Strict Manifestation Rule

As it relates to homeowner’s policies, the Texas courts have adopted a rigid rule for when a loss occurs.  The Texas Supreme Court in, Don’s Building Supply, Inc. v. OneBeacon Ins. Co. has emphasized that the applicable rule for when a loss occurs depends upon the language in the policy.

In Don’s Building Supply, the Court interpreted a policy that provided coverage for “bodily injury” or “property damage” that was “caused by an ‘occurrence’ that takes place in the ‘covered territory;'” and “occurs during the policy period.”  The policy defined “property damage” to mean “Physical injury to tangible property, including all resulting loss of use of that property.  All such loss of use shall be deemed to occur at the time of the physical injury that caused it,” or “Loss of use of tangible property that is not physically injured.  All such loss shall be deemed to occur at the time of the ‘occurrence’ that caused it.  Based on this language, the court determined that “property damage under this policy occurred when actual physical damage to the property occurred.”

In Don’s Building Supply, the Court stressed that it was not attempting to fashion a universally applicable rule.  Accordingly, the actual injury or injury-in-fact rule may not apply in all situations.  For example, other cases have determined that a “loss” occurs when the physical damage first manifests itself or becomes apparent.

To prevail, an insured must present some evidence from which one could conclude that the occurrence, as the policy defines it, took place during the policy period.  This is discussed in New Hampshire Ins. Co. v. Martech USA, Inc. and Employers Cas. Co. v. Block.  According to the court in Block, “the time of the insured’s damages is a precondition to coverage.”  The court further held that “an insured cannot recover under an insurance policy unless facts are pled and proved showing damages are covered by his policy.”  What insureds must prove to meet this burden depends upon how the policy language defines the occurrence.  If the occurrence first took place before the policy period, coverage is precluded.  In Two Pesos, Inc v. Gulf Insurance Company, the court said, any other result would contravene rule that an insurer cannot insure against something that has already begun.