In those pages and pages of insurance documents explaining the coverage of your policy you’ll find exclusions that are not covered, but surprisingly, there might be some exceptions to those exclusions. Even the insurers did not seem to understand the headache of their own policy provisions in a case litigated in the United States District Court for the Northern District of Florida.
That case centered on a dispute between an apartment complex and several insurance carriers. The dispute stemmed from water damage caused by faulty workmanship in the construction of the building. The apartment building was covered by primary coverage and three additional layers of excess coverage under what’s called all-risk insurance.
So they should be covered for just about everything right? Not so fast. All of the policies had long and confusing list of coverage, and all the policies excluded coverage for faulty workmanship. However, the policy contained an ensuing loss exception, which had the potential to bring excluded losses back under coverage.
The exception language stated that if “loss or damage by a Covered Loss results, we will pay for that resulting loss or damage.”
While the apartment owners acknowledge that costs to repair the faulty workmanship itself are not covered, the water (a Covered Loss) that infiltrated and damaged the building should be covered because of the exception.
Not surprisingly, the insurers did not agree. The companies argued that the ensuing loss exception did not apply if the losses (the water damage) were directly related to the original excluded risk (the faulty workmanship). To support their argument the insurers cited several Florida cases where courts sided with companies regarding ensuing loss exceptions.
However, the Court could not support the argument because these cases were distinguishable from the facts before them. The other policies contained very specific language prohibiting excluded losses from being brought back within coverage through the ensuing loss exception. Because of that specific language those courts required a break in proximate cause. Meaning, the exception only covered damage that was not a foreseeable result of the original excluded cause.
Here, however, the policy offers no such terms, and the Court refused to change the meaning of the plain language of the policy.
This case illustrates just how important every word in a policy is, and how even slight deviations can drastically change the coverage.