This post will examine whether Division Two of the Washington Court of Appeals properly reversed and remanded several lower court decisions in the case of Vision One LLC v. Philadelphia Indemnity Insurance. In short, and from the perspective of an appellate attorney, the court of appeals got the decision right. Given the rules of contract interpretation and causation in tort claims, there was really no other way the court could have ruled. I understand that from a contractor’s perspective and insurance perspective, the decision seems odd. But from a purely legal standpoint, the decision is well-reasoned and well-supported. Let me explain.
First, here are the facts in a nutshell. Vision One is a construction company that undertook to construct a condo complex in Tacoma. Vision then contracted with D&D Concrete to pour a concrete slab for a section of the foundation. To shore the concrete slab, D&D further contracted Berg Equipment to provide necessary equipment to stabilize the structure. Well, something down the line went wrong. The shoring failed and the slab collapsed, causing a great deal of damage.
Vision had Builders Risk insurance coverage from Philadelphia. They subsequently filed a claim, but it was denied. Philadelphia justified denial of the claim due to a clause in the insurance contract – insurer will not cover any loss caused by deficiency of design or faulty workmanship. However, the contract did include a “resulting loss” provision as an exception to the faulty workmanship exclusion. It read, “[If] loss by any of the Covered Causes of Loss results, we will pay for that resulting ‘ loss.’”
Vision maintained that Philadelphia breached the contract because the concrete collapse was covered under the “resulting loss” provision. Philadelphia says the damages were directly caused by faulty work, and the claim was properly denied. The resultant legal tussle ended up in Pierce County Superior Court where the trial judge agreed with Vision. Philadelphia appealed.
Although there were other assignments of error on appeal, I am just going to cover the most interesting and controversial – the appellate court’s decision to reverse the trial court’s ruling that that the concrete slab collapse is covered as a resulting loss.
First, the contract that Vision and Philadelphia entered into involves an all-risk insurance policy. This means that any risk, or potential cause of loss, not explicitly excluded is covered under the policy. So, when analyzing such a contract, a court must characterize the factors that contributed to the loss, and then determine which of these are included or excluded under the policy.
Washington courts have repeatedly held that the term “cause” in the context of exclusionary clauses in insurance contracts is to be interpreted as “efficient proximate cause.” Courts have explained this concept as “the predominant cause which sets into motion the chain of events producing the loss … not necessarily the last act in a chain of events.” The problem is that it is very difficult to attribute most construction losses to one cause – usually it is a combination of factors that lead, say, to a concrete slab collapse. So, in the interest of fairness and judicial economy, Washington courts say that a party can only recover from an insurance company if the “efficient proximate cause” (the primary causal link) was covered in the policy. Finding the primary cause is a task for a jury.
That’s all well and good, right? Well, it gets more complicated when there are exceptions to the exclusions, as is the case here. So what about that resulting loss provision? The trial court interpreted it as covering loss to property that is separate and distinct from the defective property. So, according to that court’s reasoning, because the concrete and rebar from the slab is separate and distinct from the shoring equipment, any loss to the former is covered by the policy.
Under many all-risk agreements, this would be true. In these policies, “resulting loss” provisions explicitly cover damage to non-defective property even though the policy won’t cover the cost to replace defective property caused by faulty workmanship. For example, if the framer doesn’t properly secure an unfinished wall, and it falls over, damaging plumbing fixtures, the policy covers any damage to the plumbing, but will not cover the cost and materials of the wall itself. Thus, a policy of this nature might exclude the “cost of making good faulty or defective workmanship” but provide coverage for ” damage resulting from such faulty or defective workmanship.” (See Allianz Ins. Co. v. Impero)
In contrast, the policy in this case says it will not cover damage caused by faulty workmanship, but will cover “loss caused by any of the covered causes of loss [that] results” from faulty workmanship. Confused? Me too. And so was the trial court. The language in this provision is apparently meant to cover losses attributable to one of the covered causes (that is, those causes not excluded in Philadelphia’s contract), but any loss that is a direct result of faulty workmanship is not covered. This is in contrast to the other uses of such a provision mentioned above – to cover damage to other property that was not installed deficiently.
So, because it is necessary to determine if faulty workmanship was the effective proximate cause, the appellate court remanded the case for a jury to decide those questions of fact. What is clear, however, is that the collapse (and loss) was directly and proximately caused by the failure of the shoring. The appellate court was right in that there were never any intervening causes of damage that were merely triggered by the faulty shoring. For example, the collapse did not start a fire that then caused other damage. Presumably, this is the sort of damage this “resulting loss” provision is meant to cover.
The Washington State Supreme Court has agreed to hear this case on appeal in the fall.
The issue here is contract construction. The “resulting loss” provision in the contract between Vision and Philadelphia is confusing at best – at worst it is ambiguous and should have been unenforceable. Logically, what is the provision saying? Where is the line of causation drawn? Does the damage have to be not reasonably foreseeable for the provision to kick in? More time should have been spent trying to figure out mutual intent of the parties to hash out what, exactly, it is supposed to mean. The court took it to mean that other causes of damage resulting in loss that may have been triggered by faulty workmanship are covered, but direct losses are not. Given that the only evidence for interpretation was the text itself, I think that was the only conclusion the court could have reached.
Vision is arguing that the concrete slab collapse is covered because the defective shoring structure is separate and distinct from the non-defective concrete slab. However, the language of the “resulting loss” provision doesn’t say anything about separate property – it deals with causation. Other resulting loss provisions may have covered the concrete slab losses as separate property damaged by not-covered faulty workmanship, but this one simply doesn’t.
So what was the court to do? It seems like they took the only road they could, and adhered strictly to doctrines of tort and contract. The appellate judges were right in reviewing the trial court’s conclusions of law de novo. And looking at the law, their holding was correct. Plainly, this whole mess would have been avoided if the contract were clearer. Someone could have objected to this provision before the contract was signed, or at least the parties could have mutually decided on interpretation.