The opinion
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 4, 2023 Decided June 21, 2024
No. 22-7136
3534 EAST CAP VENTURE, LLC AND MCCULLOUGH
CONSTRUCTION, LLC,
APPELLANTS
v.
WESTCHESTER FIRE INSURANCE COMPANY AND ENDURANCE
AMERICAN INSURANCE COMPANY,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:19-cv-02946)
C. Thomas Brown, pro hac vice, argued the cause for
appellants. On the briefs were Mitchell Y. Mirviss, Elizabeth
Clark Rinehart, and Erik Broch Lawson.
Philip C. Silverberg argued the cause for appellees. With
him on the brief was James P. Steele.
Before: PILLARD and KATSAS, Circuit Judges, and
ROGERS, Senior Circuit Judge.
2
Opinion for the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: This appeal turns on whether two
insurance policies provided coverage when vapor inside the
insured building condensed into water during a period of cold
weather. The water then damaged the building. The policies
at issue cover loss caused by water damage but exclude loss
caused by atmospheric dampness or temperature changes. The
exclusion contains an exception if a loss “by an insured peril
ensues.” We hold that this ensuing-loss clause applies to losses
from water damage caused by the excluded perils of dampness
and temperature changes. Accordingly, the policies cover the
losses at issue here.
I
Plaintiff 3534 East Cap Venture, LLC, a real-estate
developer, hired plaintiff McCullough Construction, LLC to
build a residential and retail complex on East Capitol Street in
the District of Columbia. Defendants Westchester Fire
Insurance Company and Endurance American Insurance
Company issued identical builders’ risk insurance policies,
which covered the building while it was under construction.
Under the respective policies, each insurer is responsible for
half of any qualifying losses.
As with many insurance policies, coverage here turns on
the cause of any losses. The policies cover “LOSS … caused
by or resulting from WATER DAMAGE.” J.A. 36. On the
other hand, the policies exclude loss caused by “dampness of
atmosphere” or by “[e]xtremes or changes in temperature.” Id.
at 48. But the exclusions contain an exception if “LOSS by an
insured peril ensues.” Id. The exclusions and the ensuing-loss
exception appear in this provision:
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This Policy does not insure LOSS caused by any of
the following, unless direct physical LOSS by an
insured peril ensues and then this Policy insures only
such ensuing direct physical LOSS:
1. Corrosion, decay, deterioration, erosion,
evaporation, inherent vice, latent defect, leakage, loss
of weight, rust, shrinkage, wear and tear or any quality
in property which causes it to damage or destroy itself.
2. Normal settling, shrinking, cracking, expansion or
contraction.
3. Dryness or dampness of atmosphere.
4. Extremes or changes in temperature.
Id.
While construction was ongoing, the builder discovered
water throughout the building. As it turned out, the architect’s
plans had failed to include a vapor barrier to prevent humid air
inside the building from reaching cold, exterior-facing surfaces
and then condensing into water. As a result, moisture under the
roof condensed during a spell of cold weather. The water then
seeped into and soaked building materials such as wood,
insulation, and drywall. Deposition testimony indicated that
water fell from the ceiling “[l]ike rain drops.” J.A. 1213. The
builder was forced to replace the damaged materials, at a cost
of nearly $1.5 million. The insureds filed claims under the
policies, and the insurers denied coverage.
The insureds sued in the Superior Court of the District of
Columbia. The insurers removed the case to federal district
court based on diversity of citizenship. After fact discovery,
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all parties moved for summary judgment on the question of
liability under the policies.
The district court ruled for the insurers. 3534 E. Cap
Venture, LLC v. Westchester Fire Ins. Co., 633 F. Supp. 3d 123
(D.D.C. 2022). It held that the exclusions for losses caused by
“dampness of atmosphere” or “changes in temperature”
applied by their terms. See id. at 127–30. Further, it held that
the ensuing-loss exception to the exclusions did not apply
because losses from “water damage” to the building were
“inextricably intertwined” with—and indeed were “one and the
same” as—losses covered by the dampness and temperature
exclusions. See id. at 130–31 (cleaned up).
II
We review orders granting or denying summary judgment
de novo. Friends of Animals v. Jewell, 824 F.3d 1033, 1040
(D.C. Cir. 2016). A district court should grant summary
judgment if there is “no genuine dispute as to any material
fact.” Fed. R. Civ. P. 56(a). A dispute is “material” if its
resolution could affect the outcome and is “genuine” if a
reasonable jury could find for the non-moving party. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986).
