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How Do You Know When Your Loss Ensues?
An ensuing loss provision is an exception to an exclusion in a first-party property policy that applies where the damage caused by an excluded peril operates as a link in the “chain of events” that enables a covered peril to damage other property. See IRMI Glossary of Insurance and Management Terms, http://bit.ly/1aPLMLA. The effect of the provision is that ensuing losses stemming from uncovered events will be covered, as long as such losses would otherwise be covered under the policy. Consequently, an understanding of the provision is vital to commercial property landlords and tenants.
Ensuing loss provisions are found in all risk policies, including commercial first-party property policies and builder's risk policies. See Acme Galvanizing Co. v. Fireman's Fund Ins. Co., 221 Cal. App. 3d 170 (Cal. App. 1st Dist. 1990) (commercial first party); Wal-Mart Stores, Inc. v. Gulf Ins. Co., 2005 U.S. Dist. Lexis 46592 (D. Or. 2005) (commercial first party), aff'd, 250 Fed. Appx. 221 (9th Cir. 2007); Alton Ochsner Med. Found. v. Broadmoor Constr., 219 F.3d 501 (5th Cir. La. 2000) (builder's risk); and Laquila Constr., Inc. v. Travelers Indem. Co. of Illinois, 66 F. Supp. 2d 543 (S.D.N.Y. 1999) (builder's risk).
This article provides an overall review of ensuing loss provisions and their application by courts across the United States. Judicial interpretation of ensuing loss provisions is not consistent and is highly fact-intensive. An example of an ensuing loss is a water leak that causes an electrical short, which starts a fire. “The damage caused by the fire is a covered ensuing loss because it is an unforeseeable event occurring 'wholly separate from the defective property itself,' and, but for the excluded peril, would otherwise be a covered loss.” Prudential Prop. & Cas. Ins. Co. v. Lillard-Roberts, 2002 U.S. Dist. LEXIS 20384 (D. Or. 2002), quoting Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 139 F. Supp. 2d 1374, 1380 (S.D. Fla. 2001).
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