Ensuing Loss

Source FC&S Expert Coverage Interpretation

Ensuing Losses Summary: Ensuing losses are exceptions to an exclusion found in many homeowner policies. Questions arise as to what exactly is an ensuing loss, and how does that differ from a direct loss. This article tackles that question.

Topics covered:

Introduction

Definition

Direct Damage

Ensuing Loss

Conclusion

Introduction

In the perils insured against section of the ISO HO 00 03 05 11, under coverages A and B, the policy states that losses caused by collapse, freezing, theft under construction, vandalism, mold, wear and tear, pollution, birds, rodents, insects, or animals owned by an insured are excluded. However, any ensuing loss from these excluded perils that is not precluded by any other provision in the policy is covered. Similar language appears in the exclusions section. Losses caused by weather conditions, but only if they contribute with an excluded cause or event listed in the rest of the exclusions, or acts of a person, group, governmental body, or faulty, inadequate, or defective workmanship, construction, planning, renovation, or materials used in repair, construction, renovation or maintenance are excluded. Ensuing losses from these exclusions to property in coverage A or B that are not precluded by other policy provisions are covered. The most common ensuing losses are fire and water. The issue then is determining what is an ensuing loss instead of a direct loss.

Definition

The policy itself does not define ensue, so a standard desk reference is used. Merriam Webster online defines ensue as to take place afterward or as a result. The Free Online dictionary defines it as to follow as a consequence or result; to take place subsequently. Ballentine’s Law Dictionary 3rd edition defines ensue as to follow or come after, sometimes importing a connection with that which proceeds. Couch on Insurance 3rd Edition defines “ensuing loss” as “loss which follows as a consequence of some preceding event or circumstance.” The intent is the same; ensuing damage is damage that follows the original peril. It can be thought of as a second step in the chain of events. The ensuing loss must follow and grow out of the original loss.

Direct Damage

 Direct damage is the immediate result of the peril, and is the first damage in a chain of events if there is one. Wear and tear may cause a pipe to leak, which causes water damage to walls and floors. The wear and tear of the pipe is the direct damage. Even though it is something that occurs slowly over time, it is damage in and of itself, and as such is direct damage. While the water damage is a natural occurrence when there is a worn pipe, it is still ensuing damage. Damage that naturally follows the original damage is ensuing damage, no matter how closely the two are tied together. Termites chewing on the studs in the wall are direct damage. The termites themselves are not damage, their action is. If a neighboring plant generates smoke that gets into the insureds home and covers walls and belongings, that is direct damage. There is no preceding action at the insured location to the presence of the smoke; the smoke itself is the damage. Likewise, the settling of a foundation over time is direct damage. There is no outside cause. All these are excluded perils, and the results listed are excluded results since they are direct damage.

 In Sharp v. State Farm Fire & Cas. Ins. Co., 938 F. Supp. 395 (W.D. Tex. 1996), a plumbing leak caused the foundation to shift. The insureds filed a claim and the carrier denied it, stating the exclusion for foundation movement. The policy excludes coverage for settling, cracking, bulging of foundations; however, ensuing loss caused by water damage is covered if the loss would otherwise be covered. State Farm argued that the exception for ensuing loss did not apply since the water was the cause of the loss, and not the result of the loss. The court agreed. The water damage was prior to the loss not subsequent, and is not an ensuing loss. Even though the water leak was not excluded, the shifting of the foundation (the ensuing loss) was. Ensuing losses are only covered if they are not otherwise excluded elsewhere in the policy.

Ensuing loss

 As indicated earlier, an ensuing loss follows an original loss; it is a consequence of something. The water from the worn pipe is a consequence of the worn pipe. If termites chew through studs so that the porch collapses, the collapse of that porch is ensuing damage. The direct damage is the damage to the studs by the termites.

 In Arnold v. Cincinnati Ins. Co. 688 N.W.2d 708 (2004), the insured sued the carrier to recover for exterior and interior damage from the stripping and restaining of their siding. The Circuit Court entered summary judgment in favor of the insurer and the insureds appealed. The Court of Appeals held that the faulty workmanship exclusion applied and that damage to the interior from the power washer spray was not covered. However the loss caused by rain that leaked in from caulking damaged by the faulty workmanship was covered as an ensuing loss. The faulty workmanship includes the damage to the siding, the damage caused by failure to use protective coverings while doing the work, failure to properly use the pressure washer, and failure to properly clean up after working on the siding. The direct damage was the faulty workmanship which damaged the caulking, and the ensuing loss was the rain that was let in by the damaged caulking. The rain loss followed and was allowed to happen because of the original damage that was excluded.

Conclusion

 Direct losses and ensuing losses can be confusing, especially when ensuing losses from an excluded loss are covered. It is important to remember that the initial damage is the direct loss, and anything following is an ensuing loss, even when it seems like the natural result of the direct loss. An example is a water tank that gets smashed and leaks; while it’s natural to expect a smashed water tank to leak, the smashing of the tank is separate from any damage caused by water that leaked out. The direct loss is loss to an object, and the ensuing loss is loss caused by the effects of damage to the object.

