Summary
applying Washington case law and finding, without further analysis, that "while there is agreement as to the range of possible [efficient proximate causes] of the loss, the actual EPC is disputed. To the extent that Plaintiff seeks summary judgment as to the proximate cause of damage, this question is a question of fact best left to a jury."
Summary of this case from Great Am. All. Ins. Co. v. SIR Columbia Knoll Assocs.Opinion
CASE NO. C14-1860 BJR
December 23, 2015, Decided. December 23, 2015, Filed
For Greenlake Condominium Association, a Washington nonprofit corporation, Plaintiff: Daniel S Houser, LEAD ATTORNEY, Daniel Stein, STEIN, SUDWEEKS & HOUSER, PLLC, SEATTLE, WA; Jerry Stein, STEIN, SUDWEEKS & HOUSER, SEATTLE, WA.
For Allstate Insurance Company, an Illinois corporation, Defendant: Alfred E Donohue, LEAD ATTORNEY, Brian Buron, Robert Craig Levin, Sally E Metteer, WILSON SMITH COCHRAN & DICKERSON, SEATTLE, WA.
ORDER DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
I. INTRODUCTION
This case concerns an insurance policy ("the Policy) issued by Defendant Allstate Insurance Company ("Allstate") for the Greenlake condominium building ("the Condominium"). The Condominium is owned by Plaintiff Greenlake Condominium Association ("the Association"). Plaintiff seeks coverage for damage to the exterior sheathing and framing of portions of the exterior walls of the Condominium, as well as for damage to the supports of the Condominium's elevated walkway. Before the Court are the parties' cross-motions for partial summary judgment. The motions are fully briefed and ripe for resolution. For the reasons set forth below, Defendant's Motion for Partial Summary Judgment, Docket Number 23, is denied. Plaintiff's Motion for Partial Summary Judgment, Docket Number 27, is granted in part and denied in part.
II. FACTUAL AND PROCEDURAL BACKGROUND
In 2011, the Association, through its property manager Venita Longley, hired contractor Jeff Samdal to inspect and then repair the decks on the east side of the Condominium. Decl. of Jeff Samdal, Docket No. 30 ("Samdal Decl.") ¶¶ 1-2. Mr. Samdal supervised a number of subcontractors as they completed repairs on the decks from February 2011 to September 2012 and submitted progress reports to the Association's Board regarding the repairs. Id. at ¶¶ 3, 7. During this process, Mr. Samdal discovered hidden decay and damage to the beams supporting the decks and the gypsum sheathing where the decks met the walls. In November, 2012, following the completion of the project, Mr. Samdal recommended that the Association carry out an intrusive investigation to determine whether there was hidden damage to other portions of the building. Id. at ¶¶ 12-13.
An intrusive investigation involves the selective removal of portions of the trim, siding, and other materials of the building. Viewing the openings permits an expert to extrapolate as to the condition of the remainder of the building. Soltner Decl. ¶¶ 3. In this case, the intrusive investigation required the removal of less than 2% of the sidings of the exterior walls. Id. ¶ 8.
The Association retained Soltner Group Architects to conduct an intrusive building investigation. Decl. of Keith Soltner, Docket No. 16 ("Soltner Decl."), ¶¶ 2-3; Ex. B. The onsite intrusive investigation began in November, 2013; additional intrusive investigations were carried out in March, 2014, and June, 2014. Soltner Decl. ¶ 3. The investigations found "severe hidden decay at the framing supporting the elevated walkway on the west side of the building." Soltner Decl. ¶ 5. In addition, the investigations uncovered "gypsum sheathing in exterior walls that had been damaged by water intrusion." Id. ¶ 6. Based on the investigation, Mr. Soltner opined that damage to the sheathing and framing of the building "occurred incrementally and progressively each year from 1987 through 2013" and was caused by "wind-driven rain penetrat[ing] behind the trim and siding and damage[ing] the gypsum sheathing in the exterior walls." Id. ¶ 7.
Mr. Soltner's declaration contains two paragraphs 7 and 8. The Court's reference is to paragraph 7 on page 4.
On September 26, 2013, the Association sent Defendant a Notice of Loss. Defendant was the insurer for the Condominium from 1988 to 1993. Decl. of Carol Tatman, Docket No. 10 ("Tatman Decl."), Ex. 1. The parties entered into a tolling agreement on March 17, 2014 which stated that the suit limitation period was tolled effective September 26, 2013. Decl. of Alfred Donohue, Docket No. 24 ("Donohue Decl."), Exs. 2 and 4. From November 2013 until July 2014, Defendant and the Association conducted an extensive joint investigation to determine the cause and extent of decay in the exterior framework of the Building. On July 30, 2014, Defendant denied the Association's claim for the cost to repair damage to the Condominium, stating that the damage to the Condominium was caused by "inadequate construction," which was excluded by the Policy. Denial of Cover Letter, Docket No. 28, Ex. 1, at 13 of 59. In addition, Defendant stated that, while the inadequate construction "allowed water to cause decay at the elevated walkways severe enough to be in a state of . . . collapse," in the remainder of the building the decay did not rise to the level of risk of collapse. Id. Characterizing the remaining damage as "decay, deterioration, rot," also excluded by the policy, the letter denied coverage for all damage to the Condominium. Id. As to the hidden decay causing risk of collapse, Defendant stated in its denial that the elevated walkway had not become structurally impaired until sometime between 2005 and 2007, which was outside the Policy period, and therefore coverage was denied.
Allstate states that it has no record of issuing any insurance policies to the Association, but since the Association produced a declaration for the policy period from 1991 to 1992, Allstate is accepting as true, for the purposes of its motion, that it insured the property from 1988 to 1993. Def's Mot., Docket No. 23, at 4. The relevant portions of the policy are attached in the Appendix.
The Policy provides coverage for hidden decay leading to risk of collapse.
