When it comes to insurance claims in Washington state, which boasts of erratic weather patterns and frequent extreme weather events, the devil is often in the details—or rather, in the policy language. The recent legal showdown involving the Rolling Hills Condo Homeowners’ Association and the Philadelphia Indemnity Insurance Co. stands as a testament to this fact.
Seattle’s Rolling Hills HOA has been at the forefront of insurance claim disputes, wading through a series of lawsuits against its various insurers. Over the past several years, a series of legal disputes involving the Rolling Hills Condo Homeowners’ Association has been underway. Among these, two notable cases saw voluntary dismissals. The first, against State Farm Fire & Casualty Co., was permanently concluded in January, while the association decided to drop its claims against Northern Insurance Co. of New York without prejudice.[i]
In December 2022, Rolling Hills filed suit against Philadelphia Indemnity Insurance Co. pursuing an eye-popping $11.5 million claimed damages after Philadelphia Indemnity denied the association’s claim.[ii] Rolling Hills argued the insurer improperly denied coverage for hidden water damage resulting from wind-driven rain and other factors over a prolonged period, affecting their 13-building, 141-unit complex. The linchpin of this case rested on whether the damages claimed by Rolling Hills were covered by the policy and whether the insurer’s denial was reasonable.[iii]
Traditionally in Washington, an “occurrence” refers to events or conditions that inadvertently result in damage or injury. Crucially, “occurrence” encompasses more than mere “accidents” and might encompass negligent acts, provided they lead to unintended outcomes. Rolling Hills argued there should be coverage given the “resulting loss clause” found in the policy language.
Resulting Loss Clause
A “resulting loss clause” is a common policy provision which can provide coverage for a loss which is initially excluded from coverage but then leads to a subsequent or “resulting” loss which is covered. In other words, while the initial cause of the damage might be excluded, if it leads to another event or type of damage that is covered, then that subsequent loss may be covered by the policy due to the resulting loss clause. However, Philadelphia Indemnity was able to challenge Rolling Hills’ claims with policy exclusions including wear and tear and latent defects. It also argued Rolling Hills failed to state a claim.
Although the case was scheduled for trial in February 2024, it met an abrupt end with a settlement between the parties in August, with the court dismissing it soon after. In an order issued on August 14, 2023, U.S. District Judge Richard A. Jones formally dismissed this case with prejudice, a decision made following a joint stipulation, dismissing the case without any awards of costs or fees to either side.[iv] On September 11, 2023, Rolling Hills filed suit against another insurer for the same damages.[v]
The key takeaway from the Rolling Hills litigation saga underscores the importance of understanding policy definitions, especially when it pertains to the nature and cause of the damage. In a state like Washington, with its notorious weather extremes, “expected damages” can often become a point of contention. While some policy provisions might cover damages that arise gradually, provided they are unintended and unexpected, it is always essential to consider the policy’s clear terms and limitations.
Insurers should be equipped to rely on the clarity of policy terms in coverage decisions, which remain strong defenses against bad faith claims. As the Rolling Hills case illustrates, when insurers take actions that are reasonable and grounded in the explicit terms of the policy contract, the clarity of a policy’s terms can be an insurer’s best defense, potentially shielding them from multi-million-dollar verdicts.
[i] Rolling Hills Condo. Homeowners Ass’n v. State Farm Fire & Cas. Co., 2:21-cv-01136-RAJ (W.D. Wash. Jun. 28, 2022).
[ii] Rolling Hills Condo. Homeowners Ass’n v. State Farm Fire & Cas. Co., 2:22-cv-01705 (W.D. Wash. Dec. 1, 2022).
[iv] Stipulated Order, Rolling Hills Condo. Homeowners Ass’n v. State Farm Fire & Cas. Co., 2:21-cv-01136-RAJ (W.D. Wash. Aug. 14, 2023).
[v] Jury Demand, Rolling Hills Condo. Homeowners Ass’n v. Commonwealth Ins. Co. of America; Accelerant Nat’l Ins. Co., 2:23-cv-01414 (W.D. Wash. Sept. 11, 2023).