In a split decision, the Washington Supreme Court held that advanced decay of fin walls supporting concrete decks on a home was not a separate, ensuing loss covered under an all-risk policy when specific exclusions existed for rot and defective construction. (For more information on “ensuing loss” see our blog article on Vision One).
In Sprague v. Safeco Insurance Co. of America, six supports, known as “fin walls,” ran from a concrete pad up through three levels of decks to the Sprague residence.[i] In 2008, workers discovered that the fin walls were in an advanced state of decay. The Spragues notified its insurer, Safeco, of the problem. Safeco hired engineers who concluded that the fin walls had inadequate flashing and other construction defects that caused the supports to rot. The decks were in a state of eminent collapse due to the impairment of the structural integrity of the system. Thus, Safeco denied coverage due to the exclusions for construction defects and rot damage.
Sprague’s all-risk policy provided coverage for all losses that were not excluded. The policies excluded coverage for losses caused by dry rot or defective construction, but contained provisions that “any ensuing loss not excluded is covered.” Collapse was not addressed as a covered or excluded loss in the policies.
Relying upon its decision in Vision One, decided the same day, the majority opinion stated that:
the purpose of an ensuing loss provision is to limit the scope of an exclusion from coverage; losses caused by the excluded peril will be covered unless they are subject to their own specific exclusions.
* * *
“Many events can be characterized as both a loss and a peril,” and distinguishing between them will at times constitute “a semantic distinction without a difference.”
While the Court agreed with the observation in Vision One, it distinguished this case based on the facts.
Here, although “collapse” is a covered peril under the policies at issue, collapse is not a loss under the facts. Relying upon definitions of “rot,” the majority determined that rot typically results in the complete deterioration of the rotting material. The Court found that advanced deterioration as a result of the rotting process is not different from collapse because collapse is the end result of the deterioration that constitutes “rot.” It is not a new and different peril.
The majority distinguished Vision One, which involved a floor slab which collapsed when shoring gave way due to defective workmanship, leading to the loss of the slab and the need to clean up the debris and concrete. In Vision One, it was the cost of the shoring work that was not covered due to the faulty workmanship exclusion. In this case, by contrast, there is no coverage for the fin walls because of the policy exclusions for rot and defective workmanship. There were no losses other than to the fin walls. Unlike in Vision One, the only loss was to the deck system itself, which resulted from rot caused by construction defects. Therefore, the majority denied Sprague’s recovery of the $282,000 to repair the fin walls and affirmed the trial court’s granting of summary judgment to Safeco.
The four members of the dissent disagreed, arguing that the policies covered the Spragues’ losses because the policies did not exclude losses associated with collapse and that collapse damages were the losses that ensued from the rot or defective construction. The dissent maintained that the Sprague’s decks had collapsed, which “is key to a proper application of the ensuing loss clause.” The Court explained:
We explained in Vision One that the ensuing loss clause limits the scope of what is otherwise excluded under the policy. [Citation omitted.] This clause ensures “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.” [Citation omitted.]
* * *
The majority wrongly requires that there be a “separate” cause of an ensuing loss, distinct from the excluded peril. [Citation omitted.] But, such a requirement would render the ensuing loss clause inoperative because the clause is implicated only when a covered loss results or ensues from an excluded peril. This presupposes causation. What the majority appears to be searching for is a physical line of demarcation. Thus, it seizes on the fact that, in Vision One, the shoring installation was physically separate from the floor slab and related concrete work damaged in the collapse.
In dissenting, the four justices relied upon the progression of events from faulty workmanship, to wood rot, to the imminent collapse. It maintained that, just as in Vision One, the covered loss ensued from excluded perils. The dissent further criticized the majority by stating:
While the majority agrees with our observation [in Vision One] that an event can often be characterized as either a loss or a peril, it fails to see how the collapse at issue here is a loss.
* * *
The ensuing loss is properly understood as the collapse, regardless of whether only the deck is damaged or whether it falls on someone or something.
Therefore, the dissent maintained that the all-risk policy contemplated losses caused by collapse, including substantial impairment of structural integrity, and that the ensuing loss clause provided coverage because the deck collapse ensued from the defective construction of the deck, and the policy did not exclude coverage for collapse.
[i] 174 Wn.2d 524, 276 P.3d 1270 (May 17, 2012)