The Association filed suit on November 20, 2014, in Superior Court in King County. Notice of Removal, Docket No. 1, at ¶ 1. The case was removed to this Court on December 8, 2014. Id. ¶ 2. Defendant filed the instant Motion for Partial Summary Judgment on August 6, 2015, moving to dismiss the Association's claims based upon its alleged failure to file suit within the Policy's one-year suit-limitation period. The Association filed the instant Motion for Partial Summary Judgment on August 11, 2015, seeking summary judgment that its claims for damage are covered under the language of the Policy.
III. STANDARD OF REVIEW
Motions for summary judgment are evaluated pursuant to Federal Rule of Civil Procedure 56. "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The court "should review all of the evidence in the record . . . [and] draw all reasonable inferences in favor of the nonmoving party." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000). A genuine issue for trial exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). However, "[t]he mere existence of a scintilla of evidence" in support of a nonmoving party's position is not sufficient to create a genuine issue of material fact. Id. at 252.
"Interpretation of a contract is a matter of law." Beck Park Apartments v. U.S. Dep't of Hous. & Urban Dev., 695 F.2d 366, 369 (9th Cir. 1982). "Summary judgment is appropriate when the contract terms are clear and unambiguous, even if the parties disagree to their meaning." United States v. King Features Entm't, Inc., 843 F.2d 394, 398 (9th Cir. 1988). If the language of the contract is ambiguous, "extrinsic evidence of intent of the parties may be relied upon to resolve the ambiguity." Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 122 (Wash. 2000). "Any ambiguities remaining after examining applicable extrinsic evidence are resolved against the drafter-insurer and in favor of the insured." Id.
IV. DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
A. Panorama Rule
The primary point of contention between the parties is the applicability of Panorama Village Condominium Owners Ass'n Board of Directors v. Allstate Insurance Co., 144 Wn.2d 130, 26 P.3d 910, 912 (Wash. 2001), in which the Washington Supreme Court analyzed policy language requiring (as in the instant case) that a lawsuit be filed "within one year after a loss occurs" (emphasis added). In Panorama, the court considered the following question:
"In a case of progressive 'hidden decay' which risks direct physical loss involving the collapse of an insured building, at what point is an insured's suit against an insurer barred by a policy provision which limits such suits to those commended 'within one year after a loss occurs' . . . ?"
The court found that "after a loss occurs" means that "the policyholder must bring an action for coverage within one year subsequent to or succeeding the loss," and that the "the provision permits an insured to pursue coverage rights within one year after a loss is over rather than merely within one year after a loss begins." Id. at 914-15. The court contrasted the "after a loss occurs" language with "a contract which requires a policyholder to bring a coverage action within 12 months after the inception of a loss." Id. Such an "'after inception' suit limitation provision requires the policyholder to bring an action for coverage within a time certain subsequent to the beginning of the loss." Id.
Applying the "after a loss occurs" suit limitation to the policy language providing coverage "for risk of direct physical loss involving collapse of a covered building" due to "hidden decay," the Panorama court reasoned that "the peril insured against continues to exist until at least the earlier of either (a) actual collapse or (b) the end of 'hidden decay.'" Id. at 915. The court then analyzed the word "hidden," rejecting the defendant's contention that decay was not "hidden" if Panorama "knew or reasonably should have known that the decay existed." Id. The court concluded that Panorama's suit limitation period did not begin to run until the earlier date of "(1) the date of actual collapse or (2) the date when the decay which poses the risk of collapse is no longer obscured from view." 26 P.3d at 912.
B. Applicability of Panorama - Was the Damage "Hidden Decay"?
Turning to the instant case, the parties advance dueling arguments about the applicability of Panorama. Plaintiff contends that Panorama is applicable because this case involves identical "after a loss occurs" policy language and because the damage for which Plaintiff seeks coverage is "hidden," although not necessarily "hidden decay." Defendant contends that Panorama's holding as to the suit-limitation period is only applicable to "hidden decay," and not to other losses such as water damage.
Defendant makes a brief argument that Panorama applies only to " collapse due to hidden decay," and that Panorama's holding is not applicable to "non-collapse damage." Def.'s Mot., Docket No. 23, at 17 (emphasis added). There is no support for the narrow reading that Panorama applies only in cases where an actual collapse occurs. Indeed, in Panorama itself there was no collapse but, instead, merely the risk of collapse. See 26 P.3d at 915-16.
The parties are both correct in part. Plaintiff is correct insofar as Panorama provides a definition for the meaning of "after a loss occurs," policy language that is identical to the language in the instant case. Defendant is correct that Panorama's holding regarding "hidden decay" is premised on the word "hidden."
Defendant's motion for summary judgment is premised on this Court finding that Panorama does not apply. Defendant does not grapple in its motion with Panorama's articulation that "after a loss occurs" means that an insured may bring a claim up to one year after the hidden decay is "revealed" or "no longer obscured from view." Thus, in order to prevail on its motion for summary judgment, Defendant must establish that the damage in this case is something other than "hidden decay," and must do so as a matter of undisputed fact. This Defendant has not done.
Plaintiff's expert opines that the property has suffered "severe hidden decay." Decl. of Keith Soltner ("Soltner Decl."), Docket No. 14 at ¶ 5. Mr. Soltner further opines that the "[t]he hidden damage was caused by water intrusion. The water intrusion was caused by a combination of rain (primarily wind-driven rain) and inadequate construction." Id. ¶ 6. Mr. Soltner opines that "the hidden damage . . . occurred incrementally and progressively each year from 1987 through 2013. During each storm event . . . wind-driven rain penetrated behind the trim . . . ." Id. ¶ 7. Mr. Soltner also references "inadequate construction that allowed the water intrusion from wind-driven rain . . . ." Id. These causes resulted in "mold or mildew growth . . . ." Id. ¶ 8. The report of Defendant's Expert, Smith & Huston, Inc., extensively discusses "water intrusion and decay issues." Smith & Huston Report, Docket No. 34, at p. 26 of 79. The report indicates that "fungal decay probably started one or two years after completion, on or about 1988." Id. at p. 27 of 79. The report further opines that "[t]he main cause of water intrusion is inadequate and defective construction, and inadequate and defective maintenance." Id. However, in discussing what the actual damage to the building is, the Smith & Huston Report simply refers to "decay." Id. at pp. 28-29. Defendant's expert provides a comprehensive discussion of "fungal decay." Smith & Huston Report, Docket No. 34 at p. 27. Nevertheless, Defendant argues that the damage to the sheathing and framing of the building should be characterized as "water damage" or "deterioration, rot, or mold," rather than "hidden decay." As such, Defendant argues, Panorama is inapplicable.
