Tuesday, May 12, 2015

New Jersey Court Applies Continuous Trigger Theory and Finds That No Coverage Is Available Because Damage Manifested Prior to Inception of Policy

In Cypress Point Condo. Ass’n. v. Selective Way Ins. Co., 2015 N.J. Super. Unpub. LEXIS 721 (March 30, 2015), the New Jersey Law Division dismissed a declaratory judgment action filed against an insurer for a framing contractor, holding that coverage was not afforded under the continuous trigger theory because the injury manifested prior to the inception of the policy. 

The case arose out of a construction defect action initiated by Cypress Point Condominium Association (“Plaintiff”), against contractors who performed work on the construction project. 

The project began in 2002 and was substantially completed in 2004. MDNA Framing was responsible for installation of windows on the project. After the residents moved in, they began experiencing water infiltration through the windows. According to Plaintiff’s expert, the water infiltration was a result of lack of flashing and other workmanship related issues.

In 2012 plaintiff added MDNA Framing to the litigation but the insured did not file an Answer and in December 2012 default was entered against MDNA Framing. Selective Way Insurance Company (“Selective”) issued a policy to MDNA Framing for the period of August 27, 2012 through August 27, 2013. 

The policy was cancelled on November 9, 2012, for non payment. Plaintiff notified Selective that a proof hearing would be heard by the Court in September 2013. Selective refused to defend or indemnify MDNA Framing because there was no occurrence during the policy period. At the proof hearing a judgment in excess of $900,000 was entered against MDNA Framing.


In March 2014, Plaintiff filed a declaratory judgment complaint against Selective seeking a declaration that Selective indemnify MDNA Framing under the policy. In December 2014, both parties filed motions for summary judgment which were denied, leading to motions for reconsideration by both sides. 

In its motion for reconsideration, Selective sought a declaration that (1) Plaintiff was not entitled to coverage under the “continuous-trigger” theory because the damage at issue initially manifested prior to the Selective policy going into effect, (2) Plaintiff lacked standing under the Uniform Declaratory Judgment Act, (3) Plaintiff was not entitled to coverage pursuant to the “known loss doctrine,” and (4) Plaintiff had not suffered consequential damages compensable under the Selective policy.

Plaintiff on the other hand argued that (1) it had standing under the Uniform Declaratory Judgment Act because it had a default judgment against MDNA Framing, (2) there was an “occurrence” during the Selective policy, and (3) it was entitled to coverage under the “continuous-trigger” theory because property damage continuously accrued when the Selective policy was in effect.


Finding that the continuous trigger theory applied to claim for damage by a third party, the Court held that no coverage was afforded under the Selective policy because the injury initially manifested prior to the effective date of the Selective policy. In reaching its decision, the Court noted that the manifestation trigger theory applies to first-party insurance actions and the “continuous-trigger” theory applies to third-party insurance action. 

In this regard, the explained that under New Jersey law, an occurrence occurs under an insurance policy each time damage accrues over a continuous period of time, from ‘exposure to manifestation’ for toxic torts, environmental contamination, and delay manifestation property damage claims.” Under the continuous trigger theory, progressive damage or injury can be an occurrence within each of the years from exposure to initial manifestation of an injury. After initial manifestation, there is no occurrence affording coverage to an insured for the alleged damages.

Because the undisputed material facts established that the water damage first manifested prior to the effective date of the Selective policy, coverage was not afforded under that policy. In support of its decision, the Court relied upon prior Appellate Division decision in Selective Way Ins. Co v. Ogren, 2010 N.J. Super. Unpubl. LEXIS 2979 (App. Div. 2010). 

The Court rejected Plaintiff’s argument that the definition of “occurrence” required Selective to indemnify MDNA Framing for damages accruing continuously during the policy period. The Court granted Selective’s Motion for Summary Judgment on the foregoing grounds and did not reach the remainder of Plaintiff’s arguments.