Exclusions Got You Down? Consider Coverage for Ensuing Losses

   Tred R. Eyerly, Damon Key Leong Kupchak Hastert

In his article “Exclusions Got You Down? Consider Coverage for Ensuing Lossesappearing in the January/February 2011 issue of Coverage, Tred R. Eyerly of Damon Key Leong Kupchak Hastert in Honolulu, Hawaii, first notes that although a loss may be excluded, a resulting loss may still be covered under the policy's ensuing loss provision if such loss itself is not excluded. The article surveys decisions which have found coverage under the ensuing loss provision as well as those which have denied coverage for ensuing losses.

For instance, in one case the policy excluded both losses caused by an act of faulty workmanship and losses caused by mold, but covered any ensuing loss to property not excepted or excluded by the policy.  The court held that mold resulting from faulty workmanship was not “caused by mold” and was thus covered under the policy. Conversely, another court interpreting a similar insurance policy found that damage to the interior of the house that was itself mold or wet rot was not covered even if the damage was an "ensuing loss" from the faulty construction.

In another interesting case, an ensuing loss provision provided for business interruption losses "resulting from necessary interruption of business . . . caused by loss . . . covered herein. . . ."  The court found that the ensuing loss exception to the policy’s exclusions was inapplicable if the loss was directly related to the original excluded risk. Because the business interruption was directly related to the excluded losses for faulty design, it did not come within the ensuing loss provision.

A feature of the article is a chart of pertinent cases containing a succinct summary of their factual backgrounds and the ensuing loss provisions under consideration.

The survey of cases in the article clearly supports the author’s conclusion that “[i]t is difficult to draw a clear line between those cases that find coverage for ensuing losses and those that do not. It appears that a case-by-case analysis is necessary to consider the policy language in light of the particular facts presented.”

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