The Court concludes that the nature of the damage to the Condominium is disputed. Neither Plaintiff's nor Defendant's expert provide clarity as the nature of the damage, and both experts, at times, characterize the loss as "hidden decay." Given this disputed evidence, Defendant has failed to establish the absence of a genuine issue of material fact with respect to whether the damage is hidden or not and, therefore, whether Panorama's rule as to the suit-limitation period does or does not apply. Viewing the facts and resolving all inferences in Plaintiff's favor, Defendant's motion for summary judgment must, therefore, be denied.
Defendant's argument also fails as a matter of law based on contractual interpretation. The Policy does not define the terms "hidden decay," "water damage," "deterioration," "rot," or "mold." Both Plaintiff and Defendant's experts at times characterize the loss as "hidden decay." As a matter of law, "[a]ny ambiguities [in the policy] . . . are resolved against the drafter-insurer and in favor of the insured." Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 122 (Wash. 2000). Particularly given the disputed facts of the case, the ambiguity in contractual language requires denial of Defendant's motion.
V. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Plaintiff seeks summary judgment that its claims for damages are covered by the Policy, and urges the Court to grant summary judgment as to Plaintiff's interpretation of a number of Policy terms. Plaintiff also seeks summary judgment as to whether the Policy provides coverage for incremental and progressive damage that continued after the expiration of the Policy, and whether Defendant is jointly and severally liable for damage stemming from said coverage.
A. Interpreting Insurance Contracts
"Interpretation of insurance policies is a question of law, in which the policy is construed as a whole and each clause is given force and effect." Overton v. Consol. Ins. Co., 145 Wn.2d 417, 38 P.3d 322, 325 (Wash. 2002). "In Washington, insurance policies are construed as contracts. An insurance policy is construed as a whole, with the policy being given a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance . . . [a]ny ambiguities remaining after examining applicable extrinsic evidence are resolved against the drafter-insurer and in favor of the insured. A clause is ambiguous when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable." Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 122 (Wash. 2000) (internal quotations omitted).
B. All-Risk Insurance Policies and Ensuing Loss Clauses
The Policy in this case is an "all-risk insurance" policy, meaning it provides coverage for all risks or "perils" not specifically excluded by the policy. This is evidenced by language in the Policy stating that it "insures your covered property for loss or damage resulting from direct physical loss, except for those Losses We Do Not Cover listed below." Policy, Docket No. 24, Ex. 1 at 7. All-risk insurance policies are well-described by the Washington Supreme Court in Vision One LLC v. Philadelphia Indemnity Insurance Co.:
All-risk policies . . . "provide coverage for all risks unless the specific risk is excluded." [Steven Plitt, Daniel Maldonado & Joshua D. Rogers, Introductory Concepts of the Risk; Public Policy Insurability, and Causation, in 7 Couch on Insurance 3d § 101:7, at 101-17 (2006)] ; see also Findlay v. United Pac. Ins. Co., 129 Wn.2d 368, 917 P.2d 116 (Wash. 1996) (noting that in an all-risk policy, "any peril that is not specifically excluded in the policy is an insured peril");
. . .
All-risk policies generally allocate risk to the insurer, while specific peril policies place more risk on the insured. Gust K. Newberg Constr. Co. v. E.H. Crump & Co., 818 F.2d 1363, 1364 (7th Cir.1987) ( "[U]nder an 'all risk' policy, the insurer bears the risk that a catastrophe not mentioned in the policy will occur; in a 'specified peril' policy, the insured bears that risk."); Frank Coluccio Constr. Co. v. King County, 136 Wn. App. 751, 150 P.3d 1147 (Wash. App. 2007) (noting that the purpose of all-risk builder's insurance "is to shift the risk of loss away from the contractor and the owner and to place it upon an insurer").
Vision One, LLC v. Philadelphia Indem. Ins. Co., 174 Wn.2d 501, 276 P.3d 300, 306 (Wash. 2012) (parallel citations omitted).
The Policy also contains "ensuing loss" exceptions to its exclusions. "[A] resulting or ensuing loss clause operates to carve out an exception to the policy exclusion . . . [f]or example, a policy could exclude losses 'caused directly or indirectly' by the peril of 'defective construction,' but then an ensuing loss provision might narrow the blanket exclusion by providing that 'any ensuing loss not excluded is covered.'" Vision One, 276 P.3d at 307 (internal citations omitted). "In this way, ensuing loss clauses limit the scope of what is otherwise excluded under the policy. Such clauses ensure 'that if one of the specified uncovered events takes place, any ensuing loss which is otherwise covered by the policy will remain covered. The uncovered event itself, however, is never covered.'" Id. (citing McDonald v. State Farm Fire & Cas. Co., 119 Wn.2d 724, 837 P.2d 1000, 1004 (Wash. 1992)). The Vision One court provided the following example of how an ensuing loss clause works:
Suppose a contractor miswires a home's electrical system, resulting in a fire and significant damage to the home. And suppose the homeowner's policy excludes losses caused by faulty workmanship, but the exclusion contains an ensuing loss clause. In this situation, the ensuing loss clause would preserve coverage for damages caused by the fire. But it would not cover losses caused by the miswiring that the policy otherwise excludes.
Vision One, 276 P.3d at 307. Note also that if the ensuing loss is itself a loss that is separately excluded, it remains uncovered: Vision One, 276 P.3d at 307 (internal citations omitted).
