The Superior Court, Law Division, of Hudson County, New Jersey has held that a claimant is not entitled to seek coverage under a liability insurance policy pursuant to a “continuous trigger” theory for damage that occurred prior to the policy period. Cypress Point Condominium Ass’n v. Selective Way Ins. Co. concerns a lawsuit filed against numerous contractors involved in the construction of a condominium complex. The lawsuit contended that water infiltration occurred at the windows of condominium units. One of the contractors procured insurance with the defendant insurer in between the time the contractor had been named in an amended complaint and the time that the contractor had been served. A default judgment was entered against the policyholder, followed by a proof hearing in which the policyholder was found liable for approximately $1 million. The plaintiff in the underlying lawsuit subsequently brought a declaratory judgment action, seeking a determination that the insurer was required to indemnify the policyholder.
The trial court initially denied motions for summary judgment filed by both parties, to allow the plaintiff the opportunity to pursue further discovery regarding the policyholder’s knowledge of the complex’s defective condition at the time it procured the subject policy. The parties subsequently sought reconsideration of their respective summary judgment motions.
The Court began its analysis by noting that under New Jersey law, the “continuous trigger” theory applied to claims under liability insurance policies. Under such policies, an “occurrence” giving rise to coverage happened each time damage accrued over a continuous period of time, from exposure to manifestation. However, the Court also observed that under established New Jersey law, the “continuous trigger” theory ceased to apply once damage had manifested. The evidence reflected that the water infiltration at the condominium complex was detected by the residents shortly after they moved into the complex: several years before the subject policy was issued. Indeed, the underlying litigation was well in progress at the time the policyholder obtained the subject policy.
The Court therefore held that the insurance policy in question did not provide indemnification for the underlying lawsuit. Having reached this determination, the Court declined to address whether the plaintiff in the underlying lawsuit had standing to pursue the declaratory judgment action, or whether the plaintiff had suffered consequential damages compensable under the insurance policy.
Cypress Point places common-sense limits upon the “continuous trigger” theory to ensure that the theory cannot serve as a mechanism for obtaining coverage for losses well after they have first become apparent.