First-party property insurers are often faced with significant challenges when an insured seeks coverage for damage that occurred many years ago, particularly in regard to establishing whether the damage occurred during the policy period, or whether the insured has fallen afoul of the policy’s requirement that the insurer can only sue the insurer within a certain time following the loss. In Gold Creek Condominium-Phase I Association of Apartment Owners v. State Farm Fire and Casualty Co. et al., 2023 WL 8711820 (9th Cir. 2023), a Ninth Circuit panel affirmed the trial court’s ruling that the former insurers of a Washington condominium complex in Tacoma, Washington owed no duty to cover almost $9 million in hidden water damage, as there was no evidence the damage occurred during one insurer’s policy period, and the claim was tendered decades after another insurer’s suit limitation period expired. In so ruling, the Ninth Circuit provided clarity on the trigger of coverage under all-risk property insurance policies and the admissibility of expert testimony seeking to establish when “hidden” damage occurred.
In 2020, the Gold Creek Condominium-Phase I Association sued several of its insurers, including Travelers Casualty Company of America and State Farm Fire & Casualty Company, claiming it was owed coverage for hidden water damage caused by wind-driven rain, which was discovered by the Association in 2018.
The Travelers policy provided coverage for loss or damage commencing “during the policy period,” which was 1991-1996. The panel addressed the issue of coverage under the three “trigger rules” – the manifestation rule, the injury-in-fact rule, and the continuous trigger rule. First, the panel held the Association had “no evidence” that the damage took place during the policy period, so there was no coverage under the manifestation rule. Second, the panel held that under the injury-in-fact rule, the Travelers policies would not cover the Association’s losses because damage did not “commence” during the policy period. There was no evidence that new damage necessarily commenced during the policy period – even if existing damage worsened. Third, under the continuous trigger rule, the Association only needed to show that some damage occurred during the policy period; however, again, the panel held that the Association had failed to show any such evidence.
The State Farm policy required that its insured could only sue State Farm “within one year of rain events during the policy period,” which was 1989 to 1990. The panel noted that the State Farm policy did “not state that a suit must be brought within a year ‘after a loss occurs.’ It states that a suit must be brought within a year ‘after the occurrence causing loss or damage.’ This distinction makes a difference.” The panel explained that “the ‘loss’ may not have ‘occurred’ until the hidden decay was exposed to view, but the ‘occurrence’ causing the loss are rainstorms that took place during the policy period, which no party argues were concealed from view.”
Further, the panel found the trial court was correct in denying the testimony of the Association’s expert. Citing the expert’s statement that there was “no way to determine when damage actually occurred,” the panel observed that the trial court was justified in finding that the expert could not “reliably testify” on the cause or timing of the damage.
The Gold Creek ruling is a positive development for first-party property insurers in Washington. First, it reinforces the fact that the insured has the initial burden of showing that hidden water damage took place during the policy period—and if their expert cannot testify on when hidden damage occurred, such testimony may be precluded. Second, it provides clarification on the application of suit limitation requirements in hidden water damage claims by distinguishing the date of the loss from the date of the earlier occurrence causing the loss—which the court applied to preclude coverage for the loss.