For example, in Wright, 124 Wn. App. 263, 109 P.3d 1, the Court of Appeals held that an ensuing loss provision did not provide coverage when the insured's condominium unit was damaged by mold after defective construction allowed water to seep through the walls. While the policy excluded losses caused by defective construction and mold, the defective construction exclusion stated that "any ensuing loss not excluded or excepted in this policy is covered." Although mold damage arguably would have been covered under the ensuing loss clause, the fact that the policy excluded all losses caused by mold was dispositive. Accordingly, the Court of Appeals held that the ensuing loss clause did not operate to provide coverage for a specifically excluded loss.
Vision One, 276 P.3d at 307 (internal citations omitted).
C. The Parties' Damage Theories
1. Plaintiff's Theory
In the Complaint, Plaintiff claims that "damage to [the] exterior sheathing and framing [of the building]" was caused by "wind, rain, weather conditions, continuous or repeated seepage or leakage of water, or water damage," with the damage taking place "incrementally and progressively . . . ." Compl., Docket No. 1, Ex. 2, at p. 7. Plaintiff also claims separate damage to the "framing supporting the elevated walkway," which is described as "severe hidden decay." Soltner Decl. ¶ 5. Mr. Soltner also describes the "gypsum sheathing in exterior walls that had been damaged by water intrusion." Soltner Decl. ¶ 6. "The hidden damage was caused by water intrusion. The water intrusion was caused by a combination of rain (primarily wind-driven rain) and inadequate construction." Id. Mr. Soltner opines that "the hidden damage . . . occurred incrementally and progressively each year from 1987 through 2013. During each storm event . . . wind-driven rain penetrated behind the trim . . . ." Id. ¶ 7. Mr. Soltner also references "inadequate construction that allowed the water intrusion from wind-driven rain . . . ." Id. These causes resulted in "mold or mildew growth . . . ." Id. ¶ 8.
As noted above, Mr. Soltner's declaration contains two paragraph 7s, and two paragraph 8s. The Court's reference here is to the paragraphs on page four of Mr. Soltner's declaration.
A representation of Plaintiff's theory of the damage in this case might look like this: Wind-Driven Rain + Inadequate Construction Water Intrusion Water Damage and/or Hidden Decay and/or Mold or Mildew Growth.
2. Defendant's Theory
The report of Defendant's Expert, Smith & Huston, Inc., extensively discusses "water intrusion and decay issues." Smith & Huston Report, Docket No. 34, at 26 of 79. The report indicates that "fungal decay probably started one or two years after completion, on or about 1988." Id. at 27. The report further opines that "[t]he main cause of water intrusion is inadequate and defective construction, and inadequate and defective maintenance." Id. However, in discussing what the actual damage to the building is, the Smith & Huston Report simply refers to "decay." Id. at 28-29. In its denial letter to Plaintiff, Defendant referred to the damage to the building as "decay, deterioration, and rot . . . ." Denial of Coverage Letter, Docket No. 28, Ex. 1, at 11. A representation of Defendant's theory of the damage in the case might look like this:
Inadequate/Defective Construction/Maintenance Water Intrusion Decay and/or Deterioration and/or Rot.
D. Policy Exclusions
Because the Policy is an all-risk policy, it presumptively covers Plaintiff's claims unless Defendant establishes that an exclusion applies. Thus, the Court must now consider whether the damage in this case, which the parties' experts characterize alternatively as water damage, decay, deterioration, or rot, and which was caused by some combination of inadequate construction and maintenance, weather conditions, and water seepage, is excluded by language in the policy. In doing so, "[a]ny ambiguities . . . are resolved against the drafter-insurer and in favor of the insured." Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115, 122 (Wash. 2000) (internal quotations omitted). Moreover, "[e]xclusionary clauses contained in insurance policies are strictly construed against the insurer." Stouffer & Knight v. Cont'l Cas. Co., 96 Wn. App. 741, 982 P.2d 105, 109 (Wash. Ct. App. 1999).
The Policy has three paragraphs (each with a number of sub-sections) under "Losses We Do Not Cover," each of which varies significantly in the breadth of the exclusion.
Paragraph 1: States that the Policy "do[es] not cover any loss or damage caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss." Policy at 7. However, none of the subsections of Paragraph 1, which include losses such as "earth movement" and "nuclear," are relevant to this case.
Paragraph 2: States that the Policy does not cover any loss or damage "caused by":
b. Weather. We do not cover any loss to property in the open caused by rain . . . [w]e do not cover loss to the interior of the building of the covered property caused by: Rain . . . whether driven by wind or not, unless the buildings covered or containing the property covered first sustains an actual damage to roof or walls by the direct action of wind or hail.
. . .
d. Wear and Tear, Breakdowns, Smog, Animals. We do not cover losses caused by any of the following: . . . ii. Deterioration, defects that could not have been discovered with a reasonably thorough inspection, or any quality in the property which makes it inherently dangerous or likely to break down . . . iv. Rust, mold, rot . . . .
. . . .
However, if one of these causes of damage then causes . . . water damage covered by this policy, we will cover losses caused directly by the . . . water."
Policy at 9-11.
Paragraph 3: States that the Policy "do[es] not cover any loss or damage caused by any of the following. However, any ensuing loss not excluded or excepted in this policy is covered":
a. Weather conditions. However, this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1, above or to produce the loss; . . .
. . .
c. Faulty, inadequate, or defective: i. planning, zoning, development, surveying, siting; ii. design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; iii. materials used in repair, construction, renovation or remodeling; or iv. maintenance.
Policy at 11-12.
Defendant based its denial of coverage for the damage to the sheathing and framing of the exterior walls of the Condominium on the exclusion for inadequate construction in paragraph 3(c), above, stating that "the cause of the damage for which the Association is making claim was inadequate construction, workmanship and/or maintenance." Denial of Cover Letter, Docket No. 28, Ex. 1, at 11. Recognizing that paragraph 3 contained an ensuing loss clause, Defendant stated that all ensuing loss in this case "is decay, deterioration, and rot, all of which are excluded [by paragraph 2(d)]. Therefore, [Defendant claims] the ensuing loss provision does not provide coverage." Id.
