Ensuing loss clauses can be a common source of litigation when insureds argue that part or all of the loss is purportedly caused by some event occurring subsequent to the excluded cause of loss. We provide an overview of ensuing loss clauses here.
The Second Circuit recently affirmed the Southern District of New York’s holding that an ensuing loss clause was not triggered. Rapid Park Industries, et al. v. Great Northern Ins. Co., et al., 2012 U.S. App. LEXIS 23107 (2d Cir. Nov. 9, 2012). In Rapid Park, the insured leased a parking garage in Manhattan. In April 2008, New York City’s Department of Buildings issued a summons for “failure to maintain,” and a Vacate Order stating that the floor had “deteriorated, exposing bars,” and that the garage was in danger of collapsing. Id. at *2. The insured notified Great Northern of an insurance claim for loss of income as a result of the Vacate Order. Great Northern denied the claim in June 2009, citing inter alia, the wear and tear or deterioration exclusion, which provided that “[t]his insurance does not apply to loss or damage caused by or resulting from Wear and Tear or deterioration,” and that the exclusion “does not apply to ensuing loss or damage caused by or resulting from a specified peril or water.” The insured filed suit and the Southern District of New York granted summary judgment to Great Northern. Rapid Park Indus. v. Great Northern Ins. Co., 2010 U.S. Dist. LEXIS 115747 (S.D.N.Y. Oct. 1, 2010). After first finding an issue of fact as to whether the loss was fortuitous, the Southern District held that the wear and tear or deterioration exclusion was triggered, and the ensuing loss provision did not apply.
The Second Circuit affirmed the holding that the wear and tear or deterioration exclusion applied, especially based on the fact that the insured took the position that “the Vacate Order was issued as a result of the landlord’s failure to make necessary repairs.” The Second Circuit determined that the ensuing loss provision was not triggered:
Plaintiffs argue that it was “originally water seeping into the garage” that resulted in the deterioration of the garage. While there is testimony to that effect, this damage was not “ensuing,” in the sense that it was a separate, subsequent event that occurred due to the deterioration. Instead, it was “directly related to the original excluded risk,” which New York courts exclude from the “ensuing loss” exception.
2012 U.S. App. LEXIS 23107 at *3 (citing several New York cases in accord). This decision by the Second Circuit is consistent with the strong weight of authority nationwide on ensuing loss provisions, which holds that an “ensuing loss” must be caused by a peril or cause of loss that is separate and independent from the original excluded risk.