Source FC&S Expert Coverage Interpretation

The Appraisal Panel

The Appraisal Clause also known as The Appraisal Provision is found in the “Conditions” and/or the “What to do after a loss” section(s) of the policy.

This clause is used to resolve a dispute when an insurance company and policyholder disagree on the amount of damage and/or scope of loss caused by a covered event and/or the amount of payment to settle a claim.

The two parties that are represented in the Appraisal are called the Principals. They are the Principals to the Insurance contract. On one side is the Policyholder, or the Insured. On the other side is the Insurance Carrier, or the Insurer.

Either the Carrier or the Policyhoder can invoke Appraisal. Each side appoints their own Appraiser. The Principals are responsible for the costs incurred for their own Appraiser. The two Appraisers choose an Umpire. If they cannot agree on the amount of loss then the Umpire is brought in to reslove the issues. The Umpire fee and related costs are split evenly between the two Principals. The three of them (2 appraisers and 1 Umpire) make up the “Appraisal Panel“.

Appraisal is considered an Alternative Dispute Resolution . The Appraisal process can be used to help the parties involved reach an amicable solution. Appraisal is a form of dispute resolution that does not involve going to court and does not always require the assistance of a lawyer. Appraisal has several advantages over litigation including cost savings, privacy and faster resolution of your insurance claim dispute. While Appraisal is not suitable for every dispute, it can be a useful tool in reaching a satisfactory resolution.

Author Brad Hays

Policyholders and Public Adjusting Under Attack in the Florida House of Representatives

Chip Merlin with the Merlin Law Group posted a blog titled,

Policyholders and Public Adjusting Under Attack in the Florida House of Representatives

Some public adjusters were calling me asking about the recent proposed legislation of Florida House Bill 1181. This extraordinarily anti-consumer legislation was filed by a Democrat, Janet C. Long. My impression is that this legislation is a potential nuclear bomb for policyholders and public adjusters. “Chip Merlin”

Click Here to read the article Merlin Law Group

Louisiana Bill Proposes To Codify All The Rules of Appraisal

Chip Merlin with the Merlin Law Group posted a blog titled, Louisiana Bill Proposes To Codify All The Rules of Appraisal

While I have often said that appraisal is the Wild West of insurance claims resolution because there are no written rules, I suggest readers of this blog take a few minutes to read a bill pending in the Louisiana legislature and ponder the question I never thought I would say: 

Are We Better Off With No Written Rules When It Comes To Appraisal Other State Common Law? “Chip Merlin”

Click Here to read the article Merlin Law Group

Earthquakes cause $14.7B in annualized losses, USGS reports

Earthquakes cause $14.7 billion in damages and related losses on an annualized basis in the U.S., according to an updated estimate from the U.S. Geological Survey (USGS) and the Federal Emergency Management Agency (FEMA).

The updated figure, which is twice that of the previous annual estimate, reflects increasing property values, and the inclusion of the latest hazards and improvements to building inventories in the report, according to the USGS.

Click here to read the article.

Insurer trade groups respond to Illinois’ rate regulation bill

I’m Zoey with the Appraisal Panel Network.

Insurance Buisness wrote an article titled: Insurer trade groups respond to Illinois’ rate regulation bill.

They write,
The American Property Casualty Insurance Association (APCIA), the Illinois Insurance Association (IIA), and National Association of Mutual Insurance Companies (NAMIC) have together issued a statement decrying a newly announced Illinois bill which would limit the number of non-driving factors auto insurance companies can use in setting the rates of consumers.

Click here to read the article.

Growing Insurance Crisis Spreads to Texas

Florida came first. Then Louisiana.

Now an insurance crisis that has swept across the Gulf Coast is spilling into Texas, where increasingly scarce property coverage has forced tens of thousands of coastal homeowners to buy policies from a state-chartered insurance program.

The rapid growth has alarmed officials and insurers. And it’s raised concerns that if a major storm hits Texas, so many claims will be filed that the state-chartered insurer will force insurance companies and residents statewide to help pay them.

Click here to read the entire article.

Appraisal Process

The insurance claims appraisal process is a method for resolving disputes between policyholders and insurance companies regarding the value of property damage or loss covered by an insurance policy. The process involves the use of an independent appraiser to determine the value of the damage or loss, and to reach a resolution in situations where the policyholder and insurer cannot agree on the value of the claim.

The claims appraisal process typically begins when a policyholder files a claim with their insurance company for property damage or loss. If the insurer and policyholder cannot reach a mutually agreeable settlement, either party may request an appraisal. The appraisal process is then initiated, and each party selects an independent appraiser to assess the damage or loss.

The two appraisers then work together to determine the value of the damage or loss, and if they are unable to reach an agreement, they select a neutral third-party appraiser to serve as an umpire. The umpire’s decision is binding and serves as the final determination of the value of the claim.

The insurance claims appraisal process is designed to provide a fair and impartial evaluation of property damage or loss, and to provide an alternative to costly and time-consuming litigation. It is important for policyholders and insurers to select experienced and qualified appraisers to ensure an accurate and objective assessment of the claim value.

Author Brad Hays