What is a Coverage Trigger?
A coverage trigger is an event that must occur in order for a liability policy to apply to a loss. Coverage triggers are outlined in the policy language, and courts will use different legal theories pertaining to triggers to determine whether policy coverage applies.
- A coverage trigger is outlined in an insurance policy as an event that will trigger before a payout.
- Insurance companies use coverage triggers to ensure that the policies they underwrite only apply when specific events occur.
How a Coverage Trigger Works
Insurance companies use coverage triggers to ensure that the policies they underwrite only apply when specific events occur. They do this to ensure that they only pay claims under certain circumstances, though this can shift the burden of proving that a policy should apply to the insured.
Because proving what triggers applied can be expensive or difficult, courts rely on legal theories to provide guidance. These theories apply to insurance cases involving different events. Four different theories apply to coverage triggers: injury-in-fact, manifestation, exposure, and continuous trigger.
Coverage Trigger Theories
- Injury-in-fact theory says that the coverage trigger is the injury itself, so when the insured breaks his or her leg the liability insurance applies. One example of this theory was in Louisiana in which a company spilled hazardous waste into a local river, and that waste made its way into a drinking system months later. As a result, a family became ill due to drinking the water. The injury-in-fact trigger is the time the family became ill, not when the hazardous waste was dumped into the river.
- Manifestation trigger theory says that the coverage trigger is the discovery of the injury or damage, so when the insured discovers that his or her vehicle is damaged the coverage applies. In some cases courts may differ on whether they use the actual date of the discovery, or if they use the time that the damage should have been discovered. A good example of this theory in action is when a claimant alleged that the work a Texas HVAC company completed in 2010 leaked over time, causing damage to their home's drywall, ceiling and flooring. The claimant discovered the leak in November 2017. The insured tendered the claim to its 2010 to 2017 CGL carriers. The carriers that provided the coverage in 2010 to 2016 denied coverage because Texas had adopted the manifestation coverage trigger.
- Exposure trigger theory often applies to injuries that manifest over time, such as those caused by breathing in harmful chemicals. It may take years for the injury to appear, but courts may consider the original period of the exposure (e.g. when the injured party was first exposed to the chemicals).
- Continuous trigger theory states that a combination of trigger types – manifestation, exposure, and injury-in-fact – leads to an injury that develops over time. This type of trigger is used to ensure that the insurance company’s obligations are not diluted. For example, a food manufacturer used a preservative to increase the shelf life of one of its products. This preservative was later found to cause health problems, though it took years for the illness to develop. During the period that the manufacturer was using the preservative, it had purchased several different liability policies. Under a continuous-injury trigger, each of these policies is said to provide coverage, since the injury occurred over a period of time in which multiple coverages overlapped.