Insurers: Does Your Policy Contain a Broadly Worded EIFS Exclusion? If You’re in Washington, You Might Be in Luck!


Recently, Washington courts have issued a number of opinions resolving a variety of issues against insurers. For instance, the Washington Supreme Court presumed that there is no attorney-client privilege in a bad-faith suit relating to first-party insurance, and a Washington federal judge later extended and applied that presumption to a bad-faith suit relating to third-party insurance. See Cedell v. Farmers Ins. Co. of Wash., 295 P.3d 239 (Wash. 2013); Carolina Cas. Ins. Co. v. Omeros Corp., No. C12-287RAJ, 2013 U.S. Dist. LEXIS 53225 (W. D. Wash. Apr. 12, 2013). And, as reported on our firm’s Insurance Law Blog (which you can access and subscribe to here), the Washington Supreme Court recently held that an insurer defending its insured in a lawsuit later found not to trigger coverage cannot recoup its defense costs even though the insurer never had any obligation to defend the insured in the first place. See Nat’l Sur. Corp. v. Immunex Corp., No. 86535-3, 2013 WL 865459 (Wash. Mar. 7, 2013). One case where insurers prevailed, however, is a case from the U.S. District Court for the Western District of Washington applying a broadly-worded EIFS exclusion to preclude coverage.

In First Mercury Insurance Co. v. Miller Roofing Enterprises, No. C11-0105-JCC, 2013 U.S. Dist. LEXIS 24728 (W.D. Wash. Feb. 22, 2013), Miller Roofing was hired by the owners of a flooring company to replace three roofs over their showroom.  The roofs began leaking years after the work was finished, and the leaks damaged a substantial amount of the flooring company’s property and inventory.  The flooring company sued Miller Roofing for damages caused by the leaks, and Miller Roofing’s CGL insurer, First Mercury, defended Miller Roofing in that action under a reservation of rights.  At the same time, First Mercury sued Miller Roofing and the owners of the flooring company seeking a declaration that it did not have to provide any coverage for the damage caused by the leaks.In its declaratory judgment action against Miller Roofing, First Mercury conceded that Miller Roofing’s defective work on the showroom’s roofs caused “property damage” within the meaning of its policy.  First Mercury nevertheless moved for summary judgment based on an exclusion in its policy that precluded coverage for “property damage” arising out of “[a]ny work or operation with respect to any exterior component, fixture or feature of any structure if any ‘exterior insulation and finish system’ [EIFS] is used on any part of that structure.”  First Mercury argued that the exclusion applied because the showroom’s exterior walls were covered by an EIFS, and because the roofs that Miller Roofing defectively replaced qualified as “exterior components” of the showroom.  The defendants countered that the EIFS exclusion did not apply because Miller Roofing did not install an EIFS or perform any work on the building’s EIFS.

The district court granted First Mercury’s motion.  First rejecting the defendants’ argument that the EIFS exclusion did not apply because Miller Roofing did not perform any work on the showroom’s EIFS, the court held that

[t]he exclusion applies not only to property damage arising from EIFS-related work by the insured; it applies to property damage arising from “any” work by the insured on an exterior component, fixture, or feature of a structure as long as “exterior and insulation finish system” is used on any part of that structure. 

(Emphasis in original.)  Further rejecting the defendants’ complaint that this interpretation of the EIFS exclusion would permit First Mercury to “escape any liability for any negligent act performed by Miller Roofing on the building because cladding [EIFS] was placed over the exterior walls,” the court responded simply that “[u]fortunately for Defendants, that is the meaning of the policy Miller Roofing paid for and signed.” 

First Mercury is yet another great example of courts enforcing unambiguous insurance policy language as written.  There, the plain language required two conditions for the exclusion to apply:  that the building have an EIFS, and that Miller Roofing work on an exterior component, fixture, or feature of the building.  There was no suggestion in the language of the exclusion that the two conditions be related, and the court appropriately ignored the fact that Miller Roofing didn’t perform any work on the building’s EIFS.  Simply put, we can add First Mercury to the abundant case law holding both that insurers should only be compelled to provide coverage for the risks they actually underwrite, and insureds should only be entitled to coverage for the risks they chose to insure against.

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