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Patricia O'Connell
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Laura Foggan Discusses Court Ruling on Continuous Injury Exclusions

April 28, 2014

Laura A. Foggan, chair of Wiley Rein’s Insurance Appellate Group, was quoted in a Law360 article published April 25 about a recent South Dakota Supreme Court ruling in which the court refused to declare void as against public policy an exclusion barring coverage for an unknown progressive or continuous injury or damage that occurred before the inception date of the insurance policy.  The plaintiff in the case had challenged the validity of the exclusion.  Conceding it had little or no precedent that invalidated an exclusion for unknown continuous or progressive damage, the plaintiff asserted that it was South Dakota’s policy that commercial general liability coverage “insure against risks outside the insured’s control” and protect the insured against loss from unknown events.  Slip Op. at 3.

But the April 16 ruling in Amco Insurance Co. v. Employers Mutual Casualty Co. upheld a policy endorsement excluding coverage for injury or damage that began or which is alleged to have occurred before the effective date of the policy, regardless of whether the damage is known, unknown, or should have been known by the insured.

Ms. Foggan said that the exclusion at issue in the Amco case is a variation on widely-used exclusions for known ongoing damage.  For example, a widely-employed exclusion makes the policy in effect when the insured becomes aware of the damage the last policy that will be triggered by the claim.  Other ongoing or progressive damage clauses require that, for coverage to apply, the insured must have first become aware of the injury or damage during the policy period, or provide that all property damage is “deemed” to have occurred when damage first began, regardless of when it was discovered. Some of these other variations operate to exclude unknown continuous or progressive damage, just as the provision at issue here did.

Because the insurer’s policy language identified the risks it agreed to assume in return for the premiums paid by the insured, Ms. Foggan stated that the court properly refused to strike down the endorsement.  “Not only is it not against public policy, it’s a natural working of the insurance marketplace,” Ms. Foggan said.  “The ability to shape the coverage and restrict what risk would be assumed is really critical to the market being able to offer these types of coverage.”