E. Plaintiff's Issues of Law and Fact
Plaintiff asks for summary judgment as to eleven separate issues of law and/or fact. The Court will evaluate each in turn.
The italicized headings are taken from Plaintiff's Motion for Partial Summary Judgment, Docket No. 27, at 4-5.
1. Damage to gypsum sheathing and framing in the exterior walls was caused by a combination of weather conditions (such as wind-driven rain), inadequate construction, leakage of water or "water damage" caused by "water," and mold, decay, or rot.
To the extent that Plaintiff is simply setting forth the universe of possible causes and/or manifestations of damage as presented by both parties, this is an accurate statement of said possible causes of damage and/or damage. However, it appears that Plaintiff is seeking a ruling on the "efficient proximate cause" ("EPC") of the damage in this case. "'Efficient proximate cause' is technically defined as 'the efficient or predominant cause which sets into motion the chain of events producing the loss . . . not necessarily the last act in a chain of events.'" Kish v. Ins. Co. of N. Am., 125 Wn.2d 164, 883 P.2d 308, 311 n.2 (Wash. 1994) (quoting Graham v. Pub. Emps. Mut. Ins. Co., 98 Wn.2d 533, 656 P.2d 1077, 1081 (Wash. 1983)). "Where a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produce the result for which recovery is sought, the insured peril is regarded as the 'proximate cause' of the entire loss." Graham, 656 P.2d at 1081 (citing Franklin Packaging Co. v. Cal. Union Ins. Co., 171 N.J. Super. 188, 408 A.2d 448, 449 (N.J. Super. 1979)).
Here, while there is agreement as to the range of possible EPCs of the loss, the actual EPC is disputed. To the extent that Plaintiff seeks summary judgment as to the proximate cause of damage, this question is a question of fact best left to a jury. Graham, 656 P.2d at 1081.
2. Allstate's policy treats weather conditions, inadequate construction, leakage of water (or "water damage" caused by "water"), and mold, decay or rot as separate and distinct perils.
The concept of "separate and distinct" perils is important to insurance policies. The question of whether two perils are considered a "single" peril can be significant in determining coverage. Plaintiff seeks summary judgment as to this issue because whether "water damage" is a distinct peril rather than included in damage caused by "weather," or from "deterioration, mold, or rot," may play a role with respect to the ultimate question of coverage by Defendant. "Interpretation of insurance policies is a question of law," which should be decided by the Court prior to trial. Overton, 38 P.3d at 325.
The Washington Court of Appeals discussed "separate and distinct" perils in Sunbreaker Condo Ass'n v. Travelers Ins. Co., 79 Wn. App. 368, 901 P.2d 1079, 1083-84 (Wash. App. 1995):
In this case, the insurer contends that the policy characterizes wind-driven rain and dry rot as a single peril excluded from coverage. Kish v. Insurance Co. of N. Am. is the only Washington Supreme Court case analyzing whether two forces are a single peril or distinct perils. 125 Wn.2d at 172, 883 P.2d 308. In Kish, the policies excluded loss resulting directly or indirectly from water damage. The definition of water damage included "flood," but "flood" was undefined. The jury determined that rain was the efficient proximate cause of the loss. The Supreme Court reversed, holding rain and flood to be a single, excluded peril as a matter of law. Kish, at 173, 883 P.2d 308. As Kish recognized, the characterization of perils is a question of contract. Kish, at 170, 883 P.2d 308 ("The pivotal question in this case is whether rain and flood are two separate perils under the language of these policies"). Kish applied "principles of interpretation for insurance contracts," including dictionary definitions, when interpreting the contract so as to ascertain the reasonable expectations of the parties. Kish, at 170-72, 883 P.2d 308. Because courts interpret insurance policy language as an average purchaser would understand it, Kish held that the word "flood" includes "rain-induced flooding." Kish, at 171, 883 P.2d 308. Similarly, in Eide v. State Farm Fire & Casualty Co., 79 Wash. App. 346, 350, 901 P.2d 1090 (1995), we used commonsense understanding when determining that "weakened soil" was not distinct from "landslide." These cases show that characterization of perils focuses on whether the events are contractually distinct, with reference to specific policy language and the perils allegedly involved in the particular factual setting. For even if two events are a single peril for purposes of a particular contract, the same exact events might be distinct perils under another.
The Court finds that the Policy in this case treats inadequate construction; weather (rain); water damage; and deterioration, mold, or rot as four separate and distinct perils. In the Policy before the Court, inadequate construction, weather (rain), and deterioration, mold, and rot are each clearly delineated in separate sub-sections of the Policy. Water damage is mentioned only in paragraph 2(d), which excludes coverage for deterioration, scratching, rodents, mechanical breakdowns, rust, mold, rot, smog, insects, and the like. At the end of subsection 2(d), there is a catch-all exception to the exclusion: "However, if one of these causes of damage then causes a fire, smoke (except from agricultural smudging or industrial operations), an explosion, glass breakage, or water damage covered by this policy, we will cover losses caused directly by the fire, smoke, explosion, glass breakage or water." Policy at 9-11. Viewing the Policy "as an average purchaser would understand it," water damage is treated as a distinct peril that might result from one of the excluded perils. Sunbreaker, 901 P.2d at 1083.
3. Allstate's all-risk policy does not exclude, and therefore covers, damage to exterior sheathing and framing caused by rain, weather conditions, or repeated leakage of water.
This is a matter of contract interpretation which should be decided by the Court prior to trial. Overton, 38 P.3d at 325. The Policy excludes coverage from damage caused by "weather" under two circumstances — first, in paragraph 3(a), damage from weather is excluded if it involves one of the perils listed in paragraph 1, none of which apply here. Second, paragraph 2(b) excludes coverage for damage for "property in the open caused by rain . . . [or] loss to the interior of the building of the covered property caused by: Rain . . . ." Interpreting this language as an average purchaser would understand it, and resolving ambiguity in favor of the insured, the Court finds that the sheathing and framing of the exterior walls of the Condominium is not "property in the open," i.e., completely uncovered property. Nor is damage to sheathing and framing of the exterior walls of the Condominium damage to the "interior of the building," which is more properly be understood as damage to fixtures within the internal walls of the building. Finally, there is no exclusion for "water damage" or for "repeated leakage of water." Accordingly, none of these exclusions apply and the Court holds, as a matter of law, that the Policy covers damage caused by rain, weather conditions, or water.
