Ensuing Loss Clauses in Homeowners Policies: Confusing but Not Ambiguous
April 2007
Ensuing loss clauses are common in all-risks
policies, such as homeowners and other property policies. And while they may
be confusing, according to many courts, they are not ambiguous.
by R. Brent
Cooper & Dana Harbin
Cooper & Scully
Because ensuing loss provisions are exceptions to policy exclusions, they
are not interpreted to create coverage. Capelouto
v. Valley Forge Ins., 990 P.2d 414, 419 (Wash. App. 1999); McDonald v. State Farm, 837 P.2d 1000, 1005 (Wash.
1992) (given the placement of the ensuing loss clause in a policy exclusion,
it is difficult to reasonably interpret the ensuing loss clause contained in
the defective construction and materials exclusion to be a grant of coverage).
Because the structure of homeowners policies involves a grant of coverage
counterbalanced by coverage exclusions, courts are more inclined to interpret
the ensuing loss provisions with an objective source of meaning and intent.
This means courts usually look to the plain language of the terms of the provision,
with little deference to the intent of the drafters. Though not identical in
policy terms, ensuing loss clauses are similar enough in language and purpose
that a majority of courts throughout the nation have presented a consistent
interpretation. The ensuing loss clause may be confusing, but according to many
courts, it is not ambiguous. Arnold v. Cincinnati Ins.,
688 N.W.2d 708, 716-717 (Wis. App. 2004) (simply because the common meaning
of "ensuing" is broad does not mean that the clause is ambiguous).
Reasonably interpreted, the ensuing loss clause says that if one of the specified
uncovered events takes place, any ensuing loss which is otherwise covered by
the policy will remain covered. The uncovered event itself, however, is never
covered. Thus, the intent of the ensuing loss clause is not to enlarge the list
of items covered under the policy. Brodkin v. State
Farm, 265 Cal. Rptr. 2d 710, 714 (Cal. App. 1989), rev. den. (1990).
Fiess v. State Farm Lloyds, 202 S.W.3d 744
(Tex. 2006), is the most recent opinion from a state high court. There, the
Texas Supreme Court interpreted the following mold exclusion with an ensuing
loss provision in a state-approved homeowners policy form:
- We do not cover loss caused by:
* * *
- (2) rust, rot, mold or other fungi,
* * *
- We do cover ensuing loss caused by collapse of building or any part
of the building, water damage, or breakage of glass which is part of the
building if the loss would otherwise be covered under this policy.
Id. at 746.
The Fiesses argued that the mold exclusion was not applicable to mold caused
by roof leaks, plumbing leaks, heating and air-conditioning leaks, door leaks,
and window leaks because of the "ensuing loss" provision. The Texas Supreme
Court disagreed with the Fiesses and interpreted the ensuing loss clause such
that "ensuing loss caused by water damage is a loss caused by water damage where
the water damage itself is the result of a preceding cause." Id. at 749. The court interpreted the ensuing
loss clause to apply only when water damage is the result, rather than the cause,
of mold. The Texas Supreme Court held that the only reasonable interpretation
is that the ensuing loss clause must yield to the mold exclusion, not the other
way around.
Recent Texas Supreme Court Decision
The Texas Supreme Court noted a majority of other jurisdictions that interpret
ensuing loss clauses in a similar fashion. Decisions in a number of jurisdictions
address ensuing loss clauses containing the same three intervening causes (building
collapse, water damage, and glass breakage) as the Texas homeowners policy made
the subject of the Fiess case:
- Souza v. Corvick, 441 F.2d 1013, 1016
(D.C. Cir. 1970)
- N.Z. Ins. v. Lenoff, 315 F.2d 95, 95
n.1 (9th Cir. 1963)
- Beach v. Middlesex Mut. Assoc., 532 A.2d
1297, 1298 n.1 (Conn. 1987)
- Phoenix Ins. v. Branch, 234 So. 2d 396,
398 (Fla. App. 1970)
- Nationwide Ins. v. Warren, 675 S.W.2d
402, 403 (Ky. App. 1984)
- Shields v. Pa. Gen. Ins., 488 So. 2d
1252, 1253 (La. App. 1986)
- Cantrell v. Farm Bur. Town & Country Ins.,
876 S.W.2d 660, 662 (Mo. App. 1994)
Again, most courts refuse to interpret the ensuing loss clause to make an
excluded loss reappear as a covered loss. Fiess at 752-753. See also:
- Church of the Palms-Presbyterian (U.S.A.), Inc.
