On April 27, the Washington Supreme Court created a significant new wrinkle in how courts will approach liability insurance disputes involving policy exclusions. In Xia v. ProBuilders Specialty Insurance Co. RRG, the Court applied the “efficient proximate cause” rule to a third-party liability case for the first time, a move that may effectively render most policy exclusions unenforceable. The Court further held that the insurer’s failure to anticipate this new approach to evaluation of the coverage question in denying coverage constituted bad faith.
The facts of the case are not unusual. Xia purchased a new home built by contractor Issaquah Highlands. She fell ill shortly after moving in. When a Puget Sound Energy service technician was called to the home months later, he discovered that the exhaust vent for a hot water heater had been improperly installed, with the result that carbon monoxide was being pumped directly into Xia’s home. Continue Reading