Washington Supreme Court Upholds “Ensuing Loss” Coverage

The Washington Supreme Court ruled that coverage for a condominium’s roof repair is available under the “ensuing loss” exception to the insurer’s faulty workmanship exclusion. Its decision upheld a state appeals court reversal of a district court ruling on the matter.

Ensuing loss cases raise a difficult question for courts, according to an article from law firm Saxe Doernberger & Vita. They must determine whether the ensuing loss – in this case water damage resulting from condensation that was said to result from faulty roof installation – “is sufficiently distinct from the excluded event to warrant coverage under the policy. This analysis often hinges on whether the cause of loss is thought to constitute a separate and independent occurrence or is merely a continuation or exacerbation of the excluded event.” 

In the Washington case, Gardens Condo v. Farmers Rich Ins. Exchange, the insurer argued that the ensuing loss exception did not apply because the condensation and water damage was a “natural consequence,” and part of an integral chain of events that included the faulty work that was excluded from coverage.

If insurers want to negate the exception based on that reasoning, the court said, they have the option of specifically saying so in the written policy. 

The writers warn policyholders nationwide to avoid reading too much into this decision. Precedents in other jurisdictions, New Hampshire for example, have taken a narrower view of the ensuing loss provision than the Washington Supreme Court.

In New Hampshire, the court rejected the insured’s argument that mold problems were an ensuing loss that was separate from the faulty work that had created the problem. “Thus,” the writers conclude, “the dichotomy between excluded loss and ensuing loss remains an issue of wide debate.”