Washington Appellate Court Rules Insurer Who Denied Coverage May Not Assert Impairment Of Subrogation Rights, Remands On Efficient Proximate Cause Of Damage
In Vision One, LLC v. Philadelphia Indemnity Ins. Co., 2010 Wash. App. LEXIS 2322 (October 19, 2010), the Washington Court of Appeals affirmed the trial court’s ruling that an insurer who denies coverage is estopped from arguing the insured impaired its subrogation rights, but reversed and remanded on the issued of the efficient proximate cause of damages.
Vision was the general contractor for a new condominium complex being built in Tacoma, Washington. Vision subcontracted with D&D for the concrete work. D&D sub-subcontracted with Berg for shoring equipment to support the poured concrete slabs. The shoring structure collapsed when D&D poured a concrete slab. Vision tendered the claim to Philadelphia, whose investigator determined the collapse was due to faulty design and workmanship, losses expressly excluded under Philadelphia’s policy, so Philadelphia denied. Vision argued the “resulting loss” exception to the policy’s faulty workmanship exclusion applied to restored coverage. Philadelphia maintained its denial.
Vision sued Philadelphia for breach of contract and bad faith. Shortly before trial, Vision settled with Berg, taking a covenant judgment against it and corresponding agreement to execute only against Berg’s insurer, and fully releasing Berg from liability. The trial court approved the settlement as reasonable and rejected Philadelphia’s motion to dismiss Vision’s breach of contract claim against it because Vision had impaired its recovery rights by releasing Berg. The court held: “If Philadelphia prevails on coverage it is not prejudiced by this settlement. If Philadelphia does not prevail, it is in material breach of its insuring obligations and is not entitled to subrogation in light of such breach.”
The trial court also ruled as a matter of law that the “resulting loss” exception to the faulty work exclusion applied to the claim, and submitted to the jury the issues of causation, bad faith and damages. At trial the jury found Philadelphia breached its insurance contract in bad faith, awarding Vision $1.2 million in breach of contract and bad faith damages and $2 million for attorney’s fees. On appeal, the court affirmed the trial court’s ruling that Philadelphia was estopped from claiming it was released from liability when it denied Vision’s claim and Vision settled with Berg. But it reversed and remanded the trial court’s ruling that the “resulting loss” exception to the faulty workmanship exclusion applied.
The appellate court found the trial court’s ruling erroneously presupposed faulty workmanship had caused the damage, when the issue should have been a jury question. The appellate court remanded to allow the jury to determine which of the alleged causes – faulty workmanship, faulty design and/or faulty equipment – caused the collapse. For the claim to be covered, the jury must find either that faulty equipment (an independent covered peril under the policy), caused the damage, or that multiple perils, some covered and some excluded, caused the damage, but that faulty equipment was the efficient proximate cause of damage. Because it reversed and remanded for a new jury trial, the court did not reach the issues of damages or attorney’s fees.
