Opinion ID: 2500072
Heading Depth: 1
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Heading: Ensuing Loss

Text: ¶ 26 While coverage may be excluded when a certain peril causes a loss, a resulting or ensuing loss clause operates to carve out an exception to the policy exclusion. McDonald, 119 Wash.2d at 734, 837 P.2d 1000; Capelouto v. Valley Forge Ins. Co., 98 Wash. App. 7, 16, 990 P.2d 414 (1999). For example, a policy could exclude losses caused directly or indirectly by the peril of defective construction, but then an ensuing loss provision might narrow the blanket exclusion by providing that any ensuing loss not excluded is covered. E.g., Wright, 124 Wash. App. at 273, 109 P.3d 1. ¶ 27 In this way, ensuing loss clauses limit the scope of what is otherwise excluded under the policy. Such clauses ensure 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. McDonald, 119 Wash.2d at 734, 837 P.2d 1000. ¶ 28 An example helps illustrate how the ensuing loss clause works. Suppose a contractor miswires a home's electrical system, resulting in a fire and significant damage to the home. And suppose the homeowner's policy excludes losses caused by faulty workmanship, but the exclusion contains an ensuing loss clause. In this situation, the ensuing loss clause would preserve coverage for damages caused by the fire. But it would not cover losses caused by the miswiring that the policy otherwise excludes. Nor would the ensuing loss clause provide coverage for the cost of correcting the faulty wiring. ¶ 29 Ensuing loss clauses may not cover losses that are otherwise excluded. For example, in Wright, 124 Wash.App. at 267, 276, 109 P.3d 1, the Court of Appeals held that an ensuing loss provision did not provide coverage when the insured's condominium unit was damaged by mold after defective construction allowed water to seep through the walls. While the policy excluded losses caused by defective construction and mold, id. at 273, 276, 109 P.3d 1, the defective construction exclusion stated that `any ensuing loss not excluded or excepted in this policy is covered,' id. at 273, 109 P.3d 1 (emphasis omitted). Although mold damage arguably would have been covered under the ensuing loss clause, the fact that the policy excluded all losses caused by mold was dispositive. Id. at 274-75, 109 P.3d 1. Accordingly, the Court of Appeals held that the ensuing loss clause did not operate to provide coverage for a specifically excluded loss. Id. ¶ 30 Similar reasoning was followed in Allianz Insurance Co. v. Impero, 654 F.Supp. 16 (E.D.Wash.1986). The policy at issue excluded losses caused by defective construction but covered damage resulting from faulty or defective construction. Id. at 17. The insured sought coverage for the cost of repairing poorly constructed concrete walls. Id. The court held that this loss fell within the exclusion, and not the ensuing loss clause, because [t]he defective concrete caused no damage to any other portion of the structure, other persons or property. Id. at 18. The court suggested that if the wall, as a result of the deficiencies in the concrete, [had] collapsed and caused damage to some other portion of the work, or to equipment of a subcontractor or some similar thing, the outcome would be different. Id. ¶ 31 As these cases illustrate, the dispositive question in analyzing ensuing loss clauses is whether the loss that ensues from the excluded event is covered or excluded. If the ensuing loss is also an excluded peril or an excluded loss under the policy, there is no coverage. See, e.g., Wright, 124 Wash. App. at 274-75, 109 P.3d 1; McDonald, 119 Wash.2d at 734, 837 P.2d 1000. But if the policy covers the peril or loss that results from the excluded event, then the ensuing loss clause provides coverage. ¶ 32 Because an all-risk policy covers any loss that the policy does not expressly exclude, it is important to read the ensuing loss clause in the context of the coverage that was contemplated by the parties. One court colorfully described how absurd results could otherwise follow: As an all-risk policy, this insurance policy basically covers everything unless specifically excluded. That means the number of possibilities for last-in-time but for causes of damage are limited only by the imagination of the reader.... What if faulty construction allows humid summer air to enter the building, which rusts metal fixtures? But for the exposure to the summer air, no damage to the fixtures would have occurred. Yet the contract does not exclude damages caused by air. Coverage? What if a poorly constructed ceiling beam falls, smashing the floor below? But for the force of gravity, no damage to the floor would have occurred. Yet the contract does not exclude damages caused by gravity. Coverage? TMW Enters., Inc. v. Fed. Ins. Co., 619 F.3d 574, 576-77 (6th Cir.2010) (citation omitted). In sum, we look to the language of the policy to ensure that the parties contemplated coverage for the ensuing loss. ¶ 33 With these considerations in mind, we turn to the policy language at issue.