A U.S. District Court in Washington found coverage in what it described as a text book study of the efficient proximate cause rule. Hiller v. Allstate Pro. & Cas. Ins. Co., 2012 U.S. Dist. LEXIS 84862 (E.D. Wash. June 19, 2012).
The Hillers purchased a newly constructed home in December 2006. They also purchased an all-risk homeowner's policy from Allstate.
In July 2010, the Hillers discovered that the carpet in the basement of the residence was saturated with water. Allstate was immediately notified. Hiller began an investigation to attempt to determine the source of the water. He poured water into a downspout drain at the northwest corner of the residence. This caused water to leak into the northwest corner of the home's basement.
An area was excavated around the northwest downspout drain. The end of the drain pipe was partially blocked by rocks and had been wrapped with fabric landscaping material. Further, a "T" pipe installed at the foot of the drain was directing water toward the house's concrete foundation. Hiller notified Allstate that the problems with the drain was due to construction defects and the system was designed to fail.
Allstate denied the claim. Based upon Hiller's information, coverage was excluded under the policy's surface water, subsurface water, inherent vice, and latent defect exclusions. Nevertheless, Allstate hired a forensic engineer to do an inspection. He concluded the failure of the foundation perimeter and roof drainage systems were due to improper construction of the original perimeter foundation drain lines, foundation water proofing, downspout drain lines, and gravel dry wells. Based on these findings, Allstate again denied the Hillers' claim.
The Hiller's sued for a declaratory judgment to establish that the loss was covered under the policy. Cross-motions for summary judgment were filed. Both parties agreed that the water damage to the basement was caused by defective construction of the rainwater drainage system. The issue was whether a loss caused by defective construction was covered under the policy. To answer the question, the court turned to the efficient proximate cause rule. Under the rule, a covered loss which directly caused a non-covered loss resulted in the loss being covered.
The Hillers argued the water damage was directly caused by defective construction - a covered risk. Allstate argued the efficient proximate cause rule did not apply because "all potential causes of damage caused by water leaking into the basement fall within policy exclusions." There was no dispute about the efficient proximate cause of the loss. Experts retained by both sides agreed that the loss was caused by construction defects of (1) the rainwater drain system that was improperly designed; and (2) the absence of waterproof sealant on the home's concrete foundation. Therefore, the issue under the efficient proximate cause analysis was whether a loss caused by defective construction was a covered peril under the policy.
The Court found such a loss was covered because defective construction was not specifically excluded from the all-risk policy. Because there was no dispute that the construction defects were the predominant cause of the loss, the water damage to the residence was a covered peril under the efficient proximate cause rule.
