Opinion ID: 2601906
Heading Depth: 1
Heading Rank: 3

Heading: other coverage issues

Text: ¶ 21 The insured bears the burden of showing that coverage exists; the insurer that an exclusion applies. Am. Star. Ins. Co. v. Grice, 121 Wash.2d 869, 875, 854 P.2d 622 (1993). MOE argues that some of the settlement in the underlying suit was for contract violations, not for covered property damage. It also argues that policy exclusions for impaired property, for withdrawal from use or for your work apply. The trial court rejected all of these arguments. The Court of Appeals did not reach any of them, beyond noting that the trial court appears to have erroneously relied on the reasonableness determination to decide whether policy exclusions applied. Mut. of Enumclaw, 143 Wash.App. at 678, 2007 WL 959894. We do not concur with the Court of Appeals' characterization of the basis of the trial court's judgment. The trial court was presented with, and relied upon, far more evidence than merely the findings of fact and conclusions of law in the liability suit when determining that coverage existed and the exclusions do not apply. We turn now to MOE's other specific arguments.
¶ 22 MOE argues T & G violated the policy condition requiring it to obtain the consent of the insurer before it settled with a plaintiff. But an insured's noncompliance with a cooperation clause releases the insurer from its responsibilities ` only if the insurer was actually prejudiced by the insured's actions or conduct.' Pub. Util. No. 1 of Klickitat County v. Int'l Ins. Co., 124 Wash.2d 789, 803, 881 P.2d 1020 (1994) (quoting Or. Auto. Ins. Co. v. Salzberg, 85 Wash.2d 372, 377, 535 P.2d 816 (1975)). We find MOE's contention to be completely without merit. MOE owes a fiduciary-type duty to its insured. Safeco Ins. Co. v. Butler, 118 Wash.2d 383, 389, 823 P.2d 499 (1992). MOE refused to participate in settlement negotiations that would have relieved T & G and its principals of significant financial risk. MOE cannot put its financial interest before the interest of its insured; for an insurer to do so is to act in bad faith. Cf. id.; see also Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 385-86, 715 P.2d 1133 (1986) (collecting cases). MOE was on notice of the settlement and had an opportunity to intervene in the reasonableness proceedings. MOE did intervene, was heard, and as a result, the judge presiding over the reasonableness proceedings reduced the reasonable value of the settlement by $300,000. MOE has not shown possible prejudice. [5]
¶ 23 The insurance policy at issue covered property damage, not breach of contract damages. MOE argues that much of the damage award was based upon a breach of contract. The trial court rejected this argument at summary judgment, finding as a matter of law that the damages were property damages. MOE concedes that some interior walls were damaged by water intrusion. However, MOE argues that the siding was largely undamaged. It reasons that the cost of removing and reinstalling the siding is not property damage. But property damage, like comprehensive general liability coverage, is a term of art and does not necessarily mean tangible damage to tangible property. It can include consequential damages, such as those alleged here. See Yakima Cement Prods. Co. v. Great Am. Ins. Co., 93 Wash.2d 210, 219, 608 P.2d 254 (1980) (citing Labberton v. Gen. Cas. Co., 53 Wash.2d 180, 332 P.2d 250 (1958) and Gen. Ins. Co. of Am. v. Gauger, 13 Wash.App. 928, 538 P.2d 563 (1975)). MOE focuses on the siding and argues that it was not damaged property under the insurance contract so it should not have to pay to have it remediated. But the subsurface and interior walls were not installed by T & G and damage to these areas was property damage covered by the policy. Removing and repairing the siding is simply part of the cost of repairing the damage to the interior walls and was properly treated as property damage by the trial court. ¶ 24 Recently, the Ninth Circuit considered a similar claim to the one MOE makes here. See Dewitt Constr., Inc. v. Charter Oak Fire Ins. Co., 307 F.3d 1127 (9th Cir.2002). The policy there, like here, provided that the insurer will `pay as damages because of ... `property damage' to which this insurance applies.' `Property damage' means: (a) `physical injury to tangible property, including all resulting loss of use of that property' or (b) `loss of use of tangible property that is not physically injured,' but not breach of contract damages. Id. at 1133 (alteration in original) (quoting policy). The court found that the alleged damage to other subcontractors' work caused by the defective work of the defendant was property damage, not breach of contract damages. Id. We agree and conclude that removal and reinstallation of the siding was within the scope of property damage.
