Gardens Condominium v. Farmers Insurance Exchange (Majority)
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A dispute arose between the Gardens Condominium (a Washington nonprofit corporation) and Farmers Insurance Exchange (a California company) over the interpretation of a resulting loss exception in an all-risk insurance policy. The Gardens Condominium discovered water damage to the roof's fireboard, sheathing, and several sleepers and joists in 2019, caused by faulty construction which led to insufficient ventilation in the roof assembly. They sought coverage for the cost of repairing the damage, which was denied by Farmers Insurance Exchange, who argued that the damage was excluded under the faulty workmanship exclusion in the policy.
The trial court ruled in favor of Farmers Insurance Exchange, stating that the policy intended to exclude damage where an uncovered event, such as faulty workmanship, initiated a sequence of events causing damage. The Court of Appeals disagreed, finding that the resulting loss exception preserved coverage.
The case reached the Supreme Court of the State of Washington. The court, following a de novo review, sided with the Court of Appeals, stating that a resulting loss exception must have effect to preserve coverage for loss resulting from covered perils, even if the peril is the natural consequence of an excluded peril. The court concluded that a resulting loss exception to the faulty workmanship exclusion revives coverage, even if the faulty workmanship exclusion would otherwise deny it. The case was remanded to the trial court for further proceedings consistent with the Supreme Court's opinion.
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