633 F.Supp.3d 123
D.D.C.2022Background
- East Cap hired McCullough to build a residential project; the architect omitted a vapor barrier in the design.
- In Jan. 2019 condensation formed under the roof deck (indoor humidity + outdoor temperature drop), saturating insulation, drywall, and structural materials.
- Remediation cost ≈ $1.5 million; Plaintiffs sought coverage under two builder’s risk policies that insure "water damage."
- Policies expressly exclude losses caused by "dryness or dampness of atmosphere" and "extremes or changes in temperature," but contain an "ensuing loss" proviso restoring coverage if an insured peril directly follows an excluded peril.
- Insurers denied coverage; Plaintiffs sued for breach of contract and moved for summary judgment; court granted defendants’ motion and denied plaintiffs’.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the "dampness of atmosphere" exclusion is ambiguous and thus inapplicable | "Dampness of atmosphere" is reasonably read to mean outdoor weather only (relying on Blaine) so exclusion is ambiguous | Phrase is unambiguous and includes indoor humidity/condensation; exclusion applies | Exclusion is unambiguous and bars coverage |
| Whether the "extremes or changes in temperature" exclusion bars coverage | Changes in temperature contributed but the resulting water damage is covered as "water damage" | Exclusion for changes in temperature applies and bars coverage | Exclusion applies and bars coverage |
| Whether the ensuing-loss clause restores coverage for the water damage | Water damage is a covered peril that ensued from excluded causes, so the ensuing-loss clause restores coverage | Ensuing-loss clauses cover only distinct/separable losses, not the normal/necessary result of excluded peril | Ensuing-loss clause does not apply because excluded causes and water damage are inextricably intertwined |
| Whether defective design (failure to include vapor barrier) creates coverage or is barred by a design-exclusion | Design defect was the proximate cause; resulting water damage is covered | Policy excludes "cost of making good" design/plan defects; only an ensuing insured peril would be covered | Design-defect costs are excluded; no insured ensuing peril existed, so no coverage |
Key Cases Cited
- Blaine Constr. Corp. v. Ins. Co. of N. Am., 171 F.3d 343 (6th Cir. 1999) (majority found "dampness of atmosphere" ambiguous; insured prevailed)
- Aetna Cas. & Sur. Co. v. Yates, 344 F.2d 939 (5th Cir. 1965) (used "dampness of atmosphere" exclusion to deny coverage for condensation-related rot)
- Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32 (D.C. 1996) (clear, unambiguous insurance terms enforced as written)
- Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123 (D.C. 2001) (policy language is not ambiguous unless it admits more than one reasonable interpretation)
- Cameron v. USAA Prop. & Cas. Ins. Co., 733 A.2d 965 (D.C. 1999) (insurer bears burden to prove exclusions apply)
- Holt v. George Washington Life Ins. Co., 123 A.2d 619 (D.C. 1956) (insurer must state exclusions in plain language; doubts resolved for insured)
- U.S. ex rel. Dep’t of Labor v. Ins. Co. of N. Am., 131 F.3d 1037 (D.C. Cir. 1997) (contra proferentum applied only where doubt remains)
- Dist.-Realty Title Ins. Corp. v. Ensmann, 767 F.2d 1018 (D.C. Cir. 1985) (parol evidence rule bars extrinsic evidence to vary unambiguous contract)