Is the insured obligated to pay a deductible or SIR for each policy triggered by progressive damage?
In a recent September 2011 decision, Liberty Mutual Fire Insurance v. JT Walker Industries, the South Carolina District Court, Charleston Division addressed an issue of first impression in South Carolina and held that an insured "is not entitled to prorate any deductibles, and must pay the full deductible for each policy triggered by the progressive damage." (Although, the district court submitted this issue to the South Carolina Supreme Court as a certified question, the Supreme Court's answer was so narrow that the district court considered it an issue of first impression.)
The underlying litigation involved allegations that the windows manufactured by the insured were defective, allowing water to leak into homes causing progressive damage over a six-year period. The insured window manufacturer maintained six one-year standard CGL policies spanning the time period involved in the underlying litigation.
The insured argued that the entire progressive water damage during the policies constitutes a single occurrence so each insurer is only liable for part of an occurrence; therefore, the insured argued that "it would be inequitable to force a policyholder to pay a full per-occurrence deductible for indemnification of a partial occurrence. The insured further argued that it should only be required to pay a singe $500,000 deductible for the resolution of a claim arising from progressive damage spanning 6 policy periods.
The Court began its analysis by noting that an insured "could not selectively tender its losses arising from progressive damages spanning multiple policies to a single Liberty Mutual policy" and that "Liberty Mutual had the right to compel contribution from other insurers that provided coverage for a portion of the progressive damage period." After reviewing the policy language and South Carolina case law, the Court concluded that the only reasonable interpretation is that the damage that happens in one policy year constitutes a single occurrence. Noting that the majority of courts applying a pro rata allocation method have agreed that an insurer is entitled to a full deductible for each triggered policy, the Court concluded that the insured must pay a separate deductible for each triggered policy during progressive damage.