McDonald v. State Farm Fire and Cas. Co.

Citation119 Wn.2d 724,837 P.2d 1000
Decision Date01 October 1992
Docket NumberNo. 58078-2,58078-2
CourtUnited States State Supreme Court of Washington
PartiesDavid T. McDONALD and Pamela H. McDonald, husband and wife, Respondents, v. STATE FARM FIRE AND CASUALTY COMPANY, an insurance company, Petitioner.

Reed & McClure, William R. Hickman, Pamela A. Okano, Seattle, for petitioner.

Hight, Green & Yalowitz, William P. Hight, Michael K. McCormack, Seattle, for respondents.

Neil G. Dorfman, I. Franklin Hunsaker, Celeste T. Stokes, Seattle, amicus curiae, for petitioner on behalf of the U.S. Auto. Ass'n.

Bryan P. Harnetiaux and Robert H. Whaley, Spokane, amicus curiae, for respondents on behalf of Washington State Trial Lawyers Ass'n.

UTTER, Justice.

This case involves an insurance coverage dispute. The McDonalds sued State Farm Fire and Casualty Company (State Farm) for breach of contract. They claimed State Farm failed to indemnify them for property losses the McDonalds asserted were covered by a State Farm homeowners' insurance contract. The Court of Appeals reversed the trial court's grant of summary judgment to State Farm and ordered summary judgment entered in favor of the McDonalds. We reverse the Court of Appeals, finding there is no coverage under the insurance policy for the efficient proximate cause of the McDonalds' losses or the resulting losses themselves. The trial court's grant of summary judgment in favor of State Farm is reinstated.


Respondents own a home overlooking Carr Inlet at Lakebay, Washington. The home was built in 1984. Following heavy rains in January 1986, the ground (fill) on the side of the house nearest the hill slope slid away, causing the adjacent foundation of the house to crack and tilt in the direction of the slide.

The property was insured by State Farm under a policy that covered the property in the event of "accidental direct physical loss," subject to a number of specific exclusions described in the policy section entitled "Losses Not Insured". The policy exclusions addressed foundation cracking 1, earth movement 2, and faulty workmanship and materials. 3 The policy also contained a condition that any "action" brought against State Farm "must be started within one year after the occurrence causing loss or damage."

The McDonalds reported the loss to State Farm, who sent an adjuster to investigate the loss. After an investigation, State Farm then denied the claim under a policy exclusion for earth movement and any loss resulting from earth movement.

Twenty-seven thousand dollars was spent by the McDonalds on repairs for the damage caused by the January 1986 rains. After another period of heavy rains in March 1987, on approximately March 5, 1987, the repairs failed and the fill slid away from the house a second time. Similar damage occurred to the foundation. After the McDonalds reported the loss, an adjuster inspected the damage and State Farm again denied coverage.

On March 2, 1988, the McDonalds sued State Farm for breach of contract due to State Farm's failure to indemnify them for their March 5, 1987, property damage. Their retained soils engineers determined the cause of the 1987 damage to the house was the faulty design and construction of the filled area near the foundation with unsuitable fill materials.

State Farm moved for summary judgment on February 8, 1989, and argument was set for March 3, 1989. On February 15, 1989, the McDonalds moved to amend their complaint by adding claims seeking coverage for the initial, January 1986 property damages and for violation of the Consumer Protection Act, RCW 19.86. The McDonalds then filed a cross motion for summary judgment on February 21, 1989.

The motions for summary judgment were argued on March 3, 1989. State Farm agreed that the "efficient proximate cause" of the March 1987 damage to the McDonalds' home was the poor construction of the filled area adjacent to the foundation. State Farm in fact noted there was no evidence suggesting any other cause for the loss. The trial court found the policy specifically excluded coverage for faulty construction and the "ensuing loss[es]" of earth movement and foundation cracking and granted State Farm's motion for summary judgment. The trial court also denied the motion to amend the complaint, reasoning the McDonalds were contractually barred from recovering the 1986 losses from State Farm and, inasmuch as there was no coverage under the policy, State Farm did not unreasonably deny coverage.

The McDonalds appealed the trial court's summary judgment ruling and its denial of their motion to amend their complaint. In an unpublished opinion, the Court of Appeals reversed and directed summary judgment be entered for the McDonalds on the coverage issue. The Court of Appeals did not address the merits of the trial court's ruling on the motion to amend 4 but affirmed the trial court's order denying the motion to amend.

