Tred R. Everly | Insurance Law Hawaii | May 22, 2017
The federal district court found that the insurers could not escape coverage by summary judgment under their all risk policies. Eagle Harbour Condo Ass’n v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 54761 (W.D. Wash. April 10, 2017).
Eagle Harbour Condominium Association sued several of its insurers who denied coverage for hidden water damage. Various insurers provided coverage from 1988 to 2015.
The Association asserted that wind-driven rain and inadequate construction allowed water to penetrate the buildings’ sheathing and framing, causing decades of deterioration and decay, until the damage was exposed to view in August 2014. The insurers claimed that the loss resulted from poor decisions in constructing and inadequately maintaining a stucco building in the wet and windy Pacific Northwest. The Association argued that the policies did not explicitly exclude damage caused by wind-driven rain, so there was coverage.
The Association identified four possible efficient proximate causes for its loss: inadequate construction, wind-driven rain, repeated seepage of water, and rot or deterioration. The insurers argued that it was unnecessary to analyze the loss under the efficient proximate cause because no covered peril could have caused the loss. The policies did not cover inadequate construction, wear and tear, rot or deterioration, or repeated seepage of water. The Association countered that wind-driven rain was a distinct and fortuitous peril that none of the policies excluded.
The court noted that if the predominant cause of the loss was a question of material fact – such as when multiple perils combined to cause insured’s damage and at least one but not all were covered – the question of which peril constituted the proximate cause was left to the fact finder.
The policies excluded “repeated seepage of water.” They also excluded specific losses sustained by weather, so long as the weather event worked with an act of law, earth movement, power failure, and other specifically listed events. Rain, not acting with the listed exclusions, was therefore covered, so long as it did not leak into the property for over 14 days in duration.
Deterioration did not engulf the perils of weather and repeated water seepage either. The policy excluded coverage for deterioration, but not for weather and repeated water seepage.
The insurers also argued that wind-driven rain was not a fortuitous peril on Bainbridge Island, where rain was common. Therefore, the losses it produced were uncovered. But whether the Association knew hidden damage from wind-driven rain would occur was a question for the jury.
Consequently, the insurers’ motions for summary judgment were denied.