Villella v. Public Employees Mut. Ins. Co.
| Decision Date | 02 October 1986 |
| Docket Number | No. 52041-1,52041-1 |
| Parties | Lawrence J. VILLELLA, a single person, Appellant, v. PUBLIC EMPLOYEES MUTUAL INSURANCE COMPANY, a corporation doing business in the state of Washington; Warnock Insurance Agency, doing business in the state of Washington; Lonnie and Willmetta Warnock, a marital community; Dan Warnock, a single person, Laurie Warnock, a single person, and the Estate of David Titus, Elizabeth Archibald, Personal Representative, and the City of Everett, a Washington municipal corporation, Respondents. |
| Court | Washington Supreme Court |
Merrick, Hofstedt & Lindsey, P.S., Sidney Snyder, Nancy McCoid, Seattle, for respondent Public Employees Mut. Ins. Co.
Lane, Powell, Moss & Miller, Thomas Sorenson, Michael Runyan, Seattle, for respondent Warnock Ins. Agency.
This case concerns questions of coverage under two homeowners insurance policies. In regard to the first policy we hold that the insured did not sustain a covered loss during the effective coverage period. In regard to the second homeowners policy we hold that questions of fact exist concerning whether the policy had taken effect at the time of loss and whether an insured peril was the efficient proximate cause of the loss. The trial court's grant of summary judgment for the insurer is reversed and the case remanded for further proceedings to be conducted in accordance with this opinion.
In October 1979, Lawrence Villella purchased a new home on a hillside in Everett, Washington from David A. Titus Construction. Villella borrowed $72,400 from Pioneer First Federal Savings and Loan Association to finance the purchase. Villella obtained a Public Employees Mutual Insurance Company (Pemco) homeowner's policy, HO 094771, (policy # 1) through Warnock Insurance on October 20, 1979.
In relevant part, policy # 1 provided that Pemco would "insure for all risks of physical loss to the [insured dwelling] ... except ... losses excluded under Section 1--Exclusions ..." The exclusion provides that Pemco does "not cover losses resulting directly or indirectly from: ... Earth Movement." Policy # 1 further provides that that coverage applies only to property damage which occurs during the policy period.
Villella lived in the residence until 1982, when he moved to Texas. While in Texas, Villella leased the residence with the assistance of his mother. Villella claims that he wanted to delete the contents coverage of policy # 1 while the house was leased, and that he had his mother contact the Warnock Insurance Agency for this purpose. The Warnocks and Pemco contend that Villella actually had his mother contact the agency in order to cancel the policy and substitute a less expensive fire policy. In any event, on August 26, 1982, policy # 1 was terminated, and Pemco issued a policy providing coverage for loss by fire. (This policy is not involved in the present dispute.)
Villella's tenant moved out, and Villella did not succeed in leasing the house again. On November 5, 1983, Pemco sent notice to Villella that the fire policy would be canceled effective December 5, 1983, because there was no tenant in the house.
On November 20, 1983, Villella's house was damaged. Villella claims that Titus Construction had negligently failed to install a proper drainage system, and that this negligence set in motion a continuous process of soil destabilization On November 23, 1983, a Pemco insurance adjuster examined the house and told Villella that the loss was not covered by the fire policy then in effect. On December 5, 1983, that policy was canceled.
which eventually resulted in the inability of the soil under his house to sustain the foundation or the house itself. The Warnocks and Pemco counter that the house was damaged by "earth movement." In either case, on November 20, 1983, the uphill side of the foundation dropped about 8 inches in relation to the downhill side, causing extensive damage to the residence
In the meantime, Villella claims, he contacted the Warnock Agency when he learned about the cancellation notice on the fire policy. He claims that the agency assured him that it would obtain a new homeowner's policy from Pemco which would be effective November 11, 1983. The agency denies this claim, and asserts that the new policy (policy # 2) went into effect on December 6, 1983. The agency notes that the application form provided that policy # 2 would be placed in force as of December 6, 1983.
Policy # 2 contained, in relevant part, the following "earth movement" exclusion (found in a policy endorsement):
We do not cover loss resulting directly or indirectly from:
* * *
2. Earth Movement. Meaning any loss caused by, resulting from, contributed to or aggravated by:
a. earthquake, landslide, mudflow, earth sinking, rising or shifting ...
