Randy Kaady v. Mid-Continent Casualty Co., 790 F.3d 995

Kaady, a subcontractor, installed manufactured stone, masonry caps, and wrapped deck posts at Collins Lake; construction completed May 2006.
Kaady noticed cracks in the manufactured stone and caps in Sept. 2006 and inspected them; he purchased a one-year CGL policy from Mid-Continent in Dec. 2006.
In 2007 the homeowners sued up the chain; Kaady settled claims against him and sought indemnity from Mid-Continent, which denied coverage based on the policy’s known-loss provision.
The known-loss provision disqualifies coverage if an insured knew the ‘‘property damage’’ had occurred in whole or in part before the policy period, and treats continuations/changes/resumptions as preexisting.
Kaady admitted knowledge of masonry cracks but denied knowing about damage to underlying deck posts and wall sheathing; Mid-Continent produced no record evidence directly tying the earlier cracks to the later structural deterioration.
The district court granted summary judgment to Mid-Continent; the Ninth Circuit reviewed de novo and reversed and remanded.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether insured’s knowledge of cracks in finished work bars coverage for later damage to underlying components	Kaady: knowledge of cracks in his work is not knowledge of distinct property damage to underlying deck posts/sheathing; known-loss should apply only where the claimed damage is the same or a continuation of the known damage	Mid‑Continent: any known damage to the structure (cracks) means the insured knew the property was damaged, so all related claims on that structure are barred	The court: knowledge of damage to the insured’s own work does not automatically equal knowledge of damage to other components; known-loss bars only same or continuing/related damage, not all damage to the structure
Whether record shows the claimed damage was a "continuation, change or resumption" of the earlier cracks	Kaady: no admissible evidence links the earlier cracks to the underlying structural deterioration; Mid‑Continent failed to meet its summary judgment burden	Mid‑Continent: the cracks permitted water intrusion that caused the wood/sheeting damage, so the later damage continued from the known loss	The court: Mid‑Continent did not produce evidence sufficient to establish the connection on summary judgment; material factual dispute remains, so summary judgment was improper

Assurance Co. of Am. v. Wall & Assocs. LLC, 379 F.3d 557 (9th Cir. 2004) (standard of review for summary judgment and insurance interpretation guidance)
St. Paul Fire & Marine Ins. Co. v. McCormick & Baxter Creosoting Co., 923 P.2d 1200 (Or. 1996) (understanding policy terms from insured’s perspective under Oregon law)
Botts v. Hartford Acc. & Indem. Co., 585 P.2d 657 (Or. 1978) (principles for policy interpretation cited by Oregon courts)
Hoffman Constr. Co. v. Fred S. James & Co., 836 P.2d 703 (Or. 1992) (construction and insurance coverage interaction)
St. Paul Fire & Marine Ins. Co. v. Sears, Roebuck & Co., 603 F.2d 780 (9th Cir. 1979) (distinguishing damage to insured’s work from damage to others’ property)
Wilshire Ins. Co. v. RJT Constr., LLC, 581 F.3d 222 (5th Cir. 2009) (coverage limits for defective workmanship claims)
Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment burden-shifting framework)
Westfield Ins. Co. v. Wensmann, Inc., 840 N.W.2d 438 (Minn. Ct. App. 2013) (discussing when later damage is a continuation/change of a known loss)
Alkemade v. Quanta Indemnity Co., 28 F. Supp. 3d 1125 (D. Or. 2014) (treatment of related-damage requirement under known-loss language)