Continuous or Progressive Injury and Damage Exclusion in Commercial General Liability Policies – A Workaround to the Actual Injury Trigger?

Written for the State Bar of Texas Insurance Law Section

Most construction project participants procure insurance through a traditional approach: each project participant acquires their own insurance as required in their contracts. Under this approach, the owner might provide builder’s risk and property insurance, while the general contractor is responsible for carrying commercial general liability (CGL), worker’s compensation, and automobile liability insurance, and subcontractors have separate CGL requirements. Later, when a defect is discovered in the building, the initial steps for construction lawyers are (1) putting the right policies and insurers on notice of the claim and (2) getting the defense, claim, and damages covered for your client. This places the general contractor’s CGL policy right in the crosshairs of most cases. In a worrisome trend, CGL policies are increasingly including the Continuous or Progressive Injury and Damage Exclusion, which can create a frustrating hot potato of insurers all claiming that their policies are not triggered because of the exclusion and the policy’s terms, potentially leaving an insured without a defense. Here’s a form example of what the Continuous or Progressive Injury and Damage Exclusion says:

This Insurance does not apply to:

 

Any damages arising out of or related to “bodily injury” or “property damage” whether such “bodily injury” or “property damage” is known or unknown, 

 

1. Which first occurred in whole or in part prior to the inception date of this policy (or the retroactive date of this policy, if any; whichever is earlier); or

2. Which are, or are alleged to be, in the process of occurring as of the inception date of the policy (or the retroactive date of this policy, if any; whichever is earlier) even if the “bodily injury” or “property damage” continues during this policy period; or

3. Which were caused, or are alleged to have been caused, by the same conditions, or defective construction which first existed prior to the inception date of this policy.

 

Any damages arising out of or related to “bodily injury” or “property damage” whether known or unknown, which are in the process of adjustment, settlement, or “suit” as of the inception date of this policy (or the retroactive date of this policy, if any; whichever is earlier).

 

So, what’s the problem? This exclusion changes the policy’s occurrence trigger, making it more difficult to determine which policies to place on notice of a claim, and potentially vitiating coverage completely for some CGL policies. In Texas, insurers must defend “any claim of physical property damage that occurred during the policy term.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins., 267 S.W.3d 20, 25 (Tex. 2008). This is the “actual injury” trigger for occurrence-based policies. Practically, if you are trying to get your client’s insurer to pick up a defense for a claim, then you look to when the actual injury complained of occurred, then place that policy on notice.

To illustrate the occurrence triggers: you represent a general contractor who built a house from January 1, 2020 through January 1, 2022. But while performing its work, the roofing subcontractor negligently put roofing nails through a hot water heater that started leaking into wood framing that eventually caused a wall to collapse. In some states, the date of the occurrence would be when the wall collapsed (manifestation trigger), so you would put the policy during that time on notice. In other states, the date of the occurrence would be when the roofing subcontractor put the roofing nails through the hot water heater (injury-in-fact trigger), so you would put the policy during that time on notice. In Texas, it is more complicated because you would need to determine when the hot water heater leak started causing damage to the wood framing, then that would be the policy to put on notice. But when damage is concealed, like the example here, that gets tricky—how do you differentiate between when the water leaking on the wood framing simply occurred versus when that leaking caused damage?

This all gets more complicated by the Continuous or Progressive Injury and Damage Exclusion. This exclusion, rather than following the actual injury trigger in Texas, declares that if property damage occurs during the policy term but is caused by defective construction that was performed before the policy period, then there is no occurrence under the policy and thus no coverage. In the illustration above, this would convert the actual injury trigger date (when the water leaking damaged the wood framing) to whenever the roofing subconsultant performed the defective construction that eventually led to the complained of property damage (the wall collapse). There are a few problems with this.

First, it’s extremely common that construction defects occur and damages are observed much later than when construction was ongoing—typically years after the fact. But the Continuous or Progressive Injury and Damage Exclusion puts the entire focus onto the CGL policy active during construction rather than the policy the insured purchased in the years following construction. And this scenario invites the question: what then is a general contractor purchasing from the insurer in a policy that is two years after construction of a building is complete and includes this exclusion? Especially assuming that the general contractor already purchased insurance to cover the time when construction was ongoing. Does it make the later policies redundant to the policies purchased during construction? Unfortunately, there aren’t any cases addressing the Continuous or Progressive Injury and Damage Exclusion in Texas in the context of construction disputes and the insurer’s duty to defend. See, e.g., Colony Ins. Co. v. First Mercury Ins., No. A-20-CV-474-RP, 2022 WL17732332 at *4 (W.D. Tex. Oct. 13, 2022) (Report and Recommendation on Motions for Summary Judgment) (analyzing the Continuous or Progressive Injury and Damage Exclusion for an insurer’s duty to indemnify the insured for claims after the policy period).

Second, the Continuous or Progressive Injury and Damage Exclusion can vitiate coverage for an insured entirely if the insured has had varying insurers and policies over several years. For example, if in our illustration above the general contractor had insurance from Insurance Company A from January 1, 2020 through January 1, 2024, then this exclusion has less of an impact. Either way, Insurance Company A must provide a defense because it is the insurer both during construction and after construction, presumably when damage actually occurred. But when there are different policies and insurers across several years during construction and after, this exclusion is troublesome. If Insurance Company A is the insurer in 2022 through 2024 and the Insurance Company A CGL policy has the Continuous or Progressive Injury and Damage Exclusion, then the insurer will argue they don’t owe a defense and the policyholder must look to the policies in place during construction (2020 through 2022). Now, in this situation, you might have Insurance Company B’s CGL policy during construction that states that it only covers claims for property damage that occurs during the policy period. This potentially leaves the insured without any insurer to pick up a defense based on the competing terms in the policies.

Insureds who are construction industry participants should work with their agents and insurers to discuss removing this exclusion from their CGL policies, especially if the insured is a general contractor on a large commercial construction project. While removing endorsements like the Continuous or Progressive Injury and Damage Exclusion might raise the premium, it could be worth the price to have a policy that affords coverage for construction defects that occur after construction is complete. Alternatively, construction industry participants should consider renewing the same policy with the same insurer during the life of a construction project and for several years after the fact if they want consistent coverage that includes the Continuous or Progressive Injury and Damage Exclusion.