Washington Supreme Court Sides with Insurer - No Coverage for Damage to Vacant Building

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.