These perils include: Building Laws, Utility Failure, Earth Movement — Water, Nuclear, and War & Government Seizure. Policy at 7-8.
The Court does not rule on the ultimate issue of the proximate cause of the damage to the Condominium. See supra p. 16.
4. Allstate's policy specifically preserves [*26] coverage for "water damage" to exterior-wall sheathing and framing caused by "water."
The Court has already held that the Policy does not exclude coverage for "water damage" caused by "water." See supra p. 19.
5. Allstate's policy excludes damage caused by inadequate construction, but preserves coverage for "any ensuing loss not excluded or excepted," such as leakage of water, or "water damage."
This is simply an accurate statement of the language of the Policy. The Policy excludes damage caused by inadequate construction, but also provides coverage for ensuing loss that is not excepted. To the extent that Plaintiff seeks contractual interpretation by the Court, such interpretation is a matter of law which should be decided by the Court prior to trial. Overton, 38 P.3d at 325. Because water damage is not excluded, an ensuing loss of water damage that is caused by inadequate construction is covered by the Policy. Cf the Court's discussion of deterioration, rot, or mold, infra p. 22 and n.13, perils subject to their own exclusion and thus not covered by operation of the ensuing loss clause.
6. If there was an efficient proximate cause ("EPC") (i.e., initiating cause) of the loss, then the EPC was either weather conditions such as wind-driven [*27] rain or inadequate construction.
Defendant contends that the EPC was inadequate construction/maintenance, while Plaintiff contends that the EPC was wind-driven rain or a combination of wind-driven rain and inadequate construction. Thus, the universe of EPCs of the damage for which there is evidence is constrained to wind-driven rain or inadequate construction. However, the jury need not necessarily find that the EPC was "either" one or the other, but could instead find that the damage was caused by a combination of rain and inadequate construction (which would permit coverage, see infra pp. 22 23). The ultimate question of EPC remains a question for the jury.
7. If wind-driven rain was the EPC, then the loss is covered pursuant to the EPC rule.
The efficient proximate cause ("EPC") rule "is a rule of law" which "applies only when two or more perils combine in sequence to cause a loss and a covered peril is the predominant or efficient cause of the loss." Vision One, 276 P.3d at 309 (citing McDonald, 837 P.2d at 1004). "In such a situation, the efficient proximate cause rule mandates coverage, even if an excluded event appears in the chain of causation that ultimately produces the loss." Id. (citing Safeco Ins. Co. of Am. v. Hirschmann, 112 Wn.2d 621, 773 P.2d 413, 416 (Wash. 1989)). Thus the EPC rule "operates as an interpretive tool to establish coverage when a covered peril 'sets other causes into motion which, in an unbroken sequence, produce the result for which recovery is sought.'" Vision One, 276 P.3d at 309 (quoting McDonald, 837 P.2d at 1004). Interpreting the Policy as a matter of law, the Court finds that, because weather/rain is a covered peril under the Policy, if weather/rain was the EPC of the damage in this case, the EPC rule requires coverage of damage caused by the weather/rain, even if that damage is caused by otherwise-excluded perils such as rot or mold. Summary judgment will be granted as to this issue.
8. If inadequate construction was the EPC, then the loss is covered because Allstate's all-risk policy contains no relevant converse EPC language, and, as a result, the policy covers damage caused by one or more non-excluded event(s) in combination with one or more excluded event(s).
Plaintiff's statement goes slightly too far. Plaintiff is correct that the EPC rule operates only in favor of coverage. "When an excluded peril sets in motion a causal chain that includes covered perils, the efficient proximate cause rule does not mandate exclusion of the loss." Vision One, 276 P.3d at 309 (citing Key Tronic Corp. v. Aetna (CIGNA) Fire Underwriters Co., 124 Wn.2d 618, 881 P.2d 201, 206 (Wash. 1994)).
Accordingly, should an insurer wish to exclude otherwise-covered losses that result from a causal chain set into motion by an excluded peril ( i.e., include an inverse EPC-rule provision) the insurer must include specific language in the policy to this effect. Id. The Vision One court provided an example of what such inverse EPC language might look like. The court stated that language that excluded all damage when a particular excluded peril "[i]nitiates a sequence of events that results in loss or damage" might be sufficient to "permit the sort of inverse efficient proximate cause" rule that is not mandated by case law.
Interpretation of the Policy is a matter of law which should be decided by the Court prior to trial. Overton, 38 P.3d at 325. In this case the Policy simply excludes coverage for damage "caused by" inadequate construction, and in fact contains an ensuing loss clause preserving coverage for damage not otherwise excluded, such as water damage. Defendant argues that this "caused by" language is an unambiguous manifestation of Allstate's intent to incorporate a converse EPC rule with respect to inadequate construction, i.e., to exclude all damage following from the causal chain set into motion by inadequate construction. The Court finds this policy language-based argument unpersuasive. Simply excluding damage "caused by" a peril is a far cry from the explicit converse EPC language provided as an example by the Vision One court.
However, the Court will still deny summary judgment as to this issue. It is possible that a jury could find that the EPC in this case was inadequate construction, and, as Defendant argues, that the ensuing loss of the inadequate construction was a likewise-excluded peril, such as deterioration, rot, and mold. In that case, there would be no coverage.
Notably, to reach this outcome, the jury would also have to find that the damage in this case was solely an excluded loss, such as deterioration, rot, and mold, and not a combination of an excluded loss and a covered loss such as "water damage" or "hidden decay" leading to collapse. If the jury finds concurrent sources of damage, this loss would be covered by the policy as already discussed by the Court.
