Judge Kay of the Hawaii federal district court found coverage under an all-risk policy for damage caused by arsenic. Ass'n of Apt. Owners of Imperial Plaza v. Fireman's Fund Ins. Co., 2013 U.S. Dist. LEXIS 50904 (D. Haw. April 9, 2013).
Plaintiff had a fourth floor constructed on top of its existing third floor roof. After a concrete slab was poured upon the existing roof, moisture was found in the insulation layer which was decomposing, causing exposure to arsenic in the insulation layer. Water carried the arsenic into the cement topping slab and concentrated, posing a health risk. A consulting engineering firm recommended removing the insulation layer and replacing the floor.
Plaintiff had an all-risk policy with Fireman's Fund. Coverage for the damage was denied. Subsequently, plaintiff removed the concrete slab and the decomposed insulation. Plumbing piping and an air handler were also rehabilitated. Plaintiff did not re-tender the claim to Fireman's Fund either during or after this remediation work.
The parties disagreed on the cause of the moisture that resulted in the arsenic damage. Plaintiff contended the moisture came from a broken water line or cracks in the topping slab. Fireman's Fund argued the moisture came from leakage in the roof prior to construction of the upper floor or exposure of the edge of the roof during the construction.
Plaintiff sued and filed a motion for partial summary judgment that the arsenic damage was covered by the policy. Fireman's Fund first argued that Plaintiff failed to re-tender the claim after "new" potential sources of water infiltration were discovered during the remediation. The Court found that Fireman's Fund's denial of coverage was a breach that relieved Plaintiff of the policy's continuing duty to cooperate. Further, plaintiff needed to quickly remediate and repair the floor to prevent the spread of the arsenic contaminated water instead of waiting for Fireman's Fund to decide whether or not to investigate the damage.
Fireman's Fund next argued that the loss was excluded by various exclusions such as gradual deterioration, wet rot, faulty, inadequate or defective design specifications or construction. An ensuing loss provision provided, however, that if a loss from a covered loss resulted, the resulting loss would be covered.
For purposes of this motion, the court assumed that the moisture infiltration originated from an excluded peril. If, however, a series of events took place that resulted in a loss, damage resulting from an uncovered event would not be covered, but damage resulting from covered events would remain covered. Here, the moisture was a separate and independent event from a design defect in constructing the fourth floor without removing the insulation layer. The moisture was a separate agent that caused damage, even though the design defect may have allowed the agent to enter.
Fireman's Fund also argued the loss was excluded by the pollution exclusion. This exclusion included an anti-concurrent causation clause, which excluded a loss if it resulted from a combination of covered and excluded perils. Here, however, the pollution exclusion expressly reinstated coverage for damage that was the direct result of a covered cause of loss. The arsenic was caused by a covered cause of loss, moisture infiltration, and therefore fell within the exception to the pollution exclusion. This exception contradicted the anti-concurrent causation language. Under Hawaii law, policies must be construed broadly in favor of the insured.
Consequently, the plain language of the exception to the pollution exclusion that allowed coverage for pollution caused by a covered cause of loss prevailed over the anti-concurrent causation clause. Because the arsenic was directly caused by the water infiltration, a covered cause of loss, the direct physical loss or damage caused by the arsenic was covered by the policy under the exception to the pollution exclusion.
This is a significant case because it is the first decision in Hawaii to comprehensively address the ensuing loss provision and the anti-concurrent causation clause.
For a perspective of the case from a construction law perspective, see my colleague Anna Oshiro's summary of the case here.
