United States District Court, W.D. Washington, Seattle
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
C. COUGHENOUR, JUDGE
matter comes before the Court on multiple motions: Plaintiff
Sunwood Condominium Association's (the
“Association”) motion for partial summary
judgment against Defendant National Surety Corporation
(“NSC”) (Dkt. No. 79); the Association's
motion for partial summary judgment against Defendant St.
Paul Fire & Marine Insurance Company (“St.
Paul”) (Dkt. No. 82); Defendant St. Paul's motion
for summary judgment (Dkt. No. 84); and Defendant NSC's
motion for summary judgment (Dkt. No. 88). Having thoroughly
considered the parties' briefing and the relevant record,
the Court finds oral argument unnecessary and hereby GRANTS
in part the Association's motions and DENIES
Defendants' motions for the reasons explained herein.
Association maintains the two buildings at issue in this
suit. (Dkt. No. 1 at 2.) The exterior walls of these
buildings are made of stucco applied over building
paper/weather resistant barrier (“WRB”) placed
over plywood sheathing. (Dkt. No. 82 at 5.) In November 2014,
The Association performed an intrusive investigation that
uncovered “water intrusion and hidden damage” to
the sheathing, framing, and WRB on exterior walls and decks
of the buildings. (Dkt. Nos. 1 at 5, 80-1 at 3, 82 at 1.) On
December 12, 2014, the Association submitted an insurance
claim to all nine insurers that covered the buildings since
their construction around 1980. (Id. at 2-4, 6). The
Association and its insurers subsequently performed a joint
follow-up investigation. (Dkt. No. 79 at 6.) The resulting
report from the Association's expert detailed hidden
water damage to sheathing and framing on both buildings.
(Dkt. No. 1 at 6) The report found the damage had occurred
“incrementally and progressively [during storm events]
each year from 1979, ” when wind driven rain penetrated
the buildings' exterior cladding. (Dkt. No. 80-1 at 53.)
Insurer experts described water intrusion and wood decay
“primarily due to . . . an inherent lack of
drainage” and inadequate or defective construction.
(Dkt. Nos. 79 at 6, 80-1 at 27-28, 82 at 7.) The
Association's expert estimated necessary repairs would
require removal of all stucco from both buildings at a cost
of $2, 789, 155. (Dkt. No. 82 at 7.)
St. Paul subsequently denied coverage for the
Association's claims. (Dkt. Nos. 80 at 2, 82 at 8.) The
Association brought suit on June 29, 2016 against NSC, St.
Paul, and other insurers. (Dkt. No. 1 at 6-12.) The Association
has settled its claims with all insurers named in its
complaint except NSC and St. Paul. (Id. at 3-4). The
Association brings a breach of contract claim against both
NSC and St. Paul, and claims for violation of Washington
claims handling standards, Consumer Protection Act, Insurance
Fair Conduct Act, and for bad faith against NSC.
(Id.) The Association seeks declaratory relief that
insurance policies at issue covered its claim for hidden
water damage, as well as monetary costs and damages.
POLICIES AND POSITIONS
insured the Sunwood complex from August 2001 to August 2008.
(Dkt. No. 1 at 6- 12.) The “all-risk” policy
covered “all risks of direct physical loss or damage,
except as excluded or limited” therein. (Dkt. No. 80-1
at 7.) Policy exclusions included loss or damage
“caused by or resulting from . . . wear and tear,
gradual deterioration, inherent vice, latent defect . . .
mold, [or] wet or dry rot.” (Dkt. No. 80-1 at 9.) A
separate policy section excluded loss or damage caused by
“inadequate or defective . . . construction.”
(Id. at 10.) Under both exclusion sections, the
policy added: “but, if loss or damage from a
covered cause of loss results, [NSC] will
pay for that resulting loss or damage.” (Id.)
(emphasis in the original).
Association describes its claim as for a single, progressive
loss of “hidden water damage” to building framing
and sheathing, caused by a combination of wind-driven rain,
weather conditions, repeated seepage of water, and inadequate
construction or maintenance. (See Dkt. Nos. 98 at 3,
80-1 at 53.) NSC argues the Association's claim is for
multiple discrete losses of “dry rot damage” to
building framing and sheathing, caused by inadequate
construction that resulted in water intrusion and gradual
deterioration. (Dkt. Nos. 88 at 2, 80-1 at 55.)
Paul insured the complex from June 1997 to June 2001. (Dkt.
No. 84 at 2.) The policy also covered all non-excluded risks.
It excludes “wear and tear; deterioration, mold, wet or
dry rot; . . . the inherent nature of the property.”
(Id. at 28.) A resulting loss clause applies to
these exclusions: “if loss not otherwise excluded
results, we will pay for that resulting loss.”
