Division One of the Washington Appellate Court recently found that a one-year suit limitation clause does not apply to extra-contractual claims. West Beach Condominium v. Commonwealth Ins. Co. of America, 2020 WL 133543, (Div. I, Jan. 13, 2020). West Beach Condominium were constructed in the late 1960s into early 1970s. Some 40-years later, West Beach hired a consultant to investigate potential water intrusion issues of the complex’s buildings envelopes. The consultant discovered such issues and submitted a report on September 8, 2015. West Beach in turn submitted a claim to Commonwealth on September 26, 2016. Commonwealth has two “all-risk” policies at play; a 2010 and 2011. It also had a general risk policy from 2009 at play. In addition to making a claim, West Beach also filed suit to prevent claims from being time-barred. The parties entered into a tolling agreement effective September 22, 2016.
After performing an inspection, Commonwealth denied coverage in March 2017. It denied on the following bases:
- West Beach had been experiencing water intrusion issues for at least 10 years.
- All of the policies required suit to be commenced at least 12 months after the “occurrence” giving rise to the claim, and West Beach did not sue within that time period.
- The 2009 policy covered only direct physical loss or damage “commencing” during the policy period, and the 2010 and 2011 policies covered only direct physical loss or damage “occurring” during the policy periods. Commonwealth concluded that the losses West Beach had sustained neither commenced nor occurred during the applicable policy periods.
- The policies only covered “fortuitous risks,” and none had been identified by West Beach.
- The policies did not cover faulty construction or inadequate repairs, and the Amento Group report identified numerous deficiencies that fell into this excluded category.
- The policies did not cover rust, corrosion, wear and tear, or gradual deterioration, and some of the losses fell into this excluded category.
- The policies excluded coverage for mold, bacteria, fungi, and wet or dry rot, and some of the losses fell into this excluded category.
See West Beach v. Commonwealth, 2020 WL 133543 at 1-2. West Beach refiled its complaint alleging bad faith, breach of contract, violations of the Consumer Protection Act (CPA) and later, added violations of the Insurance Fair Conduct Act (IFCA).
The trial court held that the 2009 policy did not cover any of the claims and the 2010 and 2011 policies covered damage from faulty construction, faulty maintenance, and wind-blown rain. The court further concluded that Commonwealth was liable for all covered damage if any of the damage occurred during the policy periods. Commonwealth subsequently moved to dismiss the breach of contract claims based on the “suit limitation” provision in the policies — requiring any lawsuit to be filed no later than 12 months after discovery of the loss. The trial court granted the Motion.
Commonwealth then brought Motions to dismiss the extra-contractual claims regarding the CPA and IFCA violations. Commonwealth argued that the suit limitation clause also barred these claims. Thus, West Beach could not obtain coverage under these claims. West Beach argued that IFCA and CPA allow a policyholder to recover policy benefits when those benefits should have been paid by the insurer. The trial court agreed with Commonwealth.
West Beach sought direct review by the Washington Supreme Court; however, the review was transferred to the Appellate Court. West Beach argued that even though the suit limitation clause bars it from suing Commonwealth for breach of contract, it did not discharge the insurer’s underlying coverage obligation. West Beach argued that if the court found a violation of IFCA and the CPA for an unreasonable denial, then it can recover the contractual benefits Commonwealth should have otherwise paid. The Court cited the following support for this assertion:
IFCA provides that ‘[a]ny first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits by an insurer may bring an action in the superior court of this state to recover the actual damages sustained.’ RCW 48.30.015(1); see also Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wash.2d 669, 683, 389 P.3d 476 (2017) (claimant must prove the insurer unreasonably denied a claim for coverage or the insurer unreasonably denied payment of benefits).… A denial of coverage is not an unfair or deceptive act or practice [pursuant to the CPA] if based on reasonable conduct by the insurer, even if the denial of coverage is ultimately proved incorrect. Overton v. Consol. Ins. Co., 145 Wash.2d 417, 434, 38 P.3d 322 (2002).
Id. at 4.
Commonwealth conceded that the extra-contractual claims were not barred by the suit limitation clause. Rather, it argued that its denial of coverage was reasonable as a matter of law because West Beach’s non-compliance with the suit limit clause nullified all underlying insurance coverage. Commonwealth argued that the failure to bring a lawsuit within one-year barred all claims. However, the Appellate Court determined that the policies did not require the initiation of a lawsuit to trigger an obligation to pay for loss. Commonwealth’s policies only required a notice of loss. From that finding, the Appellate Court found that a suit limitation provision only bars judicial remedy for breach of contract. The clause does not extinguish coverage obligations if a lawsuit is not filed within a year of the loss – legal remedies maybe limited but cannot extinguish contractual duties. Id. at 6. Because “Commonwealth’s suit limitation clause did not specific or discuss underlying coverage obligations, the clause did not negate coverage or extinguish Commonwealth’s obligations under the all-risk policies.” Id. Therefore, as the independent statutory claims for failure to provide coverage and that coverage obligation was not extinguished, the trial court’s dismissal was in error.