Washington is among the most pro-policyholder states within the nation. As we not too long ago famous in Dan Veroff Discusses Washington Insurance coverage Regulation, Washington imposes extreme penalties for mishandled claims. As a brand new instance of the state’s dedication to defending policyholders, the Washington Supreme Courtroom issued an opinion on Thursday reaffirming a pro-policyholder precept established 12 years in the past in a pair of opinions. Not solely had the courtroom already addressed the problem within the latest previous, however within the new case, the intermediate appellate courtroom already acquired the reply proper and adopted the prevailing precedent. The one courtroom erring within the chain of occasions resulting in the brand new resolution was the trial courtroom, which had already been reversed. Thus, the brand new opinion shouldn’t be totally crucial however a lot appreciated. Whereas the topic had already been lined, the subject is complicated, and new opinions make sure the regulation continues to be utilized correctly. Washington clearly cares deeply about its policyholders and making certain the regulation is adopted.

The Washington Supreme Courtroom reaffirmed its stance on ensuing loss exceptions to exclusions established in 2012. The courtroom confirmed that insurance coverage insurance policies with ensuing loss exceptions cowl all ensuing losses, even when the coverage says the exclusion applies even when it “initiates a sequence of occasions that ends in loss or injury, whatever the nature of any intermediate or last occasion in that sequence.” Thus, it affirmed that the exception covers even ensuing losses which can be a part of the identical chain of causation because the excluded occasion.

Examples are the perfect clarification of this protection provision for these unfamiliar. For example, an insurance coverage coverage would possibly exclude protection to restore a damaged plumbing part however cowl the following water injury to the house. As one other instance, a coverage would possibly exclude the fee to restore a building defect like faulty window sealing however cowl the following water injury from a rainstorm. Insurance coverage corporations have argued, as they did within the case earlier than the Washington Supreme Courtroom, that these ensuing loss provisions solely apply to losses which can be exterior the traditional and anticipated sequence of occasions from the excluded trigger. Thus, insurers argue that water injury is anticipated from a plumbing break, so it isn’t a part of the following loss exception to the exclusion for damaged pipes.

The Washington Supreme Courtroom rejected this interpretation in two 2012 instances with completely different outcomes. Within the first and first case, it held {that a} collapse ensuing from defective workmanship was lined beneath an all danger coverage with the identical language that it evaluated once more in 2024. ¹ The insured in that case had an “all danger” coverage that excluded protection for losses brought on by defective workmanship, even when it “initiates a sequence of occasions that ends in loss or injury, whatever the nature of any intermediate or last occasion in that sequence.” It additionally included an ensuing loss exception, stating, “If loss or injury [caused] by a Coated Reason behind Loss outcomes [from the excluded event], we pays for that ensuing loss or injury.” The Supreme Courtroom of Washington reversed the Courtroom of Appeals and stated nothing a couple of requirement that the lined peril be impartial. As a substitute, it particularly rejected the argument that the ensuing loss provision solely “applies when an excluded peril causes a separate and impartial lined peril.” ²

Within the different 2012 case, the Washington Supreme Courtroom discovered that the collapse of a deck was not an impartial peril, and thus not an excepted ensuing loss, from the defective building and decay that brought about its collapse within the first place. ³ The courtroom reiterated the rule from the case talked about above that beneath a ensuing loss exception, ensuing loss brought on by an excluded peril is roofed until it’s topic to its personal exclusion. Nevertheless, it held that the superior decay of the fin partitions was not a separate, ensuing loss lined by the coverage. It discovered that whether or not the deck was in a state of collapse was irrelevant because the deck’s situation was the results of two excluded perils—faulty building and decay—and didn’t represent a separate loss other than these perils. As a result of “the pure course of of degradation will end in collapse,” it discovered {that a} collapse is merely the top results of deterioration and never a brand new and completely different peril from rot. ⁴

Given the opinions above, the Washington Supreme Courtroom didn’t must tackle a brand new case on the topic, however we recognize that it did so nonetheless. In The Gardens Condominium v. Famers Insurance coverage Alternate, the Condominium discovered injury to its roof from condensation. The Condominium traced the injury to defective design and building of the constructing’s roof that prevented satisfactory air flow, inflicting water vapor to condense on the underside of the roof. After believing that they had repaired the injury, it was later found the fixes nonetheless didn’t permit for adequate air flow, leading to additional condensation and ensuing property injury from the extra defective workmanship.

