by Vanessa Ross, Esquire with the Stockham Law Group, Sarasota, FL.
Did you know that if a roof was installed improperly, there may be coverage for the water damage that occurred as a result? Did you know that where an insured has failed to maintain the exterior of the building, there could be coverage for water damaged interior walls? Have you encountered negligently installed sliding glass doors that allow water into a dwelling? There could be coverage for the resulting damage!
Ensuing loss coverage is often misunderstood. The law in Florida has been consistent in its definition, but it has been misapplied and misinterpreted by in-house insurance adjusters and public adjusters alike. Let's begin with a basic definition provided by Webster's Dictionary. "Ensuing" means "to take place afterward or as a result". How does this definition apply when interpreting coverage under a homeowner's or commercial policy?
Generally speaking, an ensuing loss provision does not cover damage to the excluded cause of loss itself (i.e., the broken pipe), but rather covers loss caused to other property wholly separate from the defective property itself (water damage). 4 Bruner & O'Connor Construction Law § 11:211. For example, there would be coverage for water damage which occurs "afterward or as a result" of a faulty or defective roof flashing. In this regard, coverage for water damage-a covered cause of loss-resulting from faulty workmanship or installation-an excluded cause of loss-is a logical interpretation of the ensuing loss provision in the Policy. Selective Way Ins. Co. v. Nat'l Fire Ins. Co., 988 F. Supp. 2d 530, 538 (D. Md. 2013).
Recent case law in Florida has explained the ensuing loss provision of a homeowner's policy as follows: "if the [Insureds] suffered consequential loss as a result of the corroded pipe and that consequential or "ensuing" loss is not excluded under another provision of the policy; the loss is covered. Homeowners Choice Prop. & Cas. v. Maspons, 42 Fla. L. Weekly D 203 (Fla. 3d DCA 2017); Murray v. State Farm Fire & Cas. Ins. Co., 219 Cal App. 3d 58, 64, 268 Cal. Rptr. 33 (Cal. Ct. App. 1990).
The crux of these cases, and probably the reason there are so many incorrect interpretations of coverage in this context, is that the insured must show damage separate and distinct from the excluded cause of loss. In other words, where there is an improperly installed drain line, roof flashing, sliding door or stucco, the insured should make the carrier aware that those items are not in the claim. Rather, the water damage, mold damage, sewage back up, or rain water intrusion, which occurred and damaged other building components is the basis of the claim. The claim is not for the defective roof flashing, the defective or improperly installed sliding doors or defective stucco, for example, but instead the claim is for the damage which occurred as a result of those improperly installed items. For instance, damaged drywall, wood framing, plywood, sheathing, flooring, roof decking, beams, and other items that were damaged "afterward or as a result" of the original faulty construction.
The Florida Supreme Court defined ensuing loss in Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161, 167-168 (Fla. 2003). In Swire the Court addressed whether the policy's design defect exclusion clause barred coverage for the cost of repairing the structural deficiencies in the condominium building balconies. The Court held that it did. More importantly, the Court held that the ensuing loss clause was not ambiguous. In Swire, the Court found that the condo association's sole claim was an attempt to recover the expenses incurred in repairing a design defect. No ensuing loss resulted to invoke the exception to the exclusionary provision. Under the precise terms of the policy, the Court found that there was no coverage for the claim because "[no] loss separate from, or as a result of, the design defect occurred" Id at 168 (emphasis added). Therefore, the court concluded that "under the clear contractual provisions along with the authority of the numerous courts noted above, which we find persuasive, Swire is not entitled to recover the expenses associated with repairing the design defect". Id. However, as the Court stated, if there were losses that occurred separate from or as a result of the construction defect, there would be coverage. The Swire court did not apply a requirement that the chain of proximate cause be broken for the ensuing loss exception to apply. It only required that the ensuing loss "occur subsequent to, and as a result of, a design defect." Id.
Also, as explained in Murray v. State Farm, the Court dealt with a similar clause that provides the homeowner with coverage for losses which flow from an excluded loss, as long as the "ensuing" loss is not also specifically excluded. Thus, the exclusion for "deterioration" means that State Farm is not obligated to compensate the Murrays for their corroded water pipe. If however, the Murrays suffered consequential loss as a result of the corroded pipe and that consequential or "ensuing" loss is not excluded under another provision of the policy, the loss is covered. Id at 488.
It is important to keep in mind that ensuing loss is covered, even when the loss was originally set in motion by an excluded cause of loss. The Bartram, LLC v. Landmark Am. Ins. Co., 864 F. Supp. 2d 1229, 1233, (N.D. Fla. 2012). In other words, ensuing loss is usually an exception to an exclusion. In The Bartram, the Court explained that this means that "ensuing losses, if they resulted from a covered cause, are covered under the policy regardless of whether the loss was naturally set in motion by an excluded cause of loss". The Court concluded that where "the faulty workmanship resulted in water intrusion that subsequently resulted in ensuing losses, the cost to repair the faulty workmanship is excluded but the ensuing losses from the water intrusion are covered. This interpretation is consistent with Swire and the weight of authority interpreting the ensuing loss exception". Id at 1235 citing Harbor Communities, LLC v. Landmark Am. Ins. Co., No. 07-14336-CIV, (S.D. Fla. 2008); Eckstein v. Cincinnati Ins. Co., 469 F.Supp.2d 455 (W.D. Ky 2007); Alton Ochsner Med. Found. v. Allendale Mut. Ins. Co., 219 F.3d 501, 505-06 (5th Cir. 2000).
Therefore, when dealing with claims that initially seem to be excluded, look further, and determine whether there are ensuing losses, or losses that occur "afterward or as a result" of the initial excluded loss. These damages are separate from the work needed to simply fix the faulty workmanship or lack of maintenance. Finally, it is important to determine whether tear out is needed to access the defective or otherwise excluded condition. If tear out is needed to access the damage, then an ensuing loss provision may help you recover the cost of the tear out as well as the cost to repair the resulting loss.
Vanessa Ross is an attorney representing only property owners to assist them in achieving favorable results against their insurance companies. She has analyzed and litigated literally thousands of insurance claims on behalf of insurance companies and now brings her knowledge and experience to the consumer. To contact Vanessa and discuss any coverage issue, she can be reached at 941-217-7580 or by email at email@example.com.