Supreme Court of Washington Rules That Policy Unambiguously Excluded Coverage for Water Damage Immediately Upon Vacancy

July 19, 2016 | Insurance Coverage

The Supreme Court of Washington has ruled that an insurance policy unambiguously excluded coverage for water damage to the insured building immediately when the building became vacant.

The Case

Kut Suen Lui and May Far Lui owned a building containing tenant space, but the building’s last tenant left the building in the first week of December 2010.

On or about January 1, 2011, a frozen sprinkler pipe broke in the building and caused substantial water damage. The Luis notified their insurance provider, Essex Insurance Company, and filed a claim.

Essex began investigating the Luis’ claim and discovered that the property had been vacant at the time of the water damage. Essex denied the Luis’ claim, explaining that coverage for the water damage was excluded because it had occurred while the building had been vacant.

The Luis sued Essex and the parties filed motions for summary judgment.

Essex argued that the unambiguous language of the “Change in Condition Endorsement” in the Luis’ insurance policy immediately suspended coverage at the “inception” of any vacancy for all but specifically named causes of loss. Essex argued that, because the property was vacant and water damage was not one of the named causes of loss, the Luis were not entitled to coverage as a matter of law.

The Luis argued that coverage restrictions from their policy’s “Vacancy Provisions” became effective only if the property was vacant for a period of 60 consecutive days.

The trial court denied Essex’s motion for summary judgment and granted partial summary judgment in favor of the Luis based on its conclusion that the endorsement was internally ambiguous, and therefore, had to be construed as providing coverage for the water damage. Specifically, the trial court found a conflict that it resolved in favor of the Luis, holding that the word “inception” from the endorsement did “not suspend coverage automatically.”

The court of appeals reversed the trial court’s order granting summary judgment in favor of the Luis. It ruled that the plain language of the endorsement unambiguously limited coverage to only the enumerated causes of loss at the moment the building became vacant, not after 60 days as the Luis argued.

The dispute reached the Washington Supreme Court.

The Washington Supreme Court’s Decision

The court affirmed the court of appeals’ decision and held that the Luis’ policy did not cover the water damage.

In its decision, the court reasoned that the language of the Luis’ insurance policy, including the endorsement, was “plain – it did not cover water damage.” Specifically, the court said, reading the endorsement, the average insured would understand by the policy’s plain language that:

(1) The endorsement’s terms superseded the terms of the underlying policy;

(2) The endorsement’s first paragraph excluded all coverage after 60 days of vacancy; and

(3) The endorsement’s second paragraph provided only limited coverage from when the building first became vacant up until 60 days of that vacancy.

Because the building was vacant as defined by the policy at the time the frozen sprinkler pipe broke, the Luis’ policy did not cover their losses, the court concluded.

The case is Lui v. Essex Ins. Co., No. 91777-9 (Wash. June 9, 2016).

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  • Robert Tugander

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