Association asserts the same theory of loss, causation, and
liability against St. Paul. St. Paul argues the
Association's loss was caused primarily by faulty
construction or latent defects in the building, combined with
inadequate maintenance, deterioration, and wear and tear that
allowed rain water to intrude behind exterior stucco. (Dkt.
No. 82 at 2.) It characterizes the loss as comprised of
“numerous separate events and conditions.” (Dkt.
No. 85 at 29.)
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 Court must view the facts and
justifiable inferences to be drawn therefrom in the light
most favorable to the nonmoving party. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Once a
motion for summary judgment is properly made and supported,
the opposing party “must come forward with
‘specific facts showing that there is a genuine issue
for trial.'” Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting
Fed.R.Civ.P. 56(e)). Summary judgment is appropriate against
a party who “fails to make a showing sufficient to
establish the existence of an element essential to that
party's case, and on which that party will bear the
burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986).
Interpretation of Insurance Policies
use a two-step process to determine whether insurance
coverage exists: an insured must first show that the policy
covers the loss; then to avoid coverage, an insurer must
point to specific policy language excluding the loss.
Wright v. Safeco Ins. Co. of America, 109 P.3d 1, 5
(Wash.Ct.App. 2004). “Interpretation of the terms of an
insurance policy is a matter of law.” Allstate Ins.
Co. v. Raynor, 21 P.3d 707, 711 (Wash. 2001). The Court
interprets undefined terms in policy language as they would
be read by an ordinary insurance consumer. See Moeller v.
Farmers Ins. Co. of Wash., 267 P.3d 998, 1002 (Wash.
2011). Inclusionary clauses must “be liberally
construed to provide coverage.” Riley v. Viking
Ins. Co. of Wisconsin, 733 P.2d 556, 558 (Wash.Ct.App.
1987). “Exclusionary clauses should be construed
against the insurer with special strictness.”
McAllister v. Agora Syndicate, Inc., 11 P.3d 859,
860 (Wash.Ct.App. 2000).
THE ASSOCIATION'S MOTION FOR PARTIAL SUMMARY JUDGMENT
AGAINST DEFEDNANT NSC
Association seeks a determination that NSC's policies
cover the cost of repairing alleged water damage. It also
seeks summary judgment on NSC's affirmative defenses
based on: (1) NSC's suit limitation clause and (2)
failure to mitigate. The Court DENIES the Association's
motion for summary judgment on its breach of contract claim
and coverage related issues. The Court GRANTS the
Association's motion on NSC's affirmative defenses.
Association argues that NSC's policy covers its loss as a
matter of law. The Court disagrees, finding genuine disputes
of fact regarding coverage. Without making a coverage
determination, the Court resolves several discrete legal
issues related to the policy.
Association argues its loss was fortuitous. NSC denied
coverage by asserting the loss was not fortuitous because it
consisted of “long term damage” from
“gradual and accumulated effects” of
“recurring weather conditions . . . usual to the area
(i.e. rain).” (Dkt. No. 80-1 at 54.) “The proper
inquiry is not whether the rain is unexpected, but whether
the loss is unexpected.” Babai v. Allstate Ins.
Co., . No. C12-1518-JCC, slip op. at 6-7 (W.D. Wash.
Oct. 8, 2014). NSC's policy contains no exclusion for
rain, and NSC cannot create one with a fortuitousness
argument. See Babai, No. C12-1518-JCC, slip op. at 4
(W.D. Wash. Dec. 13, 2013). If a jury finds hidden,
unexpected damage at Sunwood was caused by exposure to rain,
the loss was fortuitous.
Weather, Wind-Driven Rain, and Repeated Seepage of
Association argues weather, wind-driven rain, and repeated
seepage of water are covered perils under NSC's policy
because they are not specifically excluded. (Dkt. No. 79 at
11) (citing Sunbreaker Condominium Assn v. Travelers Ins.
Co., 901 P.2d 1079, 1083 (Wash.Ct.App. 1995). The Court
agrees. NSC's policy excludes loss or damage caused by
“weather conditions” only when combined with
earth movement, flood, or other excluded perils not relevant
here. (Dkt. No. 80-1 at 10.) It does not mention rain or
repeated seepage of water. NSC does not contest that these
perils are distinct from inadequate construction, rot, and
deterioration. To the extent NSC argues its exclusions for
deterioration and rot apply despite the influence of rain,
the Court reads this as a causation argument for the jury,
not an assertion that rain and water seepage are subsumed
under these exclusions. (See Dkt. No. 91 at 7.)
Combination of Covered and Excluded Perils
Association argues that when a covered cause of loss (rain
water intrusion) combines with an excluded cause of loss
(inadequate construction), the resulting loss is covered as a
matter of law. (Dkt. No. 79 at 9.) NSC takes the position
that rain is too remote to the loss to mandate such coverage.
(Dkt. No. 91 at 5.) NSC asserts its exclusions for gradual
deterioration and rot apply unless a jury finds that rain
alone was the efficient proximate cause of the loss.