The insurance policies at issue are governed by District of
Columbia law. Under D.C. law, courts construe insurance
policies “according to contract principles”—that is to say, “in
a manner consistent with ordinary speech.” Stevens v. United
Gen. Title Ins. Co., 801 A.2d 61, 66 (D.C. 2002). In “cases of
doubt,” ambiguities are resolved “against the insurer who
drafted the contract.” Cameron v. USAA Prop. & Cas. Ins. Co.,
733 A.2d 965, 968 (D.C. 1999) (cleaned up). Moreover, policy
exclusions “will be construed narrowly.” In re Est. of Corriea,
719 A.2d 1234, 1243 (D.C. 1998). Indeed, a long line of D.C.
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precedent requires an insurer “to spell out in plainest terms—
terms understandable to the man in the street—any
exclusionary or delimiting policy provisions.” Travelers
Indem. Co. v. United Food & Com. Workers Int’l Union, 770
A.2d 978, 986 (D.C. 2001) (quoting Cameron, 733 A. 2d at 968
and Holt v. George Washington Life Ins. Co., 123 A.2d 619,
621 (D.C. 1956)).
The parties debate at length what caused the harmful
condensation. According to the insureds, the relevant
dampness and temperature were not unusual, so the lack of a
vapor barrier was its sole cause. Moreover, they say, the
“dampness of atmosphere” refers to humidity outside but not
inside the building. For these reasons, they contend that the
exclusions do not apply. The insurance companies vigorously
contest all of these points. We need not resolve them because
we conclude that, if the exclusions apply, the ensuing-loss
exception also applies and provides coverage here.
The policies at issue exclude coverage for losses “caused
by” either “dampness of atmosphere” or “changes in
temperature,” “unless direct physical LOSS by an insured peril
ensues.” J.A. 48. For the sake of argument, we assume that
the loss here was caused by “dampness of atmosphere” and
“changes in temperature,” as the insurers urge. But it also was
physical loss more directly caused “by an insured peril,”
namely water damage. The policies provide coverage for
losses “caused by or resulting from WATER DAMAGE.” Id.
at 36. They define “water damage” broadly to include “[a]ll
water damage, except LOSS caused by or resulting from the
peril of FLOOD,” id. at 61, which triggers separate coverage
provisions, id. at 36. And they define “flood” to exclude “the
accumulation of water from any source on a roof or other
surface of a building, dwelling or structure,” id. at 59, thus
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confirming that “accumulation of water” inside the building is
a type of “water damage.” The damage here—caused by liquid
water that had accumulated inside the building—clearly was
“LOSS by” the “insured peril” of “water damage.” The only
remaining question is whether the water damage “ensue[d]”
within the meaning of the policy. The insurers contend that
water damage did not ensue from dampness and temperature
changes if the dampness and temperature changes directly
caused the water damage. As explained below, we disagree.
When this Court, sitting in diversity, interprets D.C. law,
“[o]ur duty … is to achieve the same outcome we believe
would result if the District of Columbia Court of Appeals
considered [the] case.” Novak v. Cap. Mgmt. & Dev. Corp.,
452 F.3d 902, 907 (D.C. Cir. 2006). For three reasons, we think
the D.C. Court of Appeals would conclude that the water
damage here ensued from the dampness and temperature
changes. First, that Court has instructed that insurance policies
should be construed “consistent with ordinary speech.”
Stevens, 801 A.2d at 66. And in ordinary speech, ensue means
“to take place afterward or as a result.” Ensue, Merriam-
Webster Dictionary; see also Ensue, American Heritage
Dictionary of the English Language (same); Ensue, Oxford
English Dictionary (“To occur or arise subsequently”; “To
follow as a result”). In this case, the water damage occurred
both after and (we assume) as a result of excluded causes of
dampness and temperature changes. Second, in construing an
ensuing-loss clause, this Court has stated that “the most
common meaning of ‘ensue’ is ‘result from.’” Souza v.
Corvick, 441 F.2d 1013, 1022 (D.C. Cir. 1970). The clause at
issue in Souza excluded coverage for losses caused by ground
settling or sinking, unless losses caused by fire, explosion, or
other specified events “ensue[d].” See id. at 1020. We
construed this clause to mean that losses from settling or
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sinking are excluded unless one of the specified events “results
from the ‘settling’ or ‘sinking.’” Id. at 1022 (emphasis in
original). So, for example, if sinking severed a powerline and
thereby caused a fire inside the insureds’ house, the policy
would cover the fire damage. See id. Souza was decided when
this Court still issued precedential opinions on matters of D.C.
law, so the D.C. Court of Appeals regards it as a binding
precedent. See M.A.P. v. Ryan, 285 A.2d 310, 312 (D.C. 1971).
