This is a guest post written by: Chip Merlin at Merlin Law Group
The last clause is frequently referred to as “an ensuing loss exception.” Under this type of language, while the insurance company need not pay for damages caused solely by the excluded cause of loss, if there is an “ensuing loss,” the insurer must pay for that damage. A classic example is if faulty repair resulted in improper wiring and the improper wiring caused a fire. Almost every insurer would pay for the fire damage, but not for the repair of the improper wiring. Of course, as a practical matter, the fire damage would subsume the improper wiring and there would be no question as to what portion of the damage was covered and what portion was excluded.Of course, causation issues combined with exceptions to exclusions are usually interpreted far more broadly by policyholders and much more narrowly by many insurers. Jurisdictional decisions and policy language play a huge factor when confronting ensuing loss issues. The article warned of this in its conclusion:
When faced with this issue, risk manager and policyholder counsel should be sure to highlight the logical inconsistency in the broad reading of the exclusion and the narrow reading of the “ensuing loss” exception. In addition, the cost of repairing the faulty workmanship itself is most likely excluded under most versions of this exclusion (although there are forms which might allow such recovery) and resolution of claims will be easier if policyholders do not attempt to recover that cost as part of the claim. Of course, because different jurisdictions approach this in different ways, usually in one of the two outlined above, one must always be mindful of applicable law.To make certain the public adjuster was not accused of practicing law, I told her to tell the insurer I asked her to send the article to the insurer and that it should reconsider its coverage opinion. Insurance companies acting in good faith should be looking for reasons to find coverage for damage. It will be interesting to see what happens in this instance.