¶ 25 The policy also excludes: Property damage to impaired property or property that has not been physically injured, arising out of: (1) a defect, deficiency, inadequacy or dangerous condition in your product or your work; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms. This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to your product or your work after it has been put to its intended use. CP at 648. Impaired property is defined as tangible property other than `your product' or `your work' that cannot be used or is less useful ... if such property can be restored to use by ... repair, replacement, adjustment or removal of `your product' or `your work.' CP at 655. Again, it is MOE's position that it is not responsible for the cost of removing and replacing the siding where there was no evidence that the subsurface material and interior walls had been damaged merely because of the potential that the siding was leaking causing a likelihood of future damage. MOE reasons the policy does not cover future potential damage. Again, the impaired property is not the siding installed by T & G but the subsurface and interior walls beneath the siding. The King County coverage court relied heavily upon the findings of the Snohomish County liability court's findings of fact. Among other things, the Snohomish County judge found: It is very likely plaintiff standing in [the general contractor's] shoes would have been able to prove the need for total removal of siding and building paper. Numerous invasive investigative opening done at the Villas condominiums during discovery showed that the building paper underneath all of the siding was misapplied in a manner causing water intrusion. The barrier had gaps, holes and tears. The building paper and flashing problems were proved to be pervasive. Rot, decay and elevated moisture levels were already showing on buildings only a few years old. Only full strip and reclad can assure there won't be further water intrusions from the problems. Full siding removal is the only way of discovering all the defects and the only remedy that would allow the homeowners to sell their property in the future for full value by advising future owners that the problem has been fully remedied. CP at 615. The trial court concluded that virtually all of the subsurfaces were impaired because of the manner in which T & G reverse lapped and misapplied the weather protective material that trapped water and caused rot and decay. The trial court rejected MOE's spot or surgical repairs because the rot and decay was so pervasive. ¶ 26 However, MOE focuses on that part of the finding that refers to the future value of the property, which it argues is contract damages rather than covered damages. MOE is correct; the coverage issue is different from the global damages issue. But the policy does cover all damages reasonably necessary to mitigate the impaired property. Although the coverage court may rely upon the factual findings of the liability court, where the issues presented to the liability court differ from the issues before coverage court, the coverage court must determine that the damages are covered damages. It may be that the coverage court concluded that all of the subsurfaces were impaired by the manner in which the weather resistance paper was applied. But we agree with the Court of Appeals that from the record before us we cannot tell if the coverage trial court concluded substantially all of the subsurfaces were impaired or merely accepted the findings of the liability judge that the settlement was reasonable given (among other things) that the value of all the poorly sided property had been impaired even if there had been no actual property damage to a particular wall. Therefore we remand to the trial court for further proceedings on the applicability of this exclusion.
¶ 27 MOE contends that the cost to strip and reclad the condominiums is excluded by the your work exclusion. That exclusion says: Property damage to your work arising out of it or any part of it and included in the products completed operations hazard. This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. CP at 648. MOE's your work exclusion mirrors its impaired property exclusion argument. In the impaired property exclusion argument, MOE argues that the siding was not impaired so it should not be required to pay for its replacement. In its your work exclusion argument it contends that the siding was T & G's work. T & G was the siding contractor. Therefore, it reasons that there is no coverage for the removal and replacement of the siding. But as we have previously said, if the siding must be removed to repair damage caused by T & G to the surfaces and interior walls underneath the siding, then there is coverage for the cost of the removal and replacement of the siding. But like the impaired property exclusion, we cannot tell from the record before us if all of the buildings and walls needed to be re-sided because of impaired subsurfaces and accordingly remand to the trial court for further proceedings.
¶ 28 T & G seeks RAP 18.1 and Olympic Steamship attorney fees. See Olympic S.S. Co. v. Centennial Ins. Co., 117 Wash.2d 37, 52-53, 811 P.2d 673 (1991). As we have recently reiterated, `[a]n insured who is compelled to assume the burden of legal action to obtain the benefit of its insurance contract is entitled to attorney fees.' Colo. Structures, Inc. v. Ins. Co. of the W., 161 Wash.2d 577, 597-98, 167 P.3d 1125 (2007) (alteration in original) (quoting Olympic S.S., 117 Wash.2d at 54, 811 P.2d 673). The trial court properly awarded Olympic Steamship attorney fees finding that T & G had to litigate to receive the benefits of coverage. Inasmuch as we are remanding two coverage issues to the coverage trial court, the award of Olympic Steamship attorney fees must abide by that court's ultimate rulings. Cf. Colo. Structures, 161 Wash.2d at 606-07, 167 P.3d 1125.