And Souza points in the same direction as the dictionaries—
losses from water damage ensued from the dampness and cold
if the water damage resulted from those causes. Finally, two
interpretive presumptions favor the insureds—the rule that
ambiguities must be resolved against the insurer, Cameron, 733
A.2d at 968, as well as the rule that policy exclusions must be
construed narrowly, In re Est. of Corriea, 719 A.2d at 1243.
Both presumptions apply because a construction of ensues to
mean “results from” as well as “happens later” is at a minimum
reasonable, which is enough at least to create ambiguity
favoring the insureds. See Am. Bldg. Maint. Co. v. L’Enfant
Plaza Properties, Inc., 655 A.2d 858, 861 (D.C. 1995)
(“Contractual language is ambiguous if it is susceptible of more
than one reasonable interpretation.”).
Even if D.C. law were unclear on this point, Maryland law
reinforces our conclusion. In diversity cases governed by D.C.
common law, we give Maryland law special consideration
because the District derives its common law from Maryland’s.
Conesco Indus., Ltd. v. Conforti & Eisele, Inc., 627 F.2d 312,
315–16 (D.C. Cir. 1980). And Maryland law construes
ensuing-loss clauses consistent with our analysis above. For
example, under Maryland law, a policy excluding “explosions
of any kind, unless fire ensues” provides coverage for fires
caused by explosions. See Transatlantic Fire Ins. Co. of
Hamburg v. Dorsey, 56 Md. 70, 77–80 (1881); see also
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McEvoy v. Sec. Fire Ins. Co. of Baltimore, 73 A. 157, 160 (Md.
1909) (policy covers “loss caused by fire ensuing from”
excluded causes). Selective Way Insurance Co. v. National
Fire Insurance Co., 988 F. Supp. 2d 530 (D. Md. 2013), which
the insureds highlight for us, applies these precedents. The
policy there covered loss caused by water damage, excluded
loss caused by faulty workmanship, and contained an exception
to the exclusion if the faulty workmanship “result[ed] in” a
covered cause. See id. at 532. The court described the
exception as an “ensuing loss” clause, which it construed to
mandate coverage for water damage caused by faulty
workmanship. Id. at 538. Accordingly, there is “good reason
to think that Maryland law” requires a broad reading of
ensuing-loss clauses to provide coverage whenever an insured
peril is a “direct cause of the loss,” even if the insured peril was
itself caused by an excluded peril. Bethany Boardwalk Grp.
LLC v. Everest Sec. Ins. Co., 611 F. Supp. 3d 41, 57–58 (D.
Md. 2020). This rule favors the insureds here, for the water
damage in this case—an insured peril—directly caused the loss
regardless of whether it resulted from excluded causes of
humidity and cold temperature.
We recognize that decisions across the country are divided
on this issue, but we note one more that seems to us persuasive.
Blaine Construction Corp. v. Insurance Company of North
America, 171 F.3d 343 (6th Cir. 1999), involved a policy that
included coverage for losses caused by water damage,
excluded coverage for losses caused by faulty workmanship,
and contained an ensuing-loss exception to the exclusion. See
id. at 349–50. The contractor failed to seal a vapor barrier in
the insured building, which caused moisture to condense,
which in turn caused “water damage to the insulating material.”
Id. at 350. Applying Tennessee law, the Sixth Circuit
construed the ensuing-loss provision to mandate coverage
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because the excluded peril (faulty workmanship) caused an
insured peril (water damage). See id. The Court rejected a
contention that “an ensuing loss, to be covered, must be the
result of a new, separate, and independent peril from the peril
that is excluded, rather than a loss that follows naturally and
ordinarily from an excluded peril.” Id. (cleaned up).1
The district court reached the opposite conclusion here
based on its view that the excluded perils (atmospheric
dampness and temperature changes) were “inextricably
intertwined with the ensuing peril of water damage.” 633
F. Supp. 3d at 131 (cleaned up). Indeed, the court went so far
as to describe the excluded and included causes here as “one
and the same,” because the “increase in humidity and change
in temperature led directly to” the damaging condensation. Id.
That is a difficult position to maintain in construing policies
that by their terms distinguish between water damage (which
they treat as an insured peril) and atmospheric dampness and
temperature changes (which they treat as excluded perils).
Indeed, it is a difficult position to maintain in construing any
ensuing-loss provision distinguishing between an excluded
peril and an insured peril that ensues.