(Id. at 7.) The Court agrees with NSC that coverage
cannot be determined as a matter of law here, but agrees
generally with the legal principle the Association
asserts-NSC's policy covers an otherwise excluded loss if
it is proximately caused by concurrent excluded and covered
efficient proximate cause (“EPC”) rule applies
“where two or more distinct perils . . . cause a loss,
and the policy covers one . . . but not all” perils.
Sunbreaker Condo Ass'n, 901 P.2d at 1082-83. It
imposes liability “for a loss efficiently caused by a
covered peril, even though other, excluded perils contributed
to the loss.” Id. The rule does not operate in
reverse, automatically mandating exclusion of a loss when an
excluded peril is the EPC. Vision One, LLC, 276 P.3d
at 30. Specific policy language is required for that result.
Id. Unless precluded by policy language, the rule
leads to coverage where a covered peril combines with an
excluded peril as the concurrent EPC of the loss. See
Id. at 310.
argues Vision One's finding of coverage for
concurrent causation is limited to policies that exclude
listed perils that “solely and directly” cause a
loss. (Dkt. No. 91 at 6.) Instead, NSC would have the Court
read its “caused by” exclusion to preclude
coverage unless the covered cause of loss is the sole EPC.
(See Dkt. No. 91 at 7.) The Association responds
that Vision One's holding did not depend on the
“solely and directly” language; rather it turned
on the principles of the EPC rule and the fact that the
policy did not exclude concurrent causes. Id. at
521-22). The Court adopts the Association's reading of
Vision One. Accord Greenlake
Condominium Association v. Allstate Insurance Co.,
No. C14-1860-BJR, slip op. at 20-30 (W.D. Wash. Dec. 23,
plain language of NSC's policy supports coverage of
concurrent proximate causes. The policy contains an
“inverse EPC” clause in an exclusion paragraph
not relevant here. (Dkt. No. 80-1 at 8.) Section D.1 excludes
loss or damage “regardless of any other cause or event
that contributes concurrently or in any sequence of the
loss.” (Id.) A court must construe an
insurance policy as a whole. Transcontinental Ins. Co. v.
Washington Public Utilities Sys., 760 P.2d 337, 339
(Wash. 1988). The application of a concurrent cause exclusion
to other perils but not to the ones at issue here is
indicates an intent to cover the damage or loss here if it
results from concurrent covered and excluded causes. Whether
excluded and covered perils were concurrent efficient
proximate causes of the Association's loss is a question
for the finder of fact.
Ensuing Loss Provision
Association's argues that NSC's ensuing loss
provision still provides coverage where an excluded peril is
the sole EPC of a loss, and the resulting peril or loss is
covered. (Dkt. No. 79 at 14, 15.) Ensuing loss clauses
“ensure that if [a] specified uncovered events takes
place, any ensuing loss which is otherwise covered by the
policy will remain covered.” Vision One, 276
P.3d at 307. NSC's ensuing loss provision states
“if loss or damage from a covered cause of loss
results, NSC will pay for the resulting damage.” (Dkt.
No. 80-1 at 9.) By these terms, if an excluded peril (e.g.
inadequate construction) brings about a covered
peril (e.g. rain intrusion, repeated water seepage,
or water damage), any resulting damage is covered.
attempts to avoid this result by arguing there is no covered
ensuing loss here as a matter of law. (Dkt. No. 91 at 8-9.)
NSC relies on Sprague v. Safeco Ins. Of Am., to
assert that “there is no damage beyond the defectively
constructed exterior wall, ” an excluded loss itself.
(Dkt. No. 91 at 8-9) (citing 276 P.3d 1270, 1272 (Wash. 2012)
(denying coverage under an ensuing loss provision where
damage did not extend beyond excluded rot and construction
defects in a wall). But Sprague's holding rested
on an absence of facts showing the occurrence of the
Association's asserted covered loss-collapse.
Id. Here, the Association presents facts to show its
asserted covered losses-rain intrusion and water
damage-occurred. NSC argues “water intrusion through
walls” cannot be a separate resulting loss from
construction defects. (Dkt. No. 91 at 9) (citing
Wright, 109 P.3d at 5) The court in Wright
held that water leaks were not covered as an ensuing loss of
construction defects, where the policy excluded loss caused
“directly or indirectly by construction defects.”
Id. NSC's policy contains no such limitation.
The resulting loss provisions in Sprague and
Wright are distinct from this case. Both hinge on
whether the resulting loss was covered. 276 P.3d at
1272 (“any ensuing loss not excluded is
covered”); 109 P.3d at 5. In contrast, NSC's
provision depends on whether the loss results from a
covered cause. (Dkt. Nos. 95 at 6, 80-1 at 9)
(“if loss or damage from a covered cause of loss
results, we will pay for that ...