Source: Murnane Brandt Insurance Litigation Bulletin - Summer 2009

In early 2009, in Donnelly Brothers Const. Co. v. State Auto Prop. & Cas. Ins. Co., 759 N.W.2d 651 (Minn. Ct. App. 2009), the Minnesota Court of Appeals considered the prevalent question of what constitutes a water-intrusion “occurrence” triggering an insurer’s duty to defend. 

Donnelly Brothers was sued by several homeowners and general contractors under contribution and indemnity claims that stemmed from allegations that improper stucco application caused damage to homes.  The various insurers who insured Donnelly Brothers during the relevant time periods attempted to avoid liability by arguing that they had no duty to defend since the “occurrence” triggering liability under the policies was the application of the stucco.  In this way, only the insurer who was on the risk at the time of the stucco application was responsible for water-intrusion damages even if the damage did not occur or become discovered until later.

To resolve the issue, the Court of Appeals applied the “actual injury” or “injury-in-fact” rule in determining whether the insurance was triggered by an occurrence within the policy period.  The Court found that to trigger the policy, the insured must show that some damage occurred during the policy period.  “Property damage does not necessarily occur when defective stucco work is performed; rather, the insurer’s duties depend on when the defective work causes damage to the property.”  The Court reasoned that an insurer’s duty to defend arises when the policy arguably provides coverage for claims made against the insured and recognized that in those cases where the triggering event may be impossible to discern, allocation among insurers may be appropriate.

The Supreme Court denied review of the decision.

This Insurance Litigation Bulletin is designed to keep our clients generally informed about developments in the law relating to this firm’s practice and should not be construed as legal advice or a legal opinion concerning any factual situation.  Specific facts may alter any legal result.  Nor is this Bulletin intended to create an attorney-client relationship. 

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