All of that said, we acknowledge some authority for
denying coverage where an excluded peril is inextricably
intertwined with an ensuing and insured peril. See, e.g., Aetna
Cas. & Surety Co. v. Yates, 344 F.2d 939, 941 (5th Cir. 1965)
(to be covered, ensuing insured peril must “be in some sense
separable” from excluded peril); Bethany Boardwalk, 611
1
Blaine Construction also narrowly construed exclusions for
dampness of atmosphere and temperature changes to refer only to
weather conditions outside the insured building. See 171 F.3d at
351–54. Given our analysis of the ensuing-loss provision in this
case, we need not address that question.
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F. Supp. 3d at 60 (denying coverage where it was
“conceptually impossible to disentangle the damage caused”
by the excluded and ensuing insured perils). These cases
reason that an ensuing-loss clause requires some degree of
distinctness between the excluded peril and the ensuing insured
peril, lest coverage for the ensuing cause “very nearly destroy”
the exclusion. See Yates, 344 F.2d at 941. We need not take a
position on this question. Here, the excluded perils—dampness
of atmosphere and change in temperature—are not inextricably
intertwined with the covered ensuing peril of water damage in
the sense that the former always cause the latter. Humidity and
temperature changes may damage a building without causing
significant condensation. For example, humidity may warp
wood, and temperature changes may lead to cracks in masonry.
Thus, interpreting ensues to mean “results from” as well as
“happens later than,” consistent with its ordinary meaning, still
leaves meaningful application for the dampness and
temperature exclusions.
Finally, we note that Yates—the case invoked most heavily
by the insurers—involved losses treated as not involving
“water damage” under the governing policy. In Yates, the
policy excluded loss caused by rot, mold, or dampness of
atmosphere, but the exclusion did not “apply to ensuing loss
caused by … water damage.” 344 F.2d at 940–41. The loss
happened when humid air trapped in an unvented crawl space,
hitting subfloors chilled by air conditioning, “produced
condensation of moisture and consequent rotting.” Id. at 940.
In denying coverage, the Court reasoned that “the rot may have
ensued from the presence of water but not from water damage”
within the ordinary meaning of that term. Id. at 941.
Moreover, virtually any case involving both dampness and rot
would involve some vapor condensing into water. Id. So if
that were enough to establish ensuing “water damage,” the
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ensuing-loss exception would “very nearly destroy” the
underlying exclusion. See id. The Court was careful to
distinguish a hypothetical case involving “direct intrusion of
water,” which it said likely would involve “water damage.”
See id. And it noted the insurer’s apparent concession that the
ensuing-loss clause would provide coverage if “water damage
ensued from an excluded loss”—for example, “if a rotted wall
opened and admitted rain.” Id. Yates thus turns not on whether
an insured peril can “ensue” from an excluded peril, but on
whether the rot in that case amounted to “water damage.” See
Blaine Construction, 171 F.3d at 353 (distinguishing Yates)
(“In the case at bar … there is no contention that the insulation
had rotted. Here the damage consisted of the direct intrusion
of water ….”).
This case is also different from Yates. For one thing, the
policies here make clear that the term “water damage” includes
“the accumulation of water” from any “roof or other surface”
of the building. J.A. 59. And this case clearly does involve
such an “accumulation” or “direct intrusion” of water.
Uncontroverted deposition testimony indicated that the
building was damaged when “drops of water” began “falling”
from the ceiling “[l]ike rain drops.” Id. at 1213. The district
court itself aptly described the damaged building materials as
“soaked.” 633 F. Supp. 3d at 125. Moreover, to the extent the
loss here resulted from mold in addition to water damage, see
id. (noting “moisture and mold growth”), the policies here
include coverage for losses caused by mold and other fungi,
J.A. 36. So, unlike Yates, this case presents no concern about
coverage effectively eviscerating an exclusion for losses from
mold. On any reasonable understanding, the loss here flows
from “water damage” distinct from the mere presence of
dampness inside the building and low temperatures outside.
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Accordingly, the ensuing-loss provision applies and mandates
coverage for the losses claimed by the insureds.2
III
The judgment of the district court is reversed, and the case
is remanded with instructions to enter summary judgment for
the insureds on the question of liability.
So ordered.
2
The policies here contain a separate exclusion for the “Cost
of Making Good” an engineering defect or faulty workmanship,
subject to a qualification that “if direct physical LOSS by an insured
peril ensues, then [the policies] will provide cover for such ensuing
LOSS.” J.A. 48. For reasons explained above, we conclude that the
water damage here was an insured peril that “ensue[d]” from any
engineering defect or faulty workmanship, thus making the exclusion
inapplicable to the damages claimed here.