Ensuing Loss

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When does an excluded loss end and a covered “resulting loss” begin?  This thorny question was the subject of a recent decision out of the Southern District of Texas, EMS USA, Inc. v. The Travelers Lloyds Insurance Co.,  No. H-16-1443, 2018 U.S. Dist. LEXIS 54509 (S.D. Tex. Feb. 28, 2018),  adopted by EMS, USA, Inc. v. Travelers Lloyds Ins. Co., 2018 U.S. Dist. LEXIS 52884 (S.D. Tex., Mar. 29, 2018). EMS involved a builder’s risk policy that covered a natural gas pipeline construction job in southeast Texas. The insured, the pipeline contractor, had through a subcontractor, drilled a “pilot hole” for the pipeline. The next step was to widen the pilot hole to accommodate the pipeline. This operation involved using a reamer attached to a guide wire that directed the operation. When the guide wire broke, the reamer was stuck in the pilot hole and could not be removed, and a new pilot hole had to be excavated. Travelers denied coverage for the cost of attempting to salvage the first pilot hole, and redrilling the second, arguing that the loss was not covered  because (1) the pilot hole was “land” that was not covered under the policy; (2) the hole had not suffered “direct physical loss or damage” as required by the policy’s coverage grant; and (3) the loss, even if within the grant of coverage, fell under the policy’s exclusion for faulty workmanship.
Continue Reading Texas Federal Court Holds Faulty Workmanship Exclusion Applies to All Damage Caused By Drilling Gear Malfunction, Rejects Insured’s Claim for Covered “Resulting Loss”

We have discussed on a number of occasions the issue of causation when there are multiple causes of loss, some covered and some not covered. Most jurisdictions apply what is known as the efficient proximate cause analysis with a minority of jurisdictions applying the concurrent causation analysis, both of which are explained on our blog here. The Florida Supreme Court issued a decision last week applying the concurrent causation theory in a case where the court concluded it was not clear which of the causes of loss was the predominant cause. Sebo v. American Home Assurance Co., Docket SC14-897 (Dec. 1, 2016).

In Sebo, the insured’s residence suffered water damage during rainstorms shortly after he bought the home. Water intrusion (a covered loss) occurred following defective construction (excluded loss). AHAC denied coverage for all but mold damages, which was subject to a $50,000 limit. Sebo filed suit against, among others, the architect who designed the home and the contractor who built the home claiming negligent design and construction. A jury found in favor of the insured, and the trial court entered judgment against AHAC for more than $8 million.Continue Reading Competing Causes of Loss: Florida Supreme Court Issues Decision Applying The Concurrent Causation Doctrine

In National Railroad Passenger Corp. v. Aspen Specialty Ins. Co., 2016 U.S. App. LEXIS 16074 (2d. Cir. Aug. 31, 2016), Amtrak sought the entire $675 million of available coverage from a number of its insurers for damages incurred as a result of Superstorm Sandy.  Most of Amtrak’s damages resulted from flooding of tunnels under the East and Hudson Rivers.  The trial court granted summary judgment for the insurers finding that the damages caused by seawater entering the tunnels was subject to the policies’ $125 million flood sublimit, that corrosion of equipment that occurred after the water was pumped out was not an “ensuing loss,” and that Amtrak failed to establish that it was entitled to coverage under the Demolition and Increased Cost of Construction (“DICC”) provision.  National Railroad Passenger Corp. v. Arch Specialty Ins. Co., 124 F. Supp. 3d 264 (S.D.N.Y. 2015). Amtrak appealed.

The Second Circuit held that even though there were three definitions of flood in the applicable policies, the inundation of seawater in the tunnels was a “flood” within the meaning of all three definitions.  In reaching this conclusion, the court noted that the fact that there were three different definitions of the term “flood” in the policies “did not render the term ambiguous.”Continue Reading Ambiguity And Ensuing Loss: The Second Circuit Affirms The Southern District Of New York’s Holdings In a $675 Million Superstorm Sandy Insurance Coverage Dispute

In New London County Mut. Ins. Co. v. Zachem, 145 Conn. App. 160 (2013), the Connecticut Appellate Court defined the term “vacant” in a vandalism exclusion to mean that a dwelling is “unoccupied,” and does not otherwise contain “items ordinarily associated with habitation,” such as furniture or personal property. The Appellate Court further…

In insurance fraud cases involving actual or alleged destruction of evidence by the insured, an issue often arises regarding whether an adverse inference instruction is appropriate, and, if so, what form it should take. The Second Circuit recently approved a “light” form of adverse inference instruction that allowed the jury to make an adverse inference…

A New York trial court recently addressed the definition of “collapse” and the meaning of the ensuing loss clause in Copacabana Realty LLC v. Fireman’s Fund Insurance Company, No. 10-2919, 2013 NY Slip Op 30960(U) (NY Sup. Ct. Suffolk County Apr. 29, 2013), granting the defendant insurer’s motion for summary judgment on both issues…

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…

Typically, disputes over ensuing loss provisions focus on whether the “secondary” loss complained of is actually separate and distinct from the excluded loss, or whether the “secondary” loss is separately excluded. In Platek v. Town of Hamburg, 948 N.Y.S.2d 797 (App. Div. 4th Dep’t 2012), the Fourth Department considered whether the exception to the…

Ensuing Loss Clause Does Not Create Coverage For Otherwise Excluded Losses

Property insurance policies often contain exclusions with ensuing loss provisions, which state that an ensuing loss not excluded is covered. Whether a loss constitutes a covered ensuing loss is therefore frequently a critical issue in a coverage determination. In Sprague v. Safeco Insurance Company …