MERCER PLACE CONDOMINIUM v. State Farm

• Decision Date: 26 December 2000
• Docket Number: No. 45833-7-I.,45833-7-I.
• Citation: 104 Wash.App. 597,17 P.3d 626
• Court: Washington Court of Appeals
• Parties: MERCER PLACE CONDOMINIUM ASSOCIATION, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, Respondent.

17 P.3d 626

104 Wash.App. 597

MERCER PLACE CONDOMINIUM ASSOCIATION, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, Respondent.

No. 45833-7-I.

Court of Appeals of Washington, Division 1.

December 26, 2000.

Publication Ordered January 26, 2001.

John Riper & Todd Hayes, Seattle, for Appellant.

Robert Riede, Pamela Okano, Seattle, for Respondent.

KENNEDY, J.

Mercer Place Condominium Association appeals the trial court's order granting State Farm Fire & Casualty Company's motion for partial summary judgment. Specifically, Mercer Place contests the court's judgment that coverage for loss under its insurance policy was limited to damage involving collapse that occurred during the policy period. Mercer Place argues that coverage also extends to that damage not yet in a state of collapse during the policy period that will eventually reach a point of collapse, unless the condition causing the damage is sooner repaired. Turning to the language of the insurance policy, we agree with the trial court and conclude that coverage only extends to those portions of the property shown to be in a state of collapse during the policy period.

FACTS

Mercer Place Condominium Association purchased a first-party insurance policy for its property, Mercer Place Condominiums, from State Farm Fire & Casualty Company. The policy was effective from September 7, 1996 to September 7, 1997.

Under the policy, State Farm provides coverage for "accidental direct physical loss to property covered under [the] policy[.]" Specifically excluded from coverage under the "Losses Not Insured" section are those losses caused by (1) fungus, mold, decay, deterioration; (2) continuous or repeated seepage or leakage of water that occurs over a period of time; (3) faulty, inadequate, or defective construction and design; and (4) collapse, except as provided in the Extensions of Coverage section. Under the Extensions of Coverage section, State Farm provides coverage for "any accidental direct physical loss to covered property involving collapse of a building or any part of a building[,]" if such collapse is caused by (among other causes not relevant to this case) hidden decay. In the policy's Conditions section, State Farm covers "loss commencing during the policy period[.]"

In late 1996, Mercer Place discovered structural rot to its wood frame structures. A structural engineer determined that Mercer Place was in a state of progressive structural decay. After Mercer Place notified State Farm of the damage, State Farm conducted investigative tears of the structure to determine which portions were in a collapsed state. State Farm and Mercer Place recognized that coverage would be provided for such damage under the policy's "collapse" provision. Both parties agreed that "collapse" would be interpreted to mean "substantial impairment of structural integrity." In prior claims involving the "collapse" clause, State Farm adopted the same interpretation. After several rounds of investigative tears, State Farm determined that it had discovered all portions of the building that were in a collapsed state. State Farm paid Mercer Place a total of $255,915.43, which included costs for indemnification, investigative tears, and engineer consulting. Because of the "collapse" claims arising from the investigative tears, State Farm cancelled its policy with Mercer Place on September 22, 1997. Mercer Place objected to the cancellation. Mercer Place filed suit against State Farm on October 15, 1997, alleging breach of the insurance policy.

Mercer Place and State Farm filed cross-motions for summary judgment in which each asked the court to determine the scope of State Farm's liability for "collapse." Mercer Place argued that since the policy covered "loss commencing during the policy period[,]" the policy applied to damage not yet in a collapsed state during the policy period that would eventually reach a point of collapse, given the progressive structural decay. After issuing a letter ruling, the court ruled by summary judgment order on September 9, 1999, that the only loss covered by the policy was "accidental direct physical damage involving collapse caused by hidden decay, which collapse damage occurred during the policy period." In the letter ruling, the court reasoned that precursors to collapse were not covered under the policy, as "collapse cannot commence before it occurs."

