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Vol. 7 - Issue 9
December 19, 2018


Washington Federal Court:
State Supreme Court’s Widely Discussed Xia Decision Does Not Grant Coverage


I have discussed the Washington Supreme Court’s April 2017 decision in Xia v. ProBuilders Specialty Insurance Company a few times.  Briefly, the Washington high court held that carbon monoxide, released from a negligently installed vent, attached to a hot water heater, was a “pollutant.”  At issue were claims for bodily injury by a homeowner against a home builder.  However, the Xia court still held that the pollution exclusion did not apply.  The court got to this result by adopting the “efficient proximate cause” rule -- which provides that coverage is owed if a covered peril sets in motion a causal chain, the last link of which is an uncovered peril.  This is usually seen in property coverage cases.  However, the court noted that there was nothing to say it couldn’t apply to any type of policy. 

Applying the “efficient proximate cause” rule, the court held that the pollution exclusion did not apply.  The court determined that the efficient proximate cause of the injuries was the negligent installation of the hot water heater.  Because this was a covered occurrence, that set in motion a causal chain, that led to discharging toxic levels of carbon monoxide, being an excluded peril, the pollution exclusion was not applicable.  In other words, the pollution exclusion did not apply because two or more perils combined in sequence to cause a loss – one covered and one not -- and a covered peril was the predominant or efficient cause of the loss.

In the last issue of Coverage Opinions I discussed ISO’s recent filing of endorsements designed to address the Xia decision.  Essentially, the endorsements provide that, if an exclusion would have precluded coverage, but the exclusion is rendered inapplicable, on account of the efficient proximate cause rule from Xia, then the exclusion does not apply.  In other words, the endorsements accept that Xia may preclude the applicability of an exclusion.  However, in such case, while the claim may now be covered, it is subject to the newly created “Efficient Proximate Cause Aggregate Limit.”

But, despite all the hubbub about Xia, a Washington federal court recently declined to apply it to find coverage that would not have otherwise been owed.  In Safeco Ins. Co. v. Wolk, No. 18-5368 (W.D. Wash. Oct. 25, 2018), the court addressed the availability of homeowner’s coverage, for claims against a husband and wife (Ben and Michelle Work), for Ben’s alleged sexual assault of a minor female guest in the home (Ruby Nicholls).  The claim against Michelle was that she knew or should have known of Ben’s conduct and did not protect Ruby.

The insurer, Safeco, undertook a defense for Michelle (but not Ben) and reserved rights on several grounds, including no “occurrence” and certain exclusions.  Litigation ensued. 

The Wolks argued that, vis-à-vis Michelle, there was an “occurrence” and the exclusions did not apply because the claims against her were not intentional.  Rather, it was alleged that her liability was based on negligent supervision of her husband.  The court did not agree.  In doing so, it rejected the Wolks’ argument that Xia dictated coverage:

“The Wolks also argue that Michelle’s allegedly negligent supervision of her husband may be the efficient proximate cause of his sexual abuse of Nicholls.  There are at least two flaws with this argument, one legal and one factual. First, the efficient proximate cause rule provides coverage where ‘a covered peril sets in motion a causal chain, the last link of which is an uncovered peril.’ Xia, 400 P.3d at 1240.  While Xia may have suggested that the efficient proximate cause rule can theoretically apply in a broader-than-previously-thought range of insurance coverage cases, its actual holding was not remarkable: [discussion of Xia] . . .

Xia does not hold or suggest that the efficient proximate cause of an excluded intentional act can be negligence, or the negligent supervision of the intentional actor.  Nor does any other case discussing the efficient proximate cause rule suggest that it can or should be applied in such a manner.

The factual flaw in the Wolks’ argument is that Nicholls does not allege that Michelle’s negligence caused the sexual abuse, or that if she knew or should have known it was going to occur in the future.  Her complaint alleges that Michelle ‘knew or should have known of the behavior complained of herein’—Ben’s sexual abuse of Nicholls—and that she ‘had a duty to protect’ Nicholls, which she ‘failed to do.’  It is not possible that the efficient proximate cause of the sexual abuse was Michelle’s knowledge that it was happening and her failure to stop it.”

I do not see this decision as some sort of rejection of Xia.  Rather, it seems to have been dictated by the facts at issue concerning causation.  Indeed, the court observed that Xia itself was cause/fact driven.


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