An all risk insurance policy provides coverage for all risks unless the specific risk is excluded. For example, if an all risks homeowner’s policy does not expressly exclude flood coverage, then the house will be covered in the event of flood damage.
Some exclusions may include “ensuing loss” clauses. An ensuing loss clause limits the scope of what is otherwise excluded under the policy. An ensuing loss clause may read as follows:
The Company will not pay for loss or damage caused by or resulting from any of the following:
Faulty, inadequate or defective:
(1) Planning, zoning, development, surveying, siting;
(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) Materials used in repair, construction, renovation or remodeling; or (4) Maintenance;
of part or all of any property on or off an insured premises.
However, in the event an excluded cause of loss that is listed in 3.a. through 3.c. above results in a Covered Cause of Loss, the Company will be liable only for such resulting loss or damage.
To determine if there is coverage you need to determine whether the loss (such as property damage) that ensues from the excluded event (such as faulty workmanship) is covered or excluded. Consider a scenario where a contractor mis-wires a home’s electrical system, resulting in a fire and significant damage to the home. In this scenario the homeowner’s policy excludes losses caused by faulty workmanship, but the exclusion contains an ensuing loss clause. The ensuing loss clause would preserve coverage for damages caused by the fire. But, it would not cover losses caused by the miswiring that the policy otherwise excludes. Nor would the ensuing loss clause provide coverage for the cost of correcting the faulty wiring.
In a recent Washington Supreme Court decision, Vision One, LLC v. Philadelphia Indem. Ins. Co., the court considered whether or not an ensuing loss clause applied where there were two excluded events and only one excluded event contained an ensuing loss clause. Vision One, LLC, a developer, had purchased a builder’s risk insurance policy from Philadelphia Indemnity Insurance. Shortly after finishing the first floor of a condominium project owned by Vision One, LLC the shoring collapsed causing the framing, rebar, and newly poured concrete to come crashing down onto the lower level parking area. The insurer’s expert determined that the cause of the property damage was both defective design and faulty workmanship. Both design defects and faulty workmanship were excluded from coverage under the policy; however, the faulty workmanship exception contained an ensuing loss clause provision. The insurer denied coverage because there was no separate and independent cause that resulted in coverage.
The Washington Supreme Court disagreed with the insurer’s position. The Washington Supreme Court held that where the two events caused the loss concurrently, the ensuing loss clause applied to create coverage. The insurer would only be able to deny coverage if the insurer could prove that the design defect caused the faulty workmanship which then caused the loss, which was not the case.
When faced with this issue, be sure to read your policy carefully, and consider hiring your own expert to determine the cause of your property loss. As you can see from the decision in Vision One, LLC v. Philadelphia Indem. Ins. Co., determining the cause of your loss is extremely important in determining coverage.