, the court concluded that “the pro rata approach is unmistakably consistent with the language of standard CGL policies” like those at issue. Id. at 119. Because “there is no logic to support the notion that one single insurance policy among 20 or 30 years worth of policies could be expected to be held liable for the entire time period. . . . the timing of the injury dictates both the manner in which the policies are triggered and the portion of damages for which each policy is responsible.” Id.
The Court of Appeals also held that it was immaterial that Maryland’s jurisprudence on pro rata allocation had been developed primarily in the context of disputed property-damage claims rather than bodily-injury claims. “The policy terms, not the nature of the damages, are determinative in adjudicating what policy amounts are subject to garnishment.” Id., quoting Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md. App. 256, 311, 802 A.2d 1070 (2002). The court therefore held that there was “no meaningful difference between the policy language as it applie[d] to property damage versus bodily injury.” Id. The court also held that “pro rata allocation produces a more equitable result than joint and several allocation, which creates a false equivalence between an insured who has purchased insurance coverage continuously for many years and an insured who has purchased only one year of insurance coverage.” Id. at 121-22 (int’l punct. & cits. omit’d). By contrast, “the pro rata allocation method promotes judicial efficiency, engenders stability and predictability in the insurance market, provides incentive for responsible commercial behavior, and produces an equitable result.” Id. at 122 (int’l punct. & cit. omit’d).
Based on its holding, the Court of Appeals affirmed the trial court’s conclusion that Zurich was liable only for $894,282.40 of Rossello’s $2,682,847.26 judgment, representing MCC’s time on the insured risk under its insurance contracts issued for the period January 1, 1974 to July 31, 1977. Id. at 123-24. The result was that Zurich was liable for just 33.33% of the total judgment.
A Tale of Two States – Virginia’s Dearth of Trigger-Rule Jurisprudence
Sharply contrasted with Maryland’s now-well defined jurisprudence on trigger rules applicable to CGL insurance contracts and how coverage is to be allocated across multiple policy periods implicated by the same loss or injury, Virginia is notably lacking in jurisprudence on these questions. Remarkably, to date the only decision in Virginia to have directly addressed the “trigger” theory to be applied in the context of a disputed insurance claim was a trial court opinion issued nearly thirty years ago. That opinion – which was a very scholarly effort – predicated that at least in the property-insurance context, the Supreme Court of Virginia would adopt the manifestation rule.
In S. W. Heischman, Inc. v. Reliance Insurance Company, Judge Peatross of the Albemarle Circuit Court considered the question of “trigger” applicable to two property insurance contracts issued by the defendants, Reliance Insurance Company and Aetna Casualty and Surety Company, for a newly constructed condominium building. The building’s owners alleged that the building’s air-conditioning system caused water damage in various units and common areas throughout the building, and that the damages occurred over both the period that the building was insured by Aetna and the subsequent period during which it was insured by Reliance. The owners argued that they were entitled to receive insurance benefits under both insurance contracts and, in particular, that the owners should not bear the burden of proving specifically during which of the two policy periods the damages occurred. See S. W. Heischman, Inc. v. Reliance Ins. Co., 30 Va. Cir. 235, 236 (Albemarle 1993). In response, Reliance argued that the owners had not met the threshold burden of showing insurance coverage under its insurance contract, because the damage first manifested before Reliance’s insurance contract incepted and, for that reason, there could be no apportionment of the loss between it and Aetna. See id.
The court observed that the question presented required it “to examine the allocation of indemnity between successive first-party property insurers when the loss is continuous and progressive,” and that “[t]his [was] not a question that ha[d] yet been addressed by Virginia courts. . . .” Id. “Essentially, the [building owners were] asking the court to adopt the ‘continuous exposure theory’ of coverage in the context of first-party property insurance.” Id. at 236-37. To determine whether Virginia would apply the continuous trigger rule or a different rule, Judge Peatross – calling the lack of Virginia precedent “unfortunate,” id. at 237 – then began with an overview of the most developed body of jurisprudence available at that point, California’s.
