An insurer wrote a general liability policy in 1978. In 2026 it pays an asbestos claim under that policy. How does a 48-year-old contract land as a fresh liability on today's balance sheet?
A latent liability is one where harm surfaces long after the covered event. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund) exists to make the parties responsible for a contaminated site pay to clean it up. Its liability reaches back to dumping that predates the 1980 statute, which is how policy years written decades earlier get pulled in. Asbestos disease, environmental contamination under CERCLA, and mass-tort product injuries all incubate for decades. The exposure happened under a policy that has since expired.
KEY: Occurrence-based coverage responds to when the injury occurs, not when the claim is filed. That is why a 1970s policy pays a 2020s claim.
Courts pick a trigger theory to decide which policy years must respond.
The continuous trigger sweeps in the most policy years, so it exposes the most insurers.
Common mistakes
- Treating latent claims as current accident-year losses. They arrive as IBNR and adverse development on decades-old policy years.
- Assuming claims-made coverage. Latent exposure rides on occurrence policies triggered by injury timing, not filing date.
- Confusing trigger with allocation. Trigger picks which years respond; allocation splits how much each pays.
Bottom line
- Latent liabilities (asbestos, pollution, mass torts) have long latency: injury manifests years or decades after exposure.
- Occurrence-based commercial general liability policies are triggered by injury during the policy period, so old policies get exposed long after they expire.
- Trigger theories decide which policy years respond: exposure, manifestation, injury-in-fact, and continuous (triple) trigger.
- Allocation decides how much each triggered year pays: pro-rata by time on risk, or all-sums (joint and several).
Exam shortcut
Separate the two questions in order: first trigger (which policy years respond), then allocation (how much each year pays). Never merge them. For survival ratio, reserves go on top and average paid on the bottom; a small number means few years of runoff left, so inadequate.
The full lesson (about 1,232 words, 8 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- A7
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