v. Cincinnati Ins., 404 F. Supp. 2d 1339, 1342 (M.D. Fla. 2005)
- Cooper v. American Family Mut. Ins.,
184 F. Supp. 2d 960, 964 (D. Ariz. 2002)
- Schloss v. Cincinnati Ins., 54 F. Supp.
2d 1090, 1098 (M.D. Ala. 1999), aff'd,
211 F.3d 131 (11th Cir. 2000)
- Vermont Elec. Power v. Hartford Steam Boiler
Inspection & Ins., 72 F. Supp. 2d 441, 445 (D. Vt. 1999)
- Banks v. Allstate Ins., 1993 WL 40113
*5 (E.D. Pa. Feb. 12, 1993) (unpublished)
- Ames Privilege Assocs. Ltd. P'ship v. Utica
Mut. Ins., 742 F. Supp. 704, 708 (D. Mass. 1990)
- Murray v. State Farm, 268 Cal. Rptr.
33 (Cal. App. 1990)
- Board of Educ. of Maine Twp. v. International
Ins., 684 N.E.2d 978, 984 (Ill. App. 1997)
- Myers v. State Farm, 2002 WL 1547673
*6 (Minn. App. July 16, 2002)
- Weeks v. Coop. Ins., 817 A.2d 292, 296
(N.H. 2003)
- Narob Dev. Corp. v. Insurance Co. of N. Am.,
631 N.Y.S.2d 155 (N.Y. App. Div. 1995)
- Alwart v. State Farm, 508 S.E.2d 531,
533-34 (N.C. App. 1998)
- Boughan v. Nationwide Prop. & Cas., 2005
WL 126781 *3 (Ohio App. Jan. 24, 2005)
- McDonald v. State Farm, 837 P.2d 1000,
1005-06 (Wash. 1992)
- Richland Valley Prod. Inc. v. St. Paul Fire
& Cas., 548 N.W.2d 127, 133 (Wis. App. 1996)
But seePhillips
v. United Services Auto. Ass'n, 146 S.W.3d 629, 635-36 (Tenn. App. 2004)
(holding rot, though excluded clause, was covered by ensuing-loss provision).
Other Recent Rulings
Additional recent decisions demonstrate the common interpretation of ensuring
loss clauses in homeowners policies. For example, the Southern District of California
recently ruled in Loughney v. Allstate Ins.,
465 F. Supp. 2d 1039, 1042 (S.D. Cal. 2006), that an "ensuing loss" provision
"creates coverage only if an excluded cause of loss (i.e., landslide) resulted
in a secondary peril (such as a fire) that itself is covered by the policy,
and this secondary peril caused a loss." The court interpreted the ensuing loss
provision so that there is coverage for a peril separate and in addition to
the initial excluded peril so long as the second peril is otherwise covered.
Because the Loughneys' complaint did not allege any secondary peril covered
by their policy that caused damage to their property, the ensuing loss provision
was not applicable.
Another recent decision that demonstrates the majority interpretation is Bloom v. Western Nat'l Mut. Ins., 2006 WL 1806415,
*5 (Minn. App. 2006), where the Blooms claimed coverage under their homeowners
insurance policy for the costs incurred in renovating their home after discovering
damage. The court considered whether damage caused by water entering a home
due to defective design, faulty workmanship, or faulty materials furnished in
connection with construction or remodeling is excluded from coverage under either
the "errors, omissions and defects" exclusion or the "wear and tear" exclusion,
or is it covered as an ensuing loss? The exclusion and ensuing loss language
of the insurance policy at issue stated:
- "We" [appellant] do not pay for loss if one or more of the following
exclusions apply to the loss. However, "we" do pay for an ensuing loss that
is otherwise covered by this policy. (Emphasis added.)
