Chemstar, Inc. v. Liberty Mutual Insurance Co.

We consider unresolved issues of California insurance law to decide what constitutes an “occurrence” under a third-party insur- *431 anee contract and when such coverage is triggered among successive policy years.

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Chemstar, Inc. (“Chemstar”) is a supplier of lime plaster. Its predecessor, Genstar Lime Company (“GLC”) 1 , manufactured Type S Hydrate lime, which GLC marketed for use as an interior plaster finish in homes, From 1984 to 1986, GLC sold lime containing high amounts of magnesium oxide pellets, which are called “perielase.” During the lime manufacturing process, perielase reacts with water through a process called “hydration” to become magnesium hydroxide, a stable compound. Some perielase may not hydrate during manufacturing but may later react with moisture in the air until it- eventually changes into magnesium hydroxide.

Lime that contains unhydrated perielase is unfit for home interior use. Where such lime is encased in a plastered surface, hydrating perielase may expand and pop through the smooth plaster, causing unsightly pits. Pitting is not inevitable, however, because peri-clase may never expand. Further, because pitting does not weaken plaster structurally,…