WA SUP. CT. (VISION ONE CASE) INTERPRETS ENSUING/RESULTING LOSS CLAUSE IN ALL-RISK INSURANCE POLICY, AND CLARIFIES APPLICATION OF EFFICIENT PROXIMATE CAUSE RULE, TO PROVIDE COVERAGE
An insurer under an all-risk policy that relies solely on an exclusion that contains an ensuing/resulting loss clause, the application of which clause operates to provide coverage for a peril or loss that results from the excluded event, is not entitled to have a jury apply the efficient proximate rule to determine whether the efficient proximate cause was another exclusion that does not contain an ensuing loss clause.
Vision One, LLC v. Philadelphia Indem. Ins. Co., 2012 WL 1740155 (5/17/12) involved a condo project under construction where a floor slab collapsed when the shoring gave way due to defective workmanship, leading to the loss of the slab and the need to clean up the debris and cement. Vision, the project developer, had a builders’ all-risk policy with the insurer– Philadelphia. Under the policy, Philadelphia was required to “pay for direct physical ‘loss’ to Covered Property caused by or resulting from any of the Covered Causes of Loss.” The policy specifically excluded certain losses, including those “caused by or resulting” from deficient design or faulty workmanship. Significantly, however, the faulty workmanship exclusion contained a resulting loss clause providing that “if loss or damage by a Covered Cause of Loss results, [Philadelphia] will pay for the loss or damage caused by that Covered Cause of Loss.”
The policy also had a 2-prong “caused by excluded event” provision that recited: “[l]oss or damage will be considered to have been caused by an excluded event if the occurrence of that event: (1) Directly and solely results in loss or damage; or (2) Initiates a sequence of events that results in loss or damage, regardless of the nature of any intermediate or final event in that sequence.”
After hiring an engineering firm to investigate the cause of the collapse, Philadelphia denied Vision’s claim asserting in its denial letter that the damage to the construction project was a sole and direct result of a marginal shoring design and faulty installation of the shoring. Philadelphia relied upon the exclusion for loss caused by deficiency in design and loss caused by faulty workmanship, and asserted that no other, secondary, peril caused the loss.
As the trial of Vision’s bad faith and other claims against Philadelphia approached, Vision claimed the collapse was caused by faulty equipment (covered peril), while Philadelphia argued it was caused by faulty workmanship (excluded peril subject to resulting loss clause) and defective design (excluded peril). Vision further claimed that if an excluded peril and a covered peril both contributed to the property damage, then the policy would cover the loss. Philadelphia disagreed, arguing that in such a case, coverage follows only if the fact finder first determines that the covered peril was the efficient proximate cause of the loss.
The Washington Supreme Court first noted that, under Washington case law, while coverage may be excluded when a certain peril causes a loss, a resulting or ensuing loss clause operates to carve out an exception to the policy exclusion. 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.” The Court stated: “[T]he dispositive question in analyzing ensuing loss clauses is whether the loss that ensues from the excluded event is covered or excluded. If the ensuing loss is also an excluded peril or an excluded loss under the policy, there is no coverage. But if the policy covers the peril or loss that results from the excluded event, then the ensuing loss clause provides coverage.” (citations omitted). The Court employed the classic example of a (covered) fire loss resulting from (excluded) defective wiring.
The Court concluded that “collapse” was a covered peril under this all-risk policy; and that Philadelphia, in its denial letter, relied on the “directly and solely” first prong of the “caused by excluded event” policy language, and therefore was precluded from arguing the “sequence of events initiated by an excluded event” second prong.
The Court further explained that the Court of Appeals erred when it accepted Philadelphia’s argument that the jury should determine whether the efficient proximate cause was defective design (an excluded peril without an ensuing loss clause). Since Philadelphia consistently maintained that faulty workmanship and defective design combined to “directly and solely” cause the loss, and it offered no evidence which would allow a jury to find that the loss was caused directly and solely by faulty design, the trial court correctly determined causation as a matter of law. Since “collapse” was a covered peril, and the faulty workmanship exclusion contained the ensuing loss clause, as a matter of law Vision’s loss was not caused “directly and solely” by an excluded peril.