In finding that the Blooms' damages were an ensuing loss and therefore covered
by the policy, the federal district court defined ensuing loss as "a loss that
is not directly caused by faulty workmanship but nonetheless follows as a chance,
[which is a] likely, or necessary consequence of faulty workmanship." The district
trial court found the damages to be ensuing losses "because they were not directly
caused by the faulty workmanship or material, but by water intrusion thereafter"
as most of the Blooms’ damages (undisputedly) occurred as a result of rain entering
in or through the home due to various errors and omissions of the contractor.
The Minnesota Court of Appeals held otherwise, finding the ensuing loss clause
does not create or provide coverage for an otherwise excluded loss. The court
held both the defective construction and the rot-and-mold exclusions specifically
excluded ensuing loss coverage because the rot and mold is inseparable from
any resulting damage otherwise excluded under the policy. The rot and mold are
not ensuing losses, and therefore, not covered. The court further noted that
mold and rot are not separate and distinct perils. The mold resulted from water
that entered into the home through the faulty installation and workmanship of
the contractor. The court determined that for mold and rot to cause injury,
water or moisture must be present, and without the faulty installation and workmanship,
as indicated by the expert investigation, the water and moisture should not
have entered the Blooms' home to produce mold and rot. The court reasoned:
- The mold and rot was caused by water that entered the home, a direct
result of faulty installation and workmanship. It is not a surprise that
mold and rot were found due to water intrusion. The water intrusion and
resulting rot and mold are "a single phenomenon." There was no intervening
cause other than time…. Here, faulty construction and workmanship is the
"but for" cause of the mold-and-rot damage but the mold and rot, the ensuing
loss, is excluded under the wear-and-tear exclusion. The damage resulting
from mold and rot is not covered under its own provision, therefore, the
mold-and-rot damage cannot be an ensuing loss.
Id.
See also:
- Atlantic Mut. Ins. v. Lotz, 384 F. Supp.
2d 1292, 1305 (E.D. Wis. 2005) (explaining where evidence shows shower leaked
because it was defectively constructed, and development of mold and rot
in the sub-floor was a "likely" or "necessary consequence" of the defects,
mold and rot were ensuing losses caused by the defective construction, and
excluded under the defective construction exclusion because the direct cause
for the damage to the sub-floor, i.e., mold and rot, is excluded)
- Morgan v. Auto Club Family Ins., 899
So. 2d 135, 136-137 (La. App. 2005) (holding loss of property caused by
mold is specifically excluded from coverage under the homeowners policy
even though the mold damage may have resulted from lack of ventilation in
the attic because accumulation of condensation is not a peril insured under
the policy)
- Wright v. Safeco Ins. Co. of Am., 109
P.3d 1, 7 (Wash. App. 2004) (explaining "under the ensuing loss exception
to the defective construction exclusion, where defective construction causes
water damage that in turn causes mold, the mold damage is covered if it
is not specifically excluded by some other provision in the policy")
- Arnold v. Cincinnati Ins., 688 N.W.2d
708 (Wis. 2004) ("a reasonable insured would understand that, in addition
to being a loss that follows as a chance, likely, or necessary consequence
of the excluded loss, an ensuing loss must result from a cause in addition
to the excluded cause")
Conclusion
Recent decisions make clear that ensuing loss clauses do not broaden or create
coverage, but instead operate to render coverage for damages that are directly
caused by covered perils where the covered peril may have been directly caused
by an excluded peril. The majority of courts interpret the ensuing loss clause
in the homeowners policy to support this application, though the language of
each clause may vary.
Dana Harbin is an attorney in the Dallas office of Cooper & Scully, P.C. where she specializes
in insurance coverage and bad faith involving all types of insurance policies,
both first and third party. Ms. Harbin earned her BA degree from the University
of Texas in Arlington and her JD degree from the University of Texas at Austin.
She can be reached at dana.harbin@cooperscully.com.
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