This amicus request was submitted on behalf of The Garden Condominium (“the Association") to request that Washington State CAI Chapter file an amicus brief in Gardens v. Farmers.
Farmers Insurance Exchange (“Farmers") insured the Gardens condominium building. The policy covers all risks not excluded. An exclusion applies where faulty construction “initiated a sequence of events" that resulted in damage. But the exclusion is subject to a resulting loss exception: “but if . . . damage by a covered cause of loss results, then we will pay for the resulting damage."
The issue is whether or not the resulting loss exception should be interpreted to preserve coverage for damage caused by condensation (a covered event) that resulted from faulty construction (an excluded event).
The trial court with admirable candor explained that it had decided to “import" and “read into" the policy a requirement that the policy's resulting loss exception only applies to an independent, unforeseeable covered event. The alleged covered event (condensation) was neither independent nor unforeseeable. Thus, the trial court found no coverage.
The Washington Court of Appeals reversed, adopting the Vision One interpretation that the actual language of the resulting loss exception operates as an exception to the exclusion and preserves coverage for resulting damage caused by any covered event, regardless of whether the covered event is independent or unforeseeable.
The Supreme Court of Washington accepted review. During the current stage of the appeal process, the following arguments are being made:
Farmers argues: (1) that it intended to exclude the entire sequence of events initiated by faulty construction, and the resulting loss clause does not change this; (2) resulting loss coverage should be limited to independent, unforeseeable events, otherwise it swallows the exclusion for faulty construction; and (3) Dicta from the Sprague case suggests that coverage under the resulting loss clause should be limited to separate property: here parts of the “roof assembly" were defective, so there should be no coverage for any resulting damage to any portion of the roof assembly.
The Association argues that: (1) The resulting loss clause should be interpreted according to its plain meaning as explained in Vision One1: It operates as an exception to an exclusion to preserve coverage for resulting damage caused by a covered event; (2) the resulting loss exception does not swallow the exclusion because the faulty construction itself is still excluded (here the cost of replacing inadequate “sleeper" joists); and (3) the policy does not limit coverage to only “separate" property, but even if “separation" is required, the water damaged sheathing is separate from the faulty installation of undersized sleeper joists that failed to add enough ventilation to the roof joist cavities.
In Washington, many condominium Associations have successfully recovered insurance benefits to repair damage caused by covered events that resulted from an excluded peril. CAI policyholders benefit when insurers are held to the actual language of their policies. This allows policyholders and insurance agents/brokers to fairly evaluate coverage and potential claims. For example, some policies cover water damage resulting from faulty construction. Others do not.
Condominiums are required to purchase property insurance each year. And condominium declarations typically require Associations to make an insurance claim for potentially covered damage to common elements prior to special assessing unit owners for repair costs. Thus, condominium associations frequently make insurance claims and recover policy benefits.
Nationwide there is a split of authority regarding whether resulting loss clauses should be interpreted to preserve all-risk coverage if damage by a covered event results from an excluded peril or should be limited to only independent and unforeseen covered events (which we believe would already be covered by an all-risk policy even without a resulting loss exception). While the Supreme Court answered these questions in favor of policyholders in Vision One, the case can be difficult to understand and apply. The Supreme Court appears to have accepted review here to clarify these issues. This case is far easier to understand than Vision One, and is based upon clear, stipulated facts.
Amicus Brief
Court: Supreme Court of Washington
Topic: Insurance
Brief Author: Daniel Stein at Stein, Sudweeks and Stein, Tukwila, Washington.
Filed: December 5, 2023
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. Bruce Jenkins, Esq., CCAL (UT)
Ms. Karyn Kennedy Branco, Esq. (NJ)
Ms. Joan Lewis Heard, Esq. (CA)
Mr. Todd Sinkins, Esq., CCAL (VA)
CIRMS Insurance Providers who provided feedback:
Ms. Jennifer Wojciechowski, Esq., CCAL, CIRMS (PA)
Ms. Teresa Melson, CIRMS (VA)