Does The "Continuous Trigger" Apply Beyond Environmental Contamination And Construction Defect Claims?10.01.2005
In pollution cases, California courts have applied the "continuous trigger" rule for the last decade. In Montrose Chemical Corp. v. Admiral Ins. Co.(1995) 10 Cal.4th 645, 655-58, the Supreme Court held that a continuous trigger for coverage should apply to a claim that DDT had continuously seeped into soil and groundwater for years before it was discovered and it was impossible to trace it to a single incident. The continuous trigger theory rests on the idea that new property damage gradually occurs over time and may not be traceable to a single event. Construction defect claims typically raise comparable issues, i.e., gradual deterioration of tangible property, and may be governed by the Montrose trigger rule.
Whether the continuous trigger applies to other types of claims is unclear. In particular, the potential application of this trigger theory to products liability property damage claims raises numerous issues. One issue arises when food products gradually deteriorate and eventually become inedible.
Consider, for example, a company that makes cans and vacuum packs food. Due to a defect in the cans, they gradually lose the vacuum, swell up and burst or spoil the food before the normal expiration date. The pressure loss occurs over a two or three year period.
Another example might involve the manufacturer of corks or taps for wine bottles that eventually taint the wine.
Assigning a "date of loss" or trigger date for coverage for damage to the food or the wine in these example may be difficult if it cannot be determined with precision when the food become inedible or the wine undrinkable. On the other hand, the product may start to deteriorate gradually as soon as it is packed, but, on the other hand, it may be perfectly consumable for some period of time before it spoils. Do these claims trigger all of the coverage in effect from the time of the packing through the destruction of the product? Or is there a unique trigger date for each can or bottle, such as the date it "goes bad"?
The Federal District Court in Los Angeles recently grappled with the comparable issue in a case involving a claim for coverage by a company that manufactured computer chips. In Semtech Corp. v. Royal Ins. Co of America, et al., Case No. CV 03-2460 GAF(PJWx), the court addressed the trigger of coverage for claims resulting from defects in voltage regulator chips that caused computers to burn out or simply shut down. One issue in the case was when the damage to, or loss of use of, the computers occurred. The insured argued that the Montrose continuous rule applied so that the damage done to the computer should extend over several policy years. The insured asserted that the property damage occurred from the time the computers with the defective chips were first started up until they failed or shut down. The insurers argued that the trigger of coverage was the point at which the computers actually failed.
The court in the Semtech case concluded that the Montrose continuous trigger rule did not apply to the computer damage claim. The court noted that the Montrose rule was developed for policy reasons relating to environmental coverage disputes. The court held that the application of the continuous trigger outside of environmental cases was "questionable" and that the actual computer damage could be traced to specific instances of burnouts or shutdowns. Thus, the court held that coverage was limited to the policy in place when a "discrete instance of burnout or shutdown" occurred.
The Semtech ruling suggests that the continuous trigger rule will not have a general application beyond pollution or construction defect cases. Instead, the focus for product liability cases will be on when the particular moment of damage to property other than the insured's own product first occurred.