On June 9, 2016, the
Washington Supreme Court ruled that a Change of Conditions Endorsement in a
commercial property insurance policy precluded coverage for water damage to a
vacant building.
There was no dispute
regarding the relevant facts. After a
tenant moved out of the insured building, a frozen sprinkler pipe burst causing
substantial water damage to the building.
The building owner submitted a claim to its insurer. The insurer issued payment for property
damage. However, it later discovered
that the building had been vacant at the time of the damage and refused to
issue further payment based upon the following Change of
Conditions Endorsement:
Coverage under this policy is suspended
while a described building, whether intended for occupancy by owner or tenant,
is vacant or unoccupied beyond a period of sixty consecutive days, unless permission
for such vacancy or unoccupancy is granted hereon in writing and an additional
premium is paid for such vacancy or unoccupancy.
Effective at the inception of any
vacancy or unoccupancy, the Causes of Loss provided by this policy are limited
to Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles,
Riot or Civil Commotion, unless prior approval has been obtained from the
Company.
The insurer took the
position that coverage did not exist because the endorsement immediately suspended
coverage at the inception of any vacancy for all but specifically named causes
of loss and water damage was not one of the named causes of loss.
The insured argued that
the endorsement did not apply to limit coverage until the covered property had
been vacant for more than 60 consecutive days. The Washington Supreme Court sided with the
insurer. The court held that under the endorsement when a building becomes
vacant, coverage is limited to loss resulting from the specified causes of loss
and, after a 60 consecutive day vacancy, the policy provides no coverage.
Accordingly, the court held the policy barred coverage for the water damage in
this case.
Soha and Lang
attorneys are available to assist insurer clients in understanding and
addressing the impact of this decision both during the claims handling process
and after an allegation of bad faith claims handling has been made.
Disclaimer: The
opinions expressed in in this blog are those of the author and do not
necessarily reflect those of Soha and Lang, P.S. or its clients.
.jpg)
