Division 1 of the Washington Court of Appeals recently rejected the manifestation trigger theory for first-party property losses, clearing up prior confusion and uncertainty as to whether the "manifestation" or "injury-in-fact" trigger of coverage should be applied to first-party property claims in Washington. In Ellis Court Apartments Ltd. Partnership, v. State Farm Fire & Casualty Corp., ___ Wn. App. ___, 72 P.3d 1086 (2003), condominium owners sued their former insurer for coverage for collapse damage resulting from hidden decay. State Farm insured Ellis Court from July 14, 1993 to September 1, 1999, under polices that covered losses "commencing during the policy period," including collapse caused by hidden decay. Effective September 1, 1999, Greenwich Insurance Company insured Ellis Court.
On March 30, 1999, a building consultant notified the property management company for the insured that "[s]ubstantial impairment and failure of architectural details from water intrusion is occurring." Ellis Court submitted a claim to State Farm in May 2000 and started repairs three months later. State Farm denied that there was coverage on the date of loss, which, according to State Farm, was the date Ellis Court was "aware of damage from decay such that a claim was or should have been submitted." Ellis Court brought a declaratory judgment action against State Farm to establish that there was coverage under the State Farm policy and successfully moved for partial summary judgment on the issue of what trigger should apply to first-party collapse caused by hidden decay. The trial court held:
State Farm's Apartment Policy is an "occurrence" policy and loss involving collapse caused by hidden decay is a covered peril when the loss occurs during the policy period, even if the insured discovers the loss after the policy expires.
The Washington Court of Appeals agreed, rejecting State Farm's argument that the manifestation trigger theory applied and applying the "injury-in-fact" trigger advanced by Ellis Court. Under this trigger, collapse occurs when the decay first causes substantial structural impairment, regardless of when the loss is discovered.
The appeals court noted that the State Farm policy covered "loss commencing during the policy period." (Emphasis added). The court found that a loss "commences" at "the time the damage first began," not when the damage is ultimately discovered.
Relying on the earlier Washington Supreme Court decision in Panorama Village Condo. Ass'n Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 26 P.3d 910 (2001), the Ellis court also affirmed dismissal of State Farm's "known loss" defense on the basis that "hidden" means "out of sight" or "concealed," not "unknown." Until the decay was uncovered, the insured was not charged with the requisite knowledge to support the "known loss" defense. Here, because the decay was "hidden" or "out of sight" until State Farm came on the risk in Spring 2000, State Farm failed as a matter of law to establish the requisite knowledge of the insured.