Georgia Association of Public Insurance Adjusters
(GAPIA)

Ensuing Loss, Concurrent Causation, and Occurrence

 
Many of the attendees at GAPIA's Fall Conference requested a copy of Ellaretha Coleman's presentation, "Ensuing Loss, Concurrent Causation, and Occurrence".  Thank you to Ellaretha for letting us send this out to GAPIA members.
 

Presented at GAPIA’s Fall Conference by

 
´Ellaretha Coleman
´E. Jones & Associates, LLC
´50 Hurt Plaza SE, Suite 824
´Atlanta, GA 30303
´(404) 525-3080
´ejoneslaw.com
 
´ENSUING LOSSES – Definition     
According to Webster’s Third New International Dictionary, ensue means ”to take place afterward; to follow as a chance, likely or necessary consequence.”
 
An ensuing loss is a loss that ensues from an earlier loss. In first party property insurance contracts, the “ensuing loss” concept comes into play when the initial loss is excluded, such as in the case of mold, water damage, or when a defective design causes the loss.  When another loss ensues from the first excluded cause of loss, the intent of “ensuing loss” is to allow coverage for such ensuing damage.
 
Historical Prospective
Ensuing loss clauses came about largely due to resulting fire claims subsequent to earthquakes in California.  At that time, most property policies in the U.S. covered losses caused by fire, but also contained a an “anti-concurrent causation” exclusion that barred coverage for losses caused “directly or indirectly” by earthquakes.
 
Homeowners ISO Form Containing the “Ensuing Loss” Provision 
The ISO standard homeowner’s policy provides, in pertinent part:
 
SECTION I - PERILS INSURED AGAINST
A. Coverage A - Dwelling And Coverage B - Other Structures
1.    We insure against risk of direct physical loss to property described in Coverage A and B.
2.    We do not insure, however, for loss:…                                                                        
c.     Caused by:…
(5) Mold, fungus or wet rot. However, we do insure for loss caused by mold, fungus or wet rot that is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure if such loss results from the accidental discharge of overflow of water or steam from within:
a) A plumbing, heating, air conditioning or automatic fire protective sprinkler system, or a household appliance, on the "residence premises"; or
b) A storm drain, or water, steam or sewer pipes, off the "residence premises".
For purposes of this provision, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment.
 
Under 2.b. and c. above, any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered. (Emphasis added.)
 
In addition to the ISO language, a common variation of the mold exclusion is as follows:
 
We cover accidental direct physical loss to property described in Coverages A and B except for losses excluded under Section I - Property Exclusions.
 
1.    We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another cause or event contributed concurrently or in any sequence to cause the loss.
b) Water or damage caused by water-borne material. Water and water-borne material damage means:
(1) flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by wind.
 
(2) water or water-borne material which:
(a) backs up through sewers or drains from outside the dwelling’s plumbing system; or
(b) overflows a sump pump, sump pump well or other system designed to remove subsurface water or water-borne material from the foundation area.
However, we will pay up to a maximum of 5% of the Coverage A - Dwelling Limit of Liability for damage to covered property caused by Item b)(2) above. This is the most we will pay for all property under Coverage A - Dwelling, Coverage B - Other Structures and Coverage C - Personal Property.
 
(3) water or water-borne material below the surface of the ground, including water or water-borne material which exerts pressure on, seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool, or other structure.
Resulting direct loss by fire, explosion, or theft is covered.
 
We do not cover loss to property described in Coverages A and B resulting directly from any of the following:
 
e) continuous or repeated seepage or leakage of water or steam over a period of time from a heating, air conditioning or automatic fire protective sprinkler system; household appliance; or plumbing system that results in deterioration, rust, mold, or wet or dry rot. Seepage or leakage from, within, or around any shower stall, shower tub, tub installation or other plumbing fixture, including their walls, ceilings or floors, is also excluded.
If the loss caused by water or steam is not otherwise excluded, we will cover the cost of tearing out and replacing any part of the building necessary to repair or replace the system or appliance. We do not cover loss to the system or appliance from which the water or steam escaped.
                f)  (1) wear and tear, marring, deterioration;
    (2) inherent vice, latent defect, mechanical breakdown;
    (3) smog, rust, mold, wet or dry rot;
    (4) smoke from agricultural smudging or industrial operations;
    (5) release, discharge, or dispersal of contaminants or pollutants;
    (6) settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceiling; or
    (7) birds, vermin, rodents, insects or domestic animals. Resulting breakage of glass constituting a part of a covered building is covered.
If any of items f)(1) through (7) cause water to escape from a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, we cover loss caused by the water not otherwise excluded. We also cover the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. We do not cover loss to the system or appliance from which the water escaped.
Under exclusions 3.a) through 3.f), any loss that follows is covered unless it is specifically excluded.
´ISO Ensuing Loss Provision
 
SECTION I - EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
 
 
3. Water Damage
    Water Damage means:
a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
b. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or
c. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure;
caused by or resulting from human or animal forces or any act of nature.
Direct loss by fire, explosion or theft resulting from water damage is covered.
 