The Court of Appeals read the ensuing loss clause of the exclusions to be a grant of coverage for loss caused by faulty materials and construction. Finding coverage for the faulty 1987 repairs, the Court of Appeals decided the foundation cracking and earth movement exclusions (policy exclusions 1 and 2) were attempts to limit coverage that violated the efficient proximate cause rule announced in Graham v. Public Employees Mut. Ins. Co., 98 Wash.2d 533, 538, 656 P.2d 1077 (1983). State Farm filed a motion for reconsideration. Following the denial of its motion for reconsideration, State Farm sought review by this court.


The coverage issue was decided on cross-motions for summary judgment. This court engages in the same inquiry as the trial court when reviewing a decision regarding summary judgment. Roller v. Stonewall Ins. Co., 115 Wash.2d 679, 682, 801 P.2d 207 (1990). Interpretation of an insurance contract is a matter of law. Stonewall Ins. Co. at 682, 801 P.2d 207. Where there are no relevant facts in dispute, the applicable standard of review is de novo review of lower court decisions regarding insurance coverage. See Stonewall Ins. Co. at 682, 801 P.2d 207.

The McDonalds' homeowners' insurance policy is typical of most such policies. It insures against all "accidental direct physical loss ... except as provided". State Farm Homeowners' Policy, Section 1--Losses Insured, Clerk's Papers, at 9. In structural terms, one section of the policy describes the losses insured; another describes the losses not insured. 5 Determining whether coverage exists is a 2-step process. The insured must show the loss falls within the scope of the policy's insured losses. To avoid coverage, the insurer must then show the loss is excluded by specific policy language. There is no question in this case that the McDonalds' losses are "accidental direct physical loss[es]."

The efficient proximate cause rule states that where a peril specifically insured against sets other causes into motion which, in an unbroken sequence, produce the result for which recovery is sought, the loss is covered, even though other events within the chain of causation are excluded from coverage. Graham v. Public Employees Mut. Ins. Co., 98 Wash.2d 533, 538, 656 P.2d 1077 (1983). "Stated in another fashion, where an insured risk itself sets into operation a chain of causation in which the last step may have been an excepted risk, the excepted risk will not defeat recovery." (Citation omitted.) Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 815, 725 P.2d 957 (1986). The rule was later reaffirmed in Safeco Ins. Co. of Am. v. Hirschmann, 112 Wash.2d 621, 773 P.2d 413 (1989).

Initially, State Farm requests this court to discard the efficient proximate cause rule. We decline to do so and reaffirm our commitment to the rule and our decisions applying it.

By its own terms, the efficient proximate cause rule operates when an "insured risk" or covered peril sets into motion a chain of causation which leads to an uncovered loss. Hirschmann at 628, 773 P.2d 413. If the efficient proximate cause of the final loss is a covered peril, then the loss is covered under the policy. In chain of causation cases, the efficient proximate cause rule is properly applied after (1) a determination of which single act or event is the efficient proximate cause of the loss and (2) a determination that the efficient proximate cause of the loss is a covered peril.

The determination whether certain acts are the proximate cause of injury or loss is a question of fact. Graham, 98 Wash.2d at 539, 656 P.2d 1077; see Hirschmann, 112 Wash.2d at 631, 773 P.2d 413. See also Morris v. McNicol, 83 Wash.2d 491, 519 P.2d 7 (1974) (property damage caused by alleged negligence is a question of fact). In this case, State Farm does not dispute the McDonalds' assertion that the efficient proximate cause of their loss is the faulty construction of the filled areas using improper and defective fill materials.

Resolution of the coverage dispute in this case thus turns on the application of the policy exclusions to the efficient proximate cause of the property loss suffered by the McDonalds. The McDonalds argue that the undisputed proximate cause of the property damage--the faulty construction of the filled areas using improper and defective fill materials--is a covered peril under their homeowners' policy. They claim State Farm's policy language does not exclude losses caused by defective construction and materials. The McDonalds read the language of the policy exclusion for defective construction and materials to exclude only loss consisting of the specified events or actions. They argue that only loss which is made up or composed of faulty construction or defective material is excluded. Because the exclusion says nothing about loss caused by third party negligence, faulty construction, or defective materials, they claim such loss is not excluded by specific policy language and thus is covered by the policy.

The focal question is whether the exclusionary language of the...

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