Truck Insurance Exchange v. O'Mailia, 343 P.3d 1183

O’Mailia installed a water heater at Famous Dave’s in 2007; his TIE commercial general liability policy ran from July 10, 2006 to November 29, 2009.
In March 2010 Famous Dave’s experienced odors and inspections; firefighters and Diamond Plumbing performed limited service; a fire occurred the day after inspections.
Multiple investigators concluded the fire was caused by excessive exhaust temperatures from a soot-fouled heat exchanger; several experts referenced pyrolysis (thermal decomposition of wood) of nearby wooden framing prior to ignition.
Famous Dave’s sued Diamond; Diamond sought indemnity from O’Mailia. O’Mailia tendered defense to TIE; TIE denied coverage then defended under reservation and filed for declaratory relief stating the policy did not cover the loss because the damage occurred after the policy period.
O’Mailia argued pyrolysis during the policy period constituted property damage (an "occurrence"). He also asserted counterclaims against TIE for bad faith and related claims. The district court granted summary judgment for TIE, holding no property damage occurred during the policy period and dismissing O’Mailia’s counterclaims with prejudice.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether property damage occurred during the policy period so as to trigger coverage	Pyrolysis during policy period physically and materially altered wood, so property damage first occurred during policy	Pyrolysis is a pre-combustion condition that did not produce a physical/material alteration constituting "physical injury" during policy period	Court: Pyrolysis is a condition increasing risk, not physical injury; no evidence property damage was sustained during policy period — no coverage
Whether dismissal of counterclaims with prejudice violated due process	Dismissal after summary judgment deprived O’Mailia of opportunity to be heard on counterclaims	Counterclaims depended on coverage; summary judgment on coverage mooted counterclaims; parties had full briefing	Court: No due process violation; counterclaims properly dismissed as they rested on coverage determination

Swank Enters. v. All Purpose Servs., Ltd., 154 P.3d 52 (Mont. 2007) (defines "physical injury" to property as a physical and material alteration resulting in a detriment)
Lindsay Drilling & Contracting v. U.S. Fid. & Guar. Co., 676 P.2d 203 (Mont. 1984) (physical alteration of property can constitute covered property damage)
Greenlee v. Sherman, 142 A.D.2d 472 (N.Y. App. Div. 1989) (pyrolysis is a pre‑ignition condition that did not itself constitute physical injury)
Frankenmuth Mut. Ins. Co. v. Eurich, 394 N.W.2d 70 (Mich. Ct. App. 1986) (occurrence date is the date of actual accident/damage, not the earlier negligent act)