Resulting Loss From Faulty Workmanship Covered

    The Washington Supreme Court found there was coverage for resulting loss despite the original faulty contraction, an exclusion in the policy. Gardens Condominium v. Farmers Ins. Exchange, 2024 Wash. LEXIS 165 (Wash. March 14, 2024). 

    Farmers issued a policy to Gardens Condominium providing coverage for loss or damage caused by a "Covered Cause of Loss." "Covered Cause of Loss" was defined as any risk of direct physical loss. However, a loss was not covered if it was caused by an excluded event. The policy further provided that damage was caused by an excluded event if that event "initiates a sequence of events that results in loss or damage, regardless of the nature of any intermediate or final event in that sequence." The policy excluded coverage for faulty, inadequate, or defective design, specifications, workmanship, repair, construction, or renovation. The faulty workmanship exclusion also contained a resulting loss exception: "[I]f loss or damage caused by a Covered Cause of Loss results, we will pay for that resulting loss or damage." 

    Gardens found damage to the building that was caused by faulty design and construction of the building's roof. There was insufficient interior vents and the design of the rafters and joists prevented need ventilation Water vapor condensed on the underside of the roof sheathing, causing damage. Gardens redesigned and repaired the roof assembly to increase ventilation and eliminate condensation by installing sleepers on top of the joists. 

    Years later, Gardens discovered water damage to the roof's fireboard and sheathing, as well as several damage sleepers and joists. The space that had been added between the roof surface and ceiling during the repair did not allow for sufficient ventilation. Consequently, water vapour continued to get trapped inside the space and could not ventilate. The exposure to water vapor and condensation damaged the sheathing, fire board, and joists.

    Gardens sought coverage for the costs of repairing damage to the roof sheathing and framing caused by water vapor, condensation and humidity. Farmers denied the claim, concluding that faulty construction caused a lack of ventilation in the roof assembly, which caused the loss. 

    Gardens filed an action for declaratory judgment seeking coverage for "covered hidden water damage'" to the roof sheathing and framing. Gardens moved for summary judgment. Gardens sought coverage for the damage to to the fireboard and sheathing but not for the cost of correcting the defective sleepers. Farmers also moved for summary judgment, arguing the resulting loss exception applied only if a covered event broke the causal chain between the excluded risks and subsequent losses or if there was damage to other property. 

    The trial court granted Farmers' motion for summary judgment. The Court of Appeals reversed. It reasoned that by including the resulting loss clause, Farmers agreed to pay for damage caused by a covered peril even when it resulted from faulty workmanship. Thus, if condensation and humidity were covered perils, the policy must cover damage caused by those perils. 

    The Supreme Court noted that resulting loss clause preserved coverage for loss that ensued after an excluded event if it would otherwise be covered by the policy. However, the excluded event inself was never covered. Here, the faulty workmanship resulted in potentially covered perils (condensation and water vapor) causing loss (water-related damage to other parts of the roof). If condensation and water vapor were new and distinct perils and the loss to the roof components (other than those defectively constructed) was a separate ensuing loss, the policy provided coverage, assuming condensation and water vapor were also covered perils. 

    The policy did not state that the covered cause of loss must be independent from the faulty workmanship or that it could not be a natural consequence of faulty workmanship. Because the language of the exception was clear, the court could would not rewrite it to add requirements.     

    Therefore, the resulting loss exception to the faulty workmanship exclusion revived coverage even if the faulty workmanship exclusion would otherwise deny it. The decision of the Court of Appeals was affirmed.