On April 6, 2015, the Washington Court of Appeals issued an opinion in Lui v. Essex Ins. Co., No. 72835-1-I, addressing the meaning of a vacancy provision in an insurance contract. The court concluded that the vacancy provision in the commercial policy was clear and unambiguous, and operated to bar coverage for the insureds’ claim.
The case concerned two insureds that owned a commercial building containing tenant space. On or about January 1, 2011, a water pipe froze and burst, causing significant damage to the insured building. There were no tenants in the building at the time. The prior tenant was evicted on December 7, 2010. The insurance company investigated the claim and paid almost $300,000 for property damage. The insurance company later learned that the building was vacant, as the term was defined in the policy, at the time of the loss and denied coverage for the claim, although it would not seek reimbursement of the amount already paid.
The insureds sued for the remainder of the claim amount. The parties filed cross-motions for summary judgment. The insureds argued the policy’s vacancy provision did not restrict coverage until after 60 consecutive days of vacancy occurred. Additionally, the insureds argued that the insurance company waived its right to deny coverage, was estopped from claiming the vacancy provision applied, and denied coverage in bad faith. The insurance company responded that the vacancy provision was triggered at the inception of the vacancy period and, thus, operated to bar coverage. The trial court denied the insurance company’s motion and partially granted the insureds’ motion, finding the vacancy endorsement was ambiguous and construing the provision in favor of the insureds. The trial court denied the insureds’ motion with respect to their claims for waiver, estoppel, and bad faith due to unresolved factual issues. The insurance company sought, and was granted, interlocutory appeal on the sole issue of whether the vacancy provision was ambiguous.
The Court of Appeals reversed the trial court, holding that the insurance company proposed the only reasonable construction of the vacancy provision. It determined that, absent written permission to the contrary, the vacancy provision restricted coverage in two ways: (1) to specified causes of loss when use of the building was less than 31% of total square footage, and (2) after 60 days of vacancy, coverage is suspended altogether. Under the first limitation, coverage was limited to specified causes of loss that did not include the cause of the insureds’ water damage. The Court of Appeals determined that these limitations were clear and unambiguous as used in the policy. Pursuant to this interpretation of the vacancy provision, the insureds were not entitled to coverage.
Maloney Lauersdorf Reiner regularly represents clients in insurance coverage matters involving application of a vacancy provision. Please contact us with any questions about this case or any other matter you see addressed in the MLR Blog.