Keeley v. Travelers, 2016 WL 3405493 (W.D.Wash. June 21, 2016)

What happened?

The Keeleys installed new hard surface flooring in their condo unit. Unfortunately, they overlooked a condo bylaw requiring them to obtain the written consent of the owner of the unit directly below them before sprucing up their floor. The Keeleys’ downstairs neighbor did not appreciate the additional noise created by the hardwood floors, and filed suit seeking an injunction requiring the Keeleys to rip up the new floor. When the Keeleys tendered the suit to their homeowners’ policy, Travelers denied coverage based on no “property damage,” “damages,” or “occurrence.” Coverage and bad faith litigation ensued.

What did the Court say?

First, the Court first held that the “unbearable” noise alleged by the downstairs neighbor qualified as “property damage,” because it restricted her enjoyment of her property.

Second, the Court ruled that the downstairs neighbor’s request for “such additional and further relief as the court deems appropriate” constituted a request for “damages,” even though her complaint only specifically requested injunctive relief.

Third, the Court agreed with Travelers that there no “occurrence,” because the Keeleys knew or should have known that they had to ask permission before installing hardwoods, and that the harm allegedly resulting from the installation was not truly unexpected or unforeseen.

Fourth, the Court allowed the Keeleys’ claim that Travelers acted in bad faith by misrepresenting policy provisions to proceed, even though their insurance claim was not covered. In an new twist on Washington bad faith law, the Court held that Travelers potentially “misrepresented” the policy’s definitions of “property damage” and “damages” by incorrectly denying coverage based on those definitions. In the Court’s view, misrepresentation is not limited to misstating terms and conditions of a policy, but also may include misapplying the terms and conditions.

What are the takeaways?

1. In Washington, insurers can face bad faith exposure even when their coverage position is ultimately found to be correct.

2. Check your bylaws before renovating your condo.