Washington Supreme Court Rules in Favor of Condo Association in Insurance Dispute Over Water Damage

In a pivotal decision, the Washington Supreme Court resolved an insurance dispute in favor of The Gardens Condominium against Farmers Insurance Exchange, establishing a key precedent for all-risk insurance policies. The case centered on whether damages caused by a covered peril (water condensation) resulting from an excluded peril (faulty workmanship) were covered under the condominium’s policy. Despite the exclusion for faulty workmanship, the court highlighted the policy’s resulting loss exception, which preserves coverage for damages ensuing from a covered peril, regardless of its initial cause.

This ruling, derived from an analysis of previous cases and the specific policy language, clarifies that all-risk policies are to be interpreted to provide broad coverage, including for damages indirectly caused by excluded risks. The decision emphasizes the importance of precise policy drafting, particularly around exclusions and the scope of coverage, marking a significant moment for the insurance industry in terms of policy interpretation and the coverage of complex claims. It sends a clear message to insurers about the necessity of clear, explicit language to avoid unintended coverage implications.