Waytena v. The Cincinnati Insurance Company

Background

Plaintiffs William Waytena and Leeann Lahren sued their home insurer, The Cincinnati Insurance Company (CIC), for breach of insurance contract, promissory estoppel, and breach of the duty of good faith and fair dealing. The cross-motions addressed only the breach-of-contract claim and whether the policy covered certain losses.

Storms in late December 2022 and early January 2023 caused substantial water intrusion and fungi damage. The damage was also traced to construction problems, including failed waterproofing and improperly sealed fasteners around balcony railings. CIC initially determined that resulting interior water damage from rainwater was covered, paid $272,423 for interior repairs, and paid more than $500,000 in loss-of-use benefits. In September 2024, CIC later denied coverage for all damage based on the policy’s defective-construction exclusion.

The Policy and the Motions

The policy was an “all-risk” policy that generally covered direct physical loss unless excluded. It excluded physical loss caused by faulty, inadequate, or defective design, workmanship, repair, construction, renovation, remodeling, grading, compaction, or related materials. But it also provided that any ensuing physical loss to covered property, not excluded by another policy provision, was covered.

The policy separately covered additional living expenses when a covered physical loss made the home uninhabitable. Although the policy excluded loss caused by mold, an endorsement provided limited coverage for fungi-related costs, including certain removal, repair-access, testing, and reasonable-living-expense costs.

Plaintiffs moved for partial summary judgment, arguing that rainwater damage was covered even if the water entered through defective construction. CIC filed a cross-motion seeking the opposite ruling. Summary judgment is proper when the undisputed facts show that a party is entitled to judgment as a matter of law.

Rainwater Coverage

The court held that the policy’s ensuing-loss provision covered the interior rainwater damage. Under California law, an ensuing loss generally involves a separate and independent peril that follows an excluded peril. The court concluded that the defective construction and the significant rainfall were separate and distinct perils in this case. Unlike gradual moisture infiltration, the damage followed significant rain events.

The court rejected CIC’s argument that defective construction necessarily prevented the rainwater damage from qualifying as an ensuing loss. It also concluded that the policy could not reasonably be read to exclude rainwater damage whenever rainwater entered through defective construction. That interpretation would make the ensuing-loss provision redundant or effectively meaningless because it would provide no additional coverage beyond the policy’s general coverage provisions.

The court separately explained that the factual question of which cause was the main cause of the loss could not be resolved as a matter of law. The record included disputes about how much damage was attributable to defective construction, and the rainfall could have caused damage even without the construction problems. Nevertheless, the policy’s language required coverage for the rainwater damage at issue under the circumstances presented.

Fungi-Related Living Expenses

The court also ruled that CIC improperly denied coverage for plaintiffs’ increased living expenses related to fungi in the home. CIC relied on the same defective-construction theory it had used for the rainwater damage. Because the court rejected that theory as a basis for excluding the covered rainwater-related loss, it also rejected CIC’s stated basis for denying the fungi-related living-expense claim.

Leaking Sprinkler System

The order did not resolve all insurance issues. The parties disputed whether some interior damage resulted from a leaking fire sprinkler rather than rainwater entering through defective construction. The policy covered some sprinkler-related damage but excluded other sprinkler leakage. Because the extent and cause of any sprinkler leakage were disputed material facts, the court denied summary judgment to the extent either motion sought a ruling beyond the rainwater and related fungal damage addressed in the order.

Disposition

Judge Richard Seeborg granted plaintiffs’ motion for partial summary judgment on their breach-of-contract claim concerning denial of coverage for interior rainwater damage and related fungi damage. The court denied CIC’s cross-motion for partial summary judgment. The order did not decide the disputed sprinkler-related coverage issue or the plaintiffs’ other causes of action.