´Under this ISO language, certain types of water damage is excluded.  Mold damage is also excluded wit limited exceptions.  However, any ensuing loss not precluded by any other exclusion is covered.
 
´As used in a standard builder’s all-risk insurance policy, an “ensuing loss” is one that follows and flows proximately from an underlying covered loss.  Henderson v. Ga. Farm Bureau Mut. Ins. Co., 328 Ga. App. 396, 762 S.E.2d 106 (Ga. App. 2014.
´
Common Scenarios           
´Roof claims
´Mold and water damage claims
 
´Henderson v. Ga. Farm Bureau Mut. Ins. Co., 328 Ga. App. 396 (Ga. App. 2014)
´The Georgia Court of Appeals held that the trial court erred in granting the insurer’s judgment not withstanding the verdict where the carrier had refused to pay a homeowner for damage from the seepage of water in their home, for which they had a limit of $153,500, but instead only paid the homeowner for the resulting mold damage, which had a limit of $32,675.
´
NUCO Invs., Inc. v. Hartford Fire Ins. Co., 2005 U.S. Dist. LEXIS 33350 (USDC, Northern District of Georgia)
This policy does not insure:
Against the cost of making good defective design or specification, faulty material, or faulty workmanship, however, this exclusion shall not apply to loss or damage resulting from defective design or specifications, faulty material, or faulty workmanship . . .
Against mechanical breakdown unless loss or damage from a peril insured herein ensues and then this policy shall cover for such ensuing loss or damage . . .
Against ordinary wear, tear, or gradual deterioration unless other loss or damage from a peril insured herein ensues and then this policy shall cover for such ensuing loss or damage . . .
Against normal settling or shrinkage of walls, floors, or ceilings unless loss or damage from a peril insured herein ensues and then this policy shall cover for such ensuing loss or damage . . .
Against inherent vice, latent defect, smog, rust, wet or dry rot, corrosion or oxidation.
 
´NUCO filed a claim to replace the ventilation system, air conditioners, walls, wall coverings, and the addition of a totally new exhaust system.
 
´The insured argued in its brief in opposition to Hartford’s Motion for Summary Judgment that the insurer had not tendered evidence by a person qualified in construction methods to support the proposition that any of the possible sources of water intrusion and moisture that fostered the growth of toxic mold constituted defective construction or that any equipment that ay have leaked was defectively designed. 
 
´NUCO further argued that even if the water intrusion was caused by defective design or workmanship, the clear “resulting loss” language of the exclusions invoked by Hartford, when construed in accordance with the reasonable expectations of the insured restores coverage. 
 
´The Court held that even if defective design or faulty workmanship contributed to the growth of mold, damage to the ventilation system, air conditioners, walls, wall coverings, or the exhaust system is “resulting damage” and is not excluded by the plain language of the policy.  See Blaine Construction Corp. v. Insurance Co. of North America, 171 F.3d 343, 349-50 (6th Cir. 1999).
 
´Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So.2d 161 (Florida 2003)
´This case involved a condominium building owner’s action seeking recovery for costs to correct design defects under it’s builder’s risk policy.  The property owner filed a claim after it was informed that its building had to be altered due to structural defects caused by a structural engineer.
 
´The insurer denied coverage, contending that the claim dealt with cost of design defect correction rather than any physical loss or damage resulting from the defect.
 
´The trial court granted summary judgment to the insurer, holding hat it was an excluded loss under the design defect exclusion clause.  On appeal, the federal appellate court certified questions to the court for determination due to the lack of Florida precedent on the issues.  The court held that the design defect exclusion clause barred coverage of the owner’s claim because no loss had occurred, nor was any loss in progress.
 
 
The policy contains a coverage clause which provides:
INSURING AGREEMENT
Subject to the limitations, exclusions, terms and conditions contained herein, this Policy insures, in respect of occurrences happening during the term of this Policy, against: Physical loss or damage to the property insured, except as excluded hereunder.
Excluded from this coverage, however, are losses related to design defects. The design defect exclusion clause at issue in the Swire-Zurich policy excludes coverage for:
Loss or damage caused by fault, defect, error or omission in design, plan or specification, but this exclusion shall not apply to physical loss or damage resulting from such fault, defect, error or omission in design, plan or specification.
 
 
´The Court found that the only reasonable definition for the term “physical loss or damage” as used in the ensuing loss provision of the clause is damage that occurs subsequent to, and as a result of, a design defect.  The issue therefore becomes whether Plaintiff’s expenses in effectuating repairs are excepted from the exclusion under the ensuing loss provision; in other words, whether Swire repaired a physical loss resulting from the design defect so as to escape the exclusionary clause and have reimbursement under the policy.
´Here the insured’s sole claim is an attempt to recover the expenses incurred in repairing a design defect.  No ensuing loss resulted to invoke the exception to the exclusionary provision.
 
´Concurrent Causation
´Concurrent causation comes into play when two or more events come together to create the loss.  One event may be covered by the policy while the other is not.
 
´The doctrine of concurrent causation holds that when a loss can be contributed to two causes, one that is covered and one that is excluded, the loss will be covered.  This applies to “all risks” policies, rather than specific named peril policies. 
 
 
´The