The Condominium was insured beneath a Farmers “all danger” coverage that excluded protection for losses brought on by defective workmanship, with the identical actual language stating that the exclusion applies even when it “initiates a sequence of occasions that ends in loss or injury, whatever the nature of any intermediate or last occasion in that sequence.” It additionally included an ensuing loss exception, stating, “If loss or injury [caused] by a Coated Reason behind Loss outcomes [from the excluded event], we pays for that ensuing loss or injury.”

The Condominium contended that Farmers didn’t need to pay the prices to restore the defective workmanship however did need to cowl the price of the injury brought on by condensation. In different phrases, the loss ensuing from the excluded occasion, condensation ensuing from defective workmanship, is roofed as an exception to the exclusion. Regardless of the clear regulation, Farmers disagreed, arguing that “the ensuing loss exception applies provided that a lined occasion breaks the causal chain between the excluded danger and subsequent losses or if there may be injury to different property.”

Regardless of two Washington Supreme Courtroom opinions on the topic, the trial courtroom agreed with Farmers by trying to authority from the Sixth Circuit Courtroom of Appeals. Nevertheless, Washington shouldn’t be a part of the Sixth Circuit, which applies legal guidelines of various states. The Courtroom of Appeals reversed. Per the 2 opinions referenced above, it reasoned that by together with the ensuing loss clause, Farmers agreed to pay for injury brought on by a lined peril even when it outcomes from defective workmanship. Thus, if condensation and humidity are lined perils beneath the coverage, the coverage should cowl injury brought on by these perils. The courtroom additionally identified that this courtroom had by no means interpreted ensuing loss clauses to protect protection just for injury brought on by impartial, unexpected lined perils. The courtroom remanded to the trial courtroom to find out if condensation was a lined peril and, subsequently, whether or not the ensuing loss exception utilized.

The Washington Supreme Courtroom took the case and affirmed. ⁵ In so doing, it adopted the prevailing precedent, particularly noting that the identical language was at difficulty in one of many prior two instances on the topic. The courtroom additionally famous that insurers may keep away from this outcome by merely not together with an ensuing loss exception.

Farmers argues this holding will imply ‘there may by no means be any excluded sequence of occasions.’ We disagree. Insurers are free to draft insurance policies that comprise ‘sequence of occasions’ causation language and do not need ensuing loss exceptions to the exclusions. As Gardens accurately factors out, Farmers may have drafted the coverage otherwise to make sure that the complete causal chain ensuing from an excluded peril could be excluded by not together with a ensuing loss exception or by limiting the exception.

Lastly, the Washington Supreme Courtroom briefly thought of the insured’s secondary argument that the coverage was ambiguous and may, subsequently, be construed in favor of protection. The courtroom famous that it rejected the identical argument in 2012. “Though this coverage could also be complicated, it isn’t ambiguous.”

The opinion was signed by all 9 justices of the Washington Supreme Courtroom.

¹ Imaginative and prescient One, LLC v. Phila. Indem. Ins. Co., 158 Wn. App. 91 (Wash. App. 2010).
² Imaginative and prescient One, LLC, 158 Wn. App. at 107.
³ Sprague v. Safeco Ins. Co. of Am., 174 Wn.2nd 524, 276 P.3d 1270 (2012).
⁴ Sprague, 174 Wn.2nd at 530.
⁵ The Gardens Condominium v. Famers Ins. Alternate, No. 101892-4, — Wn.2nd — (Wash. Mar. 14, 2024).