Supplemental Clerk's Papers, at 9, Second Supplemental Clerk's Papers, at 89.
Despite the damage to the house, Villella continued to live there until April 1984. He refused, however, to make payments to Pioneer; Pioneer therefore held a nonjudicial foreclosure sale on its deed of trust.
Villella brought this suit against Pemco, the Warnock Agency and its individual members, the Estate of David A Pemco moved for summary judgment, arguing that there was no coverage under policy # 1 because there was no loss during the policy period. Pemco further argued that there was no coverage under either policy because the "earth movement" exclusionary clauses in the policies validly excluded the loss from coverage. The Warnocks also moved for summary judgment, contending that, if neither Pemco policy covered the loss, any breach by the Warnocks of any duty owed to Villella could not have been the proximate cause of any loss to Villella. Villella filed a cross motion for summary judgment.
Titus, and the City of Everett. 1 Villella claimed, among other things, that policy # 1 covered the loss because Titus' (alleged) negligence was, during the policy period, acovered act which set in motion a continuous sequence of events culminating in the damage to the house. He claimed that policy # 2 also covered the loss due to the (alleged) representation by the Warnock Agency that the effective date of this policy was November 11, 1983
The trial court decided that policy # 1 did not cover the loss because of the exclusionary clause, and that, even assuming that policy # 2 was in effect on November 20, 1983, the "earth movement" exclusionary clause in policy # 2 also precluded coverage. The trial court expressly did not reach the issue of whether there was a loss within the policy period covered by policy # 1.
POLICY # 1: TIME OF LOSS
Pemco contends that because policy # 1 was in effect only between October 26, 1979 and August 26, 1982, the damage sustained by Villella's residence on November 20, 1983 was not a loss within the policy period. Villella argues that the alleged negligent installation of the drainage system and subsequent destabilization of the soil triggered insurance coverage during the effective period of policy # 1 and thus provides coverage for the subsequently manifested The first homeowners policy provides coverage only for "losses" occurring during the policy period. The policy insures against loss or physical damage to the dwelling. Although Villella's retained experts believe that improper provisions for drainage in the original construction of the residence contributed to the damage, they confirm that the residence was not damaged prior to November 20, 1983. Nevertheless, Villella argues that the policy covers the loss. He contends that the events leading to the damage were an ongoing process, part of which occurred during the time the first homeowners policy was in effect. Because the alleged soil destabilization occurred during the policy period, Villella claims that the policy covers the subsequent damage to the house.
damage to the residence.
In support of the proposition that coverage is provided by the first homeowners policy, Villella relies on Gruol Constr. Co. v. Insurance Co. of N. Am., 11 Wash.App. 632, 524 P.2d 427 (1974). In Gruol, the court held that where the damage complained of was a continuous process set in motion at the time of construction of a building, all three insurance companies which insured the building at various times were liable for the damage to the structure.
The Gruol case is distinguishable from this case, both factually and legally. Gruol involved an undiscovered, progressively worsening condition of dry rot. The actual damage to the building was initiated at the time of construction and continued throughout the time that each of the three insurers provided coverage. The damage to the structure was a continuous process which increased with time. Gruol, at 636, 524 P.2d 427. Moreover, the structure was damaged by dry rot during each policy period. If at any point the dry rot had been discovered, the insured could have forced the insurer to pay for the damages.
The facts in this case are different. There was no "continuing process" of damage to the plaintiff's residence. The residence itself sustained no damage prior to November 20, 1983. Consequently there was no damage to the house during The requirement that damage occur during the policy period is borne out by subsequent decisions construing Gruol. In Swift v. American Home Assur. Co., 22 Wash.App. 777, 591 P.2d 1216 (1979) the property owners recovered damages for fire losses from an insurance agent who negligently failed to issue the policy they had requested. The insurance agent argued on appeal that the insurance company was liable for the loss because the agent's negligence was "continuing in nature such that it occurred during the period of his employment." The court easily distinguished Gruol, stating:
the period of October 25, 1979 to August 26, 1982, when the homeowners policy was in
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