In September 1999, the court conducted a bench trial that was limited to the issues of the extent of "collapse damage" that occurred during the policy period and whether State Farm fulfilled its obligation to investigate Mercer Place's claim fully and fairly. The court determined that State Farm fully and fairly conducted its investigation, that State Farm paid for all collapse loss which occurred during the policy period, and that there was no credible evidence of any collapse loss "which has not been reasonably and adequately investigated and repaired" by State Farm. This appeal followed, in which Mercer Place challenges the summary judgment order but not the determinations made at the bench trial.

DISCUSSION

Mercer Place argues that the court erred when it ruled on summary judgment that coverage under the policy for collapse was limited to that damage that was shown to be in a state of substantial impairment of structural integrity before the policy expired.

Summary judgment is available only if the pleadings, depositions, answers to interrogatories, admissions on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c). In reviewing a summary judgment order, this court conducts the same inquiry as the trial court. Mountain Park Homeowners Ass'n, Inc. v. Tydings, 125 Wash.2d 337, 341, 883 P.2d 1383 (1994). Construction of a contractual insurance policy provision is a question of law and therefore subject to de novo review. Queen City Farms v. Central Nat'l Ins. Co., 64 Wash. App. 838, 853, 827 P.2d 1024 (1992), aff'd, 126 Wash.2d 50, 882 P.2d 703 (1994) (citing Grange Ins. Co. v. Brosseau, 113 Wash.2d 91, 95, 776 P.2d 123 (1989)).

If terms in an insurance policy are ambiguous, those terms are construed against the drafter. McDonald v. State Farm Fire & Cas. Co., 119 Wash.2d 724, 733, 837 P.2d 1000 (1992). Washington has not decided the meaning of "collapse" as used in first-party insurance policies,¹ and this case does not require us to do so, as Mercer Place and State Farm have agreed that the word "collapse" as used in Mercer Place's policy mean "substantial impairment of structural integrity." The trial court also noted in its Findings of Fact and Conclusions of Law that "collapse" means "substantial impairment of structural integrity" for purposes of this litigation. Because the parties have agreed to the meaning of "collapse," this resolves any ambiguity regarding the provision. "If there be any ambiguity in a contract, the interpretation which the parties have placed upon it is entitled to great, if not controlling, weight in determining its meaning." Toulouse v. New York Life Ins. Co., 40 Wash.2d 538, 541, 245 P.2d 205 (1952) (citing Thayer v. Brady, 28 Wash.2d 767, 770, 184 P.2d 50 (1947)).

"In construing the language of an insurance policy, the entire contract must be construed together so as to give force and effect to each clause." Transcontinental Ins. Co. v. Utilities Sys., 111 Wash.2d 452, 456, 760 P.2d 337 (1988) (citing Morgan v. Prudential Ins. Co. of Am., 86 Wash.2d 432, 434, 545 P.2d 1193 (1976)). "An inclusionary clause in insurance contracts should be liberally construed to provide coverage whenever possible." Riley v. Viking Ins. Co., 46 Wash.App. 828, 829, 733 P.2d 556 (1987) (citing Pierce v. Aetna Cas. & Sur. Co., 29 Wash.App. 32, 627 P.2d 152 (1981)). "[E]xclusionary clauses are to be construed strictly against the insurer." Eurick v. Pemco Ins. Co., 108 Wash.2d 338, 340, 738 P.2d 251 (1987) (citing Farmers Ins. Co. v. Clure, 41 Wash.App. 212, 215, 702 P.2d 1247 (1985)). "Overall, a policy should be given a practical and reasonable interpretation rather than a strained or forced construction that leads to an absurd conclusion, or that renders the policy nonsensical or ineffective." Transcontinental Ins. Co., 111 Wash.2d at 457, 760 P.2d 337 (citing Morgan, 86 Wash.2d at 434-35, 545 P.2d 1193). However, "a clause or phrase cannot be considered in isolation, but should be considered in context, including the purpose of the provision." Riordan v. Commercial Travelers Mut. Ins. Co., 11 Wash. App. 707, 711, 525 P.2d 804 (1974).

Under the policy in this case, State Farm provides coverage for "accidental direct physical loss to property covered under [the] policy[.]" Specifically excluded from coverage under the "Losses Not Insured" section are those losses caused by (1) fungus, mold, decay, deterioration; (2) continuous or repeated seepage or leakage of water that occurs over a period of time; (3) faulty, inadequate, or defective construction...