What it means
Many liability policies are written on an occurrence basis, which means the policy in force when the injury or damage happens is the one that pays. That works neatly for a car accident, but it is harder for harm that builds up over years.
If a worker breathes a harmful substance in one decade and becomes ill in the next, which year counts? Courts and policy wordings have developed different answers, known as triggers.
An exposure trigger points to the time the person was exposed, an injury-in-fact trigger points to when the damage actually began inside the body or property, and a manifestation trigger points to when it was discovered or became reasonably apparent. Some courts apply a continuous trigger that spreads the loss across every policy year from exposure to discovery.
Under a manifestation trigger, the policy in force when the damage comes to light carries the claim. This can be good news for a business that has recently bought more generous cover, and bad news if its current policy has lower limits or exclusions.
The older policies from the exposure years may respond very little or not at all. For companies, this affects insurance buying, reserving and the disclosure of contingent liabilities, which are possible obligations whose outcome depends on future events.
Finance teams need to keep a full record of past policies, because a claim today may need to be matched against documents decades old. Brokers and lawyers help to work out which trigger applies.
The rule differs between jurisdictions and between types of loss, and a policy may define its own trigger in its wording. Anyone facing a real claim should rely on professional advice rather than general principles.
One practical consequence is that the trigger can influence when a company chooses to notify its insurer. Policies normally require prompt notice once a claim or circumstance is known, and delay can put cover at risk even where the trigger points firmly to a particular policy year.
In practice
Real-world examples.
Example
A building contractor learns that hidden water damage in an apartment block, caused by faulty work seven years earlier, has only now been discovered. Under a manifestation trigger, the policy in force at discovery is the one that responds. The older policies from the construction year are not called upon.
Example
A chemicals distributor is sued by a customer whose employees developed illness after long exposure to a solvent. The insurer and the distributor argue over whether the policy year of exposure or of diagnosis controls the claim. The dispute goes to a court because the amounts involved run into the millions.
Example
A property owner finds contamination in the soil beneath an old depot after buying a new insurance programme. Because the contamination became apparent during the new policy period, the manifestation trigger directs the claim to the new insurer. The owner's earlier insurers are told of the claim but are not asked to pay.
Case study
Seen in the real world.
Stonebridge Engineering is an illustrative, fictional firm that built industrial units for twenty years. It changed insurers three times during that period, and each policy had different limits and exclusions.
A customer discovered structural damage in a unit built many years earlier and made a claim for $1,200,000. The finance director asked the broker which policy would respond, and the answer depended on whether the wording used a manifestation trigger.
In this illustrative story, the current policy contained a manifestation trigger, so it carried the claim. The company was glad it had kept copies of every policy, and it added a standing task to review trigger wording before each renewal.
Watch out
Common mistakes.
- Assuming the policy in force when the work was done is always the one that pays, when the trigger may point to a later date.
- Discarding old insurance policies, which may be needed to prove cover for claims that emerge many years later, sometimes after the original broker has closed.
- Treating the trigger as the same everywhere, when courts and policy wordings differ and the same facts can lead to different answers in different places.
Questions
People also ask.
What is the difference between a manifestation trigger and an exposure trigger?
Manifestation looks to when harm becomes apparent, while exposure looks to when the person or property was first exposed to the cause.
Why does the trigger matter financially?
It decides which policy, with which limits and exclusions, has to pay, and so affects how much the business can recover. A policy with a low limit in the wrong year can leave a gap that the business must fund itself.
Can the policy wording change the trigger?
Yes, many policies define the trigger themselves, so the exact wording should always be read, ideally with the broker or a lawyer before a claim arises.
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