9. Alternatively, if neither weather conditions nor inadequate construction were the EPC, but instead both were independent, concurrent causes, then the loss is covered because Allstate's policy does not exclude losses caused by the concurrent causes of weather conditions and inadequate construction.
Plaintiff contends that, because the Policy does not exclude losses caused by so-called "concurrent perils" (in this case, a combination of inadequate construction and weather/rain), it therefore covers concurrent perils. Plaintiff relies on Vision One, in which the court approvingly discussed the district court's holding that "if an excluded peril and a covered peril both contributed to the property damage, then the policy would cover the loss." 174 Wn.2d at 509. The court also held that, "[t]o the extent defective design [covered] and faulty workmanship [excluded] combined to cause the loss, they acted as concurrent causes," and coverage was warranted. Support for Plaintiff's position is also found in the language of paragraph 1 of the exclusions section of the Policy, which states that the Policy "do[es] not cover any loss or damage caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently . . . to the loss." Policy at 7 (emphasis added). While none of the exclusions in paragraph 1 apply to this case, Plaintiff argues that this language indicates that Defendant was aware of the "concurrent perils" doctrine and chose to only exclude certain concurrent perils from coverage—namely, those perils in paragraph 1. Because all of the potentially-concurrent perils in this case are located in paragraphs 2 or 3, they do not fall under the concurrent-peril exclusion language.
Plaintiff is correct. The concurrent-peril language in paragraph 1 indicates that Defendant chose to exclude concurrent perils only with respect to the delineated perils in paragraph 1. Contract interpretation is a matter of law which should be decided by the Court prior to trial. Overton, 38 P.3d at 325. Interpreting the exclusions strictly in favor of Plaintiff, if inadequate construction and weather/rain were concurrent perils that combined to cause a loss, said loss is not excluded absent another applicable exclusion.
10. Damage to the exterior gypsum sheathing at the [Condominium] is covered because it was caused by one or more non-excluded event(s) (wind-driven rain, leakage of water, or "water damage" caused by "water,") and one or more excluded event(s) (inadequate construction and mold, rot, or decay).
As a matter of law, based on the concurrent perils doctrine (discussed supra, at pp. 22-23), if damage to the Condominium was caused by a concurrent combination of a covered peril (water, hidden decay causing risk of collapse) and an excluded peril (mold, rot, or decay), there is coverage. However, it is possible the jury could find as a matter of fact that damage to the Condominium was caused solely by an excluded peril, such as mold, rot, or decay. In such a case, there would not be coverage. As such, summary judgment will be denied as to this issue.
Defendant's only argument with respect to this issue is to state that "[n]either rain nor water intrusion themselves can reasonably be characterized as loss or damage." Instead, Defendant argues that all damage to the Condominium is "rot, deterioration, or mold." The Court finds this argument unpersuasive. While the jury could find that damage to the Condominium is solely rot, deterioration, or mold, the jury could also find the damage to be other perils that are explicitly covered by the Policy, such as "water damage" or "hidden decay" leading to risk of collapse.
11. Allstate's policy contains [*33] no temporal restrictions, limitations, or conditions regarding when covered damage must "commence" or "occur"; as a result the incremental damage at issue here, which occurred before, during, and after the policy period, is covered.
Plaintiff is correct that the Policy contains no temporal restrictions. Washington law is clear that progressive or incremental damage, i.e., damage that occurs in a "process," is treated as a single continuing "occurrence." Gruol Const. Co. v. Ins. Co. of N. Am., 11 Wn. App. 632, 524 P.2d 427, 430 (Wash. App. 1974); Travelers Prop. Cas. Co. of Am. v. AF Evans Co, 2012 U.S. Dist. LEXIS 188758, at *9-10 (W.D. Wash. Dec. 11, 2012) (quoting Am. Nat'l Fire Ins. Co. v. B&L Trucking & Const. Co., Inc., 134 Wn.2d 413, 951 P.2d 250, 254-55 (Wash. 1998)) (holding that "[[W]hen damage occurs during a policy period, that policy is triggered . . . when damage is continuing, all triggered policies provide full coverage. . . [o]nce coverage is triggered in one or more policy periods, those policies provide full coverage for all continuing damage . . . ."). Thus, insurers who provide insurance during the period in which there is damage are jointly and severally liable for the total damage. Gruol Constr. Co., 524 P.2d at 431; see also Greenhouse Condo. Homeowners Ass'n v. Chubb Custom Ins. Co., 03-cv-02941, 2004 U.S. Dist. LEXIS 32793 (W.D. Wash. July 8, 2004) (holding that because policy was not limited "to damages incurred during the coverage period . . . Chubb is jointly and severally liable for the entire loss.").
Defendant argues that joint and several liability has not been applied by the Washington state courts in a first-party property insurance context; Defendant points out that Gruol involved third-party insurance. Accordingly, Defendant urges the Court not to follow the persuasive federal district court cases discussed above which did apply joint and several liability in the first-party insurance context. Absent an explicit holding from the Washington Supreme Court, this Court looks to other applications of state law "to predict how the Washington Supreme Court would resolve the question." Lacey Marketplace Assocs. II, LLC v. United Farmers of Albert Co-op Ltd., 107 F. Supp. 3d 1155, 2015 WL 2454216 (W.D. Wash. 2015). In Villella v. Public Employees Mutual Insurance Co., 106 Wn.2d 806, 725 P.2d 957 (Wash. 1986), the Washington Supreme Court considered the joint and several liability issue raised in Gruol in the first-party context. The court ultimately found Gruol inapplicable because no damage occurred during the policy period of the earlier insurer; nevertheless, in its discussion of Gruol, the Court focused on the factual question of damage as limiting liability, not on a third-party versus first-party insurance distinction—in fact, this distinction is not even mentioned. Defendant argues that Villella's discussion of the application of Gruol "is, at most, an indication that, given an opportunity, the [Washington] Supreme Court might apply Gruol in a first party property case." Def.'s Opp'n at 20. While Defendant's point is accurate, Villella and the federal cases discussed above all point to the application of Gruol in a first-party insurance context. Indeed, no court has found otherwise, and no holding, dicta, or argument presented by Defendant supports a distinction in the application of joint and several liability based upon first-party versus third-party insurance coverage.
