Court: Louisiana Court of Appeal; June 27, 2000; Louisiana; State Appellate Court
In the case of James Pest Control, Inc. et al. v. Scottsdale Insurance Company, the Court of Appeal of Louisiana reversed a district court judgment that found Scottsdale Insurance Company (SIC) liable for termite damage to multiple condominiums linked to a pest control business during its policy period. The plaintiffs, James Pest Control and Louisiana Pest Control Insurance Company (LPCIC), contended that the damages occurred while James Pest Control was insured by SIC, and they sought compensation for termite damage amounting to $43,893.39 that LPCIC had already covered.
The litigation began with a Petition for Declaratory Judgment filed on August 6, 1997, asserting SIC's obligation to provide coverage. SIC countered with a Motion for Summary Judgment, asserting no genuine issues of material fact and denying coverage based on the timing of the damage. The trial court denied both the Petition for Declaratory Judgment and the Motion for Summary Judgment.
Following a trial on June 14, 1999, the court ruled in favor of the plaintiffs, awarding specific amounts for damages at several locations, totaling $39,233.01. Additional costs, expert fees, and legal interest were also awarded, with interest starting from the dates of judicial demand. SIC appealed the judgment, and it was established that while SIC had issued an occurrence-type insurance policy, it denied coverage for damages discovered after the policy had expired, except for one instance at 805 Rue Royale, which was covered due to timely notification of damage.
LPCIC disbursed $43,893.39 to the condominium owners in good faith. Robert A. James, Sr., owner of James Pest Control from 1964 to 1995, testified that his company was insured by SIC from April 1989 to April 1995 and began treating DeLimon condominiums in April 1984. James Pest Control performed soil treatments before construction and perimeter treatments after the condominiums were built.
On June 15, 1993, a prospective owner reported dead termites at 801 Rue Royale, leading to an inspection. By June 9, 1994, termite damage was found in the window and door frames, and SIC subsequently paid a claim for this damage. Further inspections occurred in May and June 1995, revealing additional complaints and damage, with the first evidence of damage noted on June 27, 1995.
For 803 Rue Royale, treatment occurred in 1993, with damage first noted on June 7, 1995. At 807 Rue Royale, termite damage was reported on May 8, 1995, with live termites found during an inspection on June 1, 1995; damage was first noted on June 28, 1995. Formosan termites were identified at 809 Rue Royale in September 1994, with subsequent damage paid by SIC. Damage at 809 Rue Royale was first noted on June 28, 1995.
James Pest Control also reported findings for properties at 320 and 322 Rue St. Peter in July 1995, with termite damage at 324 Rue St. Peter noted on June 26, 1995. James notified LPCIC of termite damage at multiple locations on July 14 and 17, 1995. He acknowledged that SIC typically covered claims filed by his company. James clarified that sightings of termites do not necessarily indicate structural damage, and swarming does not equate to damage. An infestation is defined as the presence of over 100 termites in a building.
Mr. Robert Kunst was qualified as an expert in termite damage by the trial court. He conducted inspections of several properties, testifying about the behavior of termites and their impact on buildings. Kunst explained that termites can infest entire structures, with Louisiana housing two primary types of subterranean termites. He indicated that termite damage correlates with the biomass of the colony, increasing as the colony grows. Kunst noted that professional standards dictate that the presence of termites implies existing damage, referencing Louisiana's requirement for disclosure of termite sightings in property sales.
Kunst opined that most infestations in the referenced condominiums began between 1990 and 1992, triggered by breaches in chemical barriers meant to deter termites. Specifically, he determined that the infestation at Rue Royale likely originated at 807 Rue Royale around 1990 and spread to adjacent buildings. He estimated that significant damage occurred prior to mid-1995, with varying percentages of damage at different properties before April 19, 1995.
Kunst identified Formosan termites as the cause of damage at the DiLimon Condominiums and noted the extensive foraging range of termites. The trial court ruled in favor of the plaintiffs, stating that they proved termite damage occurred during the SIC policy period. SIC appealed, contesting the trial court's findings regarding the timing of the termite damage manifestation, Kunst's qualifications as an expert, and the burden of proof concerning subrogation rights. The appellate court found merit in SIC's first contention, indicating a potential insurance coverage issue based on the timing of damage occurrence relative to policy coverage periods.
SIC contends that the manifestation theory from **Korossy v. Sunrise Homes, Inc.** is applicable, asserting that property damage is not recognized until it is discovered. In contrast, James Pest Control and LPCIC argue that the termite damage occurred within SIC's policy period, supported by expert testimony. They claim **Korossy** is not directly relevant since it lacked evidence on the timing of damage, whereas credible evidence indicates damage occurred before April 19, 1995, in this case. The central question is whether the trial court correctly found that the termite damage was caused during SIC's coverage period.
The SIC insurance policy stipulates coverage for damages due to bodily injury or property damage caused by an occurrence within the policy period and territory. An "occurrence" is defined as an accident, including continuous exposure to harmful conditions, while "property damage" includes physical injury to tangible property or its loss of use.
LPCIC's insurance policy mirrors these terms, emphasizing that coverage does not apply to damages occurring before a specified retroactive date, and similarly defines occurrence and property damage.
In **Oceanonics, Inc. v. Petroleum Distributing Co.**, the court ruled that coverage could be excluded for damages occurring after policy expiration from acts during the policy period, affirming that insurers can limit coverage and that insured parties should maintain continuous liability coverage to mitigate risks.
The Supreme Court determined there was no coverage for damages that occurred after a policy expired. In *Cole v. Celotex Corporation*, the court adopted the 'exposure theory,' which states that coverage is based on exposure to harmful conditions during the policy period. The jury found that several corporate executives were negligent in providing a safe work environment, leading to asbestos-related diseases contracted by plaintiffs between 1945 and 1976. The court indicated that if multiple insurers covered the exposure period, the insured could recover from all applicable policies up to their limits. The court rejected the 'manifestation theory,' which ties coverage to the point when an injury becomes apparent, arguing that in long-latency cases, the key events are the ongoing exposures that cause damage over time.
In *Western World v. Paradise Pools, Spas*, the court found the definition of 'occurrence' in a liability policy ambiguous, allowing for coverage of damages from cracks in a swimming pool. However, in *Korossy v. Sunrise Homes, Inc.*, the court adopted the manifestation theory for property damage claims, ruling that damage is only recognized when discovered by homeowners. This decision simplified the determination of damage timing compared to asbestos cases, where exposure dates are clearer.
In the current case, the manifestation theory was applied to termite damage in condominiums, ruling that damage did not occur until it was discovered. Testimony indicated that the claimant was unaware of the damage until after April 19, 1995. Since termite damage at 807 Rue Royale was inspected while the policy was active, SIC is liable for its damages. Conversely, damages at other condominiums manifested after April 19, 1995, making LPCIC liable for those. The trial court's judgment was reversed, with LPCIC responsible for damages to multiple properties and SIC for damages to 807 Rue Royale. Appeal costs are shared equally between parties.
