Insurance companies issuing policies in Florida are still in the dark when determining whether a policy covers property damage discovered years after a policy is issued. The question is whether the damage “occurs” during a policy period. To determine whether the damage “occurs” during a policy period, courts have the option of applying the “manifestation” or “injury-in-fact” trigger.
The recent Eleventh Circuit case of Hugh A. Carithers and Katherine S. Carithers v. Mid-Continent Casualty Company did not solve whether the “manifestation” or “injury-in-fact” trigger applies to determining when property damage occurs. Instead, the Eleventh Circuit limited its holding to the facts of the case, and “express[ed] no opinion on what the trigger should be where it is difficult (or impossible) to determine when the property was damaged.”
The facts of the Carithers case are as follows: the Carithers built a house and later discovered several defects. The damage happened in 2005, but could not have been discovered by reasonable inspection until 2010.
The insurance company, Mid-Continent, argued the proper trigger for determining when property damage “occurs” is when the damage manifests itself. This is known as the “manifestation” trigger. Mid-Continent argued that under the manifestation trigger, damage “occurs” either 1) when the damage is discoverable by reasonable inspection; or, 2) when the damage is actually discovered.
The Carithers argued in favor of the “injury-in-fact” trigger, asserting that property damage “occurs” when the property is damaged.
In determining whether Mid-Continent had a duty to defend the homebuilder in the underlying action under Florida law (the Plaintiffs sued the homebuilder to recover for damages to their home), the Eleventh Circuit upheld the district court’s ruling that the insurance company had a duty to defend.
The Eleventh Circuit reasoned that the duty to defend is broader than the duty to indemnify, and that any doubts as to whether a duty to defend exists must be resolved in favor of the insured.
Mid-Continent asserted that “no Florida state court appellate decision” has decided which trigger applies to determine when property damage occurs under these circumstances, and that the issue has split federal district courts in Florida. The Eleventh Circuit responded that it would not make new law in deciding which trigger applies, thereby retroactively justifying Mid-Continent’s refusal to defend the homebuilder.
The Eleventh Circuit stated that, “Given the uncertainty in the law at the time, 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 homebuilder].”
Unfortunately, this case does not help insurance companies like Mid-Continent determine whether latent damages will be covered. Because this case did not determine a bright line rule as to whether the “manifestation” or “injury-in-fact” trigger should apply to determine when damages “occur,” insurance companies are forced to defend even with a relatively strong argument that the damage at issue did not “manifest” itself within the policy period and thus “occurred” within the covered time frame.
After determining that the insurance company had a duty to defend the homebuilder, the Eleventh Circuit determined whether there was coverage for the damages awarded. Again, the Eleventh Circuit was faced with what it means for property damage to “occur” during the policy period, thus triggering coverage.
The Eleventh Circuit determined that the district court did not abuse its discretion by applying the Plaintiffs’ “injury-in-fact” trigger, holding that the court should look to the date the property was damaged to determine when the damage “occurred.” Because the property was damaged in 2005, the damage “occurred” within the 2005 – 2006 policy.
The Court reasoned that, “[p]roperty damage occurs when the damage happens, not when the damage is discovered or discoverable.” The Eleventh Circuit noted “the difficulty that may arise” where the property damage is latent and discovered much later, and thus limited its holding to the facts of this case.
There is no doubt that difficulty will arise in cases where it is hard to determine when property was damaged. Courts could decide, like it did in this case, that an insurance policy covers latent defects that manifest themselves years after a policy has expired. However, one could argue, and the court could decide, that a latent defect discovered in 2010 occurred in 2010, especially where the insured did not observe the defect and had full use and enjoyment of the property from the end of the policy period through the time the damage was discovered.
In conclusion, the Carithers case does not shed light on which trigger will be used for determining when damages “occur.” For purposes of determining whether an insurance company has a duty to defend under Florida law, based on this case, the law is still unclear as to whether a latent defect “occurs” within a policy period. To determine whether a policy provides coverage for a latent defect that is discovered years later, Florida courts have yet to provide clarity – potentially leaving insurance companies exposed to liability for latent defects that happened during a policy period issued years before.