The coverages, limitations, exclusions and exceptions to exclusions buried in all those pages of property insurance policies can leave your head spinning when trying to make sense of it all. It can feel like trying to navigate through a complicated maze or fit all of the pieces of an intricate puzzle together without forcing them. This was demonstrated recently in a federal case from the Northern District of Florida, Bartram, LLC v. Landmark American Insurance Company, 2012 WL 1072207 (N.D. Fla. March 30, 2012).
The case involved an insurance coverage dispute between the apartment complex, Bartram, LLC, and several insurance carriers for damages stemming from faulty workmanship in the construction of the complex. There was primary coverage and three layers of excess coverage provided under builder’s all risk insurance forms. Each insurance policy excluded faulty workmanship from coverage. The policies also contained ensuing loss exceptions that provided coverage when “an excluded cause of loss … results in a Covered Cause of Loss.” The parties agreed that the faulty workmanship exclusion applied, but they did not agree about the ensuing loss exception.
The insurers denied coverage for Bartram’s claim, and the lawsuit ensued. The parties filed competing motions for summary judgment based on the interpretation of the policies’ terms. Bartram argued that it suffered losses separate from and the result of the faulty workmanship, triggering the ensuing loss exception. Specifically, Bartram claimed water intrusion resulted from faulty workmanship and caused damage to the buildings’ exterior and interior finishes, wood sheathing, framing, balcony systems, drywall ceilings, and stucco. These damages were separate from the work needed to simply fix the faulty workmanship.
The insurers argued that an ensuing loss exception is not applicable if the ensuing loss is directly related to the original excluded risk. They argued that since the faulty workmanship naturally led to water intrusion without any new, independent cause of loss, there was no ensuing loss and coverage was barred by the faulty workmanship exclusion.
The Court noted that the cases cited by the insurers were distinguishable because the policies in those cases contained more detailed wording preventing the loss from being brought back within coverage under the exception to the exclusion. There was no such language in the policies that Bartram obtained.
The Bartram policies simply provided that if an excluded cause of loss “results” in a covered cause of loss, then “we will pay.” This means that ensuing losses, if they resulted from a covered cause, are covered under the policy regardless of whether the loss was naturally set in motion by an excluded cause of loss. The Court held:
Given the plain meaning of the policy language, if the faulty workmanship resulted in water intrusion that subsequently resulted in ensuing losses, the cost to repair the faulty workmanship is excluded but the ensuing losses from the water intrusion are covered.
The Court granted Bartram’s motion for summary judgment and held that the ensuing losses resulting from the faulty construction were covered. As this case demonstrates, even minor changes or variances in policy terms can have drastic results on coverage.