In evaluating coverage for a general or subcontractor, it is important to understand not only what is covered by your liability policy, but also when coverage is triggered. The type of coverage will affect when coverage is triggered, and thus affect the types of damages that are covered.
Liability insurance policies typically come in one of two forms: claims-made or occurrence-based. As the name suggests, a claims-made policy provides coverage for claims made during the policy period. On the other hand, an occurrence-based policy provides coverage for damage caused by an “occurrence” during the policy period, regardless of when the claim is actually made. Of the two, an occurrence-based policy offers highly valued long-term protection.
As an “occurrence” is typically defined by liability insurance policies as an “accident” and an occurrence-based policy provides coverage for damage caused by an “occurrence”, it is easy to assume that coverage is based on when the accident causing the damage occurred. Indeed, a subcontractor who maintains such a policy for a construction project may think that any damage caused by the work it performed during the policy period would be covered, even if the damage actually occurred years after the policy period had expired. To the contrary, an occurrence-based policy insures only against damage occurring during the policy period, not future damage stemming from an act that occurred during the policy period.
In many cases, damage occurs simultaneously or shortly after the act that causes the damage. However, in cases where it is unclear when the damage occurred, courts across the nation have developed four key theories in determining when coverage is triggered. Under the “injury-in-fact” theory, coverage is triggered when the damage actually occurs, regardless of when it is discovered. Under the “manifestation” theory, coverage is triggered when the damage to the property is discovered. Under the “exposure” theory, coverage is triggered when a person or property is exposed to the injury or damage-causing event during the policy period. Finally, under the “continuous trigger” theory, policy coverage is triggered at exposure to damage and each instance of actual damage until the damage is discovered.
Although the Virginia Supreme Court has yet to address these competing theories, it has previously held that an insured “has the burden of proving that the loss occurred while the policy was in force and effect”, which suggests that the Court may ultimately adhere to the “injury-in-fact” theory. See Aetna Casualty & Surety Co. v. Goldman, 217 Va. 419 (1976). In any event, deciding on an appropriate insurance policy or evaluating existing coverage requires careful consideration of the damage that can be caused by your business and how readily apparent it might be.