In a significant ruling, the U.S. Court of Appeals for the District of Columbia Circuit has overturned a previous judgment, compelling two insurers to cover a $1.5 million water damage claim.

Judge Gregory G. Katsas delivered the opinion, reversing a 2022 trial court decision and instructing summary judgment in favor of real estate developer 3534 East Cap Venture and McCullough Construction.

The developers initially filed the claim after spending $1.5 million to remediate water damage at a residential and retail complex in D.C. However, Westchester Fire Insurance Co. and Endurance American Insurance Co. denied coverage, citing a policy exclusion accepted by District Judge Amit P. Mehta.

The D.C. Circuit found that the builders’ risk insurance policies cover losses from water damage, even when caused by excluded perils like dampness and temperature changes, provided that direct physical loss by an insured peril follows. Judge Katsas, joined by Judges Cornelia T.L. Pillard and Judith W. Rogers, stated that this ensuing-loss clause mandates coverage for the damages in question.

C. Thomas Brown of Silver & Brown, representing the developers, successfully argued the appeal. “This is a significant decision in an area with limited case law,” Brown remarked. “It’s reassuring that our clients will receive compensation for their policy.”

Philip C. Silverberg of Mound Cotton Wollan & Greengrass, representing the insurers, has not commented on the ruling.

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