353 F. Supp. 3d 1039
D. Or.2018Background
- 12W RPO (owner) and GED Gallery (developer) sued Affiliated FM under successive all-risk property policies for losses at The Indigo building from (1) failure of EPDM plumbing components and (2) delamination/peeling of opacifier film on spandrel glass units.
- Plaintiffs alleged EPDM decomposed after chemical reaction with Portland chloramine-treated water, contaminating potable water and requiring full plumbing replacement (~$4.8M claimed). EPDM claim submitted 6/18/2015; denied 12/22/2016.
- Plaintiffs alleged spandrel opacifier film delaminated (mottling, blisters, black spots), with repair estimates exceed $6M; claim submitted 6/18/2015; denied 7/20/2015.
- Policies were broad all-risk with Group II exclusions that bar loss caused by latent defect, faulty design, defective materials, deterioration, contamination, etc., but contain an ensuing/resulting-loss clause covering physical damage that results from excluded causes only if the resulting loss is otherwise covered.
- Key factual concessions: plaintiffs concede the EPDM and spandrel failures involve defective materials/manufacturing; experts described EPDM ‘‘deterioration/decomposition’’ and spandrel failures due to improperly cured adhesive.
- Court granted insurer summary judgment on both claims because exclusions applied and the ensuing-loss exception did not reinstate coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does a design/materials/latent-defect exclusion bar coverage for EPDM plumbing failure? | EPDM damage arose from concurrent causes (chemical attack by chloramine, failure to warn) so coverage applies. | Exclusions for defective materials/design/latent defect apply; EPDM failure is excluded. | Exclusion applies; initial coverage displaced by defect-related exclusions. |
| Does the resulting/ensuing-loss clause cover the EPDM-related property damage? | Resulting physical damage to plumbing and associated replacement costs are covered (distinguish repair of defective parts vs. resulting system damage). | The ensuing losses are themselves caused by excluded perils (deterioration and contamination), so exception does not apply. | Ensuing-loss clause does not restore coverage: losses arise from deterioration/contamination exclusions. |
| Does a concurrent/multiple-cause (efficient proximate cause) theory cover spandrel glass failure (e.g., extreme heat + defective adhesive)? | Spandrel film failed because of prolonged/excessive solar heat combined with defective adhesive; heat is a covered peril so coverage follows. | The product/adhesive defect is the root cause and exclusions for defective materials apply; plaintiffs have not proved the ‘‘efficient proximate cause’’ standard or extreme/unexpected heat. | Plaintiff failed to show a covered cause was the efficient proximate cause; concurrent-cause theory fails. |
| Does ensuing-loss clause cover spandrel glass damage? | Even if adhesive defect excluded, resulting damage to building/LEED or other systems is covered as ensuing loss. | The damage is to the defective product itself; there is no separate, independent ensuing loss to other property. | Ensuing-loss clause does not apply because loss is to the defective product itself; no separate ensuing loss shown. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (Sup. Ct.) (summary judgment burden-shifting framework)
- Berry v. Commercial Union Ins. Co., 87 F.3d 387 (9th Cir.) (concurrent-cause/efficient proximate cause analysis in coverage disputes)
- Naumes, Inc. v. Landmark Ins. Co., 849 P.2d 554 (Or. Ct. App.) (efficient proximate cause rule under Oregon law)
- Groshong v. Mut. of Enumclaw Ins. Co., 985 P.2d 1284 (Or.) (policy interpretation rules; ascertain parties' intent)
- Hoffman Constr. Co. of Alaska v. Fred S. James & Co. of Or., 836 P.2d 703 (Or.) (ambiguity construed against drafter; interpret policy language)
- Vision One, LLC v. Philadelphia Indem. Ins. Co., 276 P.3d 300 (Wash.) (ensuing/resulting-loss clause limits and does not restore coverage for expressly excluded perils)