In his opinion, Judge Peatross traced the development of California’s case law on the “trigger” rule as applied specifically in the property-insurance context, and found that California had adopted the manifestation rule, under which “only the carrier insuring the property at the time of manifestation of property damage is responsible for indemnification.” Id. at 238, citing Prudential-LMI Comm’l Ins. v. Super. Ct., 798 P.2d 1230, 1232 (Cal. 1990). “As a policy matter, the Prudential-LMI court reasoned that a manifestation rule is more appropriate for first-party property insurance claims because those claims are less uncertain and more capable of estimation than those in the third-party liability or health insurance contexts. The insurer knows with reasonable accuracy the value of the property under coverage during the policy period and is therefore better able to assess the potential exposure.” Id. at 238-39, citing Prudential-LMI, 798 P.2d at 1246. For that reason, “the manifestation rule in the first-party context will promote certainty in the insurance industry and allow insurers to gauge premiums with greater accuracy,” and “consumers would presumably benefit because insurers would be better able to set aside reserves for well-defined coverages and avoid increasing reserves to cover potential financial losses caused by uncertainty in the definition of coverage.” Id. at 239.
Additionally, the court noted that “a failure to apply the manifestation rule in the first-party context would violate the ‘loss-in-progress’ rule, a fundamental principle of insurance law which states that an insurer cannot insure against a loss that is known or apparent to the insured.” Id. Because under the manifestation rule the insurance in effect when the loss first manifested itself would “continue, even for resulting damages which occur beyond the . . . policy period,” the insured would remain adequately protected subject the applicable limit of coverage under its insurance contract. Id. Finding Prudential-LMI’s reasoning persuasive, Judge Peatross then considered in light of Virginia’s fortuity doctrine, under which “an insurance policy cannot cover events which are either known to or intended by the insured and are thus not fortuitous.” Id. at 240, citing Ins. Co. N. Am. v. U.S. Gypsum Co., 678 F. Supp. 138, 141 (W.D. Va. 1988). Finding the manifestation rule as articulated in Prudential-LMI to be the most consistent with that doctrine, the court held that to “hold an insurer liable for a progressive and continuing loss which was discovered before the insurer undertook the risk to the property would be to impose upon the insurer a guaranty of the good quality of the property insured, a liability the insurer never assumed.” Id. at 241, citing Green v. Cheetham, 293 F.2d 933, 937 (2d Cir. 1961).
Accordingly, the court applied the manifestation rule to the case before it. Observing that “‘[m]anifestation of the loss,’ as used to determine which of several successive insurers is solely responsible for indemnification in the first-party progressive property damage context, is ‘that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that [its] notification duty under the policy has been triggered” Id. at 241, citing Prudential-LMI, 798 P.2d at 1247, the court therefore held that to “recover under a property insurance policy, such as the one now in question, [the building owners] must therefore make out an initial showing that the loss for which [they were] seeking compensation actually occurred during the effective policy period.” Id., citing Bituminous Cas. Corp. v. Sheets, 239 Va. 332, 336, 389 S.E.2d 696 (1990). That meant “establish[ing] when damages resulting from the defective air conditioning system first manifested themselves.” Id. at 242.
While S. W. Heischman sets forth very forceful policy grounds supporting the application of the manifestation rule in the property-insurance context, it raises questions as to the suitability of the rule for bodily-injury claims. See id. at 238-39. What this means is that in Virginia, there is no jurisprudence on the “trigger rule” applicable to liability-insurance claims – particularly in the bodily-injury context, especially for environmental torts – and only the slimmest precedent, S. W. Heischman, in the property-insurance context. In other words, Virginia presents an open playing field on the “trigger rule,” in sharp contrast to neighboring Maryland, where Rossello has put that question to bed once and for all. Whether any clarity on this point will come in the foreseeable future is impossible to say, though with the volume of construction litigation and environmental-tort litigation only increasing with time, sooner or later the point must come to a head in Virginia. Whether its courts will adhere to Judge Peatross’ very solid reasoning in S. W. Heischman, the Maryland Court of Appeals’ equally persuasive arguments in Rossello, or follow some other path altogether presents a potential minefield for insurers and insureds alike. Seasoned insurance counsel should be consulted on this question as soon as it arises so that all parties’ rights and responsibilities are understood and safeguarded from the beginning. If you have questions on this point or others, please do not hesitate to contact Kevin Streit (email@example.com) at 804-377-1270, or Steve Setliff (firstname.lastname@example.org) at 804-377-1261.