Defendant also argues that there is an issue of fact as to whether "any covered damage occurred during the policy period." Def.'s Opp'n, Docket No. 33, at 19. This argument is contradicted by the evidence in the record. The experts for both parties opine that damage likely began in 1988 or 1989, which is during the period that Defendant insured Plaintiff. See Soltner Decl. ¶ 5; Decl. of Alfred Donohue [34] Ex. 6 at 7. There is no evidence to the contrary. Accordingly, there is no genuine issue of material fact as to whether some of the damage in this case occurred during the policy period.
Defendant argues, in contradiction to its own expert, that "[w]hile Mr. Huston makes the general observation that 'that fungal decay probably started . . . about 1988,' he does not opine as to where any such decay may have occurred at any given time." Def.'s Opp'n at 21. The relevant question is whether damage occurred during the policy period, not "where" it occurred. Defendant's argument is unpersuasive.
F. Conclusion as to Plaintiff's Motion for Partial Summary Judgment
Based on the foregoing reasons, Plaintiff's Motion for Partial Summary Judgment is granted in part and denied in part.
The Court finds that the Policy treats inadequate construction; weather/rain; water damage; and deterioration, rot, or mold as separate and distinct perils. The Court finds that the Policy does not exclude damage caused by weather/rain and water damage caused by water. The Court finds that the inadequate construction exclusion in the Policy contains an ensuing loss clause. The Court further finds that if the EPC of the damage in this case was weather/rain or a concurrent combination of weather/rain and inadequate construction, the EPC rule mandates coverage of all damage. However, the ultimate issue of determining the EPC in this case remains a question for the jury.
The Court further finds that the Policy contains no temporal restriction and that there is no genuine issue of material fact that some damage occurred during the policy period. Accordingly, coverage is triggered, and, if exclusions for coverage do not apply, Defendant is jointly and severally liable for the damage to the Condominium. The Court grants summary judgment as to these issues.
The Court denies summary judgment as to the ultimate determination of the EPC, which is a question for the jury. As noted above, Defendant may avoid liability for coverage of Plaintiff's claim should the jury find that inadequate construction was the sole EPC of the damage to the Condominium, and should the jury then find that the loss consisted only of the excluded damages of "deterioration, rot, or mold."
VI. CONCLUSION
Having considered the parties' briefs, the relevant case law, and the entire record, IT IS HEREBY ORDERED that Defendant's Motion for Partial Summary Judgment is DENIED. Plaintiff's Motion for Partial Summary Judgment is GRANTED IN PART AND DENIED IN PART as set forth in this Order.
DATED this 23rd day of December, 2015.
/s/ Barbara J. Rothstein
BARBARA J. ROTHSTEIN
UNITED STATES DISTRICT JUDGE
APPENDIX — RELEVANT SECTIONS OF THE POLICY
Collapse — Parts One and Two
We will pay for risk of direct physical loss involving collapse of a covered building or any part of a covered building caused only by one or more of the following:
a. Fire; lightning; windstorm; hail; explosion; smoke; aircraft; vehicles; riot; civil commotion; vandalism or malicious mischief; breakage of glass; falling objects; weight of snow, ice or sleet; water damage; all only as insured against in this policy;
b. Hidden decay;
c. Hidden insect or vermin damage;
d. Weight of people or personal property;
e. Weight of rain which collects on a roof;
f. Use of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
...
Losses Covered Under Coverage A
This policy insures your covered property for loss or damage resulting from direct physical loss, except for those Losses We Do Not Cover listed below.
...
Coverage A — Business Property
1. We do not cover any loss or damage caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
a. Building Laws
...
b. Utility Failure
...
c. Earth Movement — Water
...
d. Nuclear
...
e. War and Government Seizure
...
2. We do not cover any loss or damage cause by:
...
b. Weather
We do not cover any loss to property in the open caused by rain, cold weather, frost, snow, ice or sleet.
We do not cover loss to the interior of the building or the covered property cause by:
Rain, snow, sand or dust, whether driven by wind or not, unless the buildings covered or containing the property covered first sustain actual damage to roof or walls by the direct action of wind or hail.
...
d. Wear and Tear, Breakdowns, Smog, Animals
We do not cover losses caused by any of the following:
i. Wear and tear or any marring or scratching.
ii. Deterioration, defects that could not have been discovered with a reasonably thorough inspection, or any quality in the property which makes it inherently dangerous or likely to break down.
iii. Any mechanical breakdown, including a rupture or bursting due to centrifugal force, except when coverage is provided under Part Nine — Heating and Air Conditioning Equipment or Part Ten — Comprehensive Heating, Air Conditioning and Refrigeration Equipment.
iv. Rust, mold, rot, contamination, temperature changes or extremes, or the wetness or dryness of the air.
v. Smog or smoke from agricultural smudging or industrial operation.
vi. Birds, insects, rodents, or other animals.
However, if one of these causes of damage then causes a fire, smoke (except from agricultural smudging or industrial operations), an explosion, glass breakage, or water damage covered by this policy, we will cover losses caused directly by the fire, smoke, explosion, glass breakage or water.
3. We do not cover any loss or damage caused by any of the following. However, any ensuing loss not excluded or excepted in this policy is covered.
a. Weather conditions. However, this exclusion only applies if the weather conditions contribute in any way with a cause or event excluded in paragraph 1, above or to produce the loss.
b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body;
c. Faulty, inadequate or defective:
i. Planning, zoning, development, surveying, siting;
ii. Design, specification, workmanship, repair, construction, renovation, remodeling, grading, compaction;
iii. Materials used in repair, construction, renovation or remodeling; or
iv. Maintenance;
of part of all of any property whether on or off the described premises.
...
General Coverage
12. Legal Action Against Us
Persons insured agree not to take any legal action against us in connection with your policy unless you have first complied with all of its terms. Persons insured also agree to bring any action against us that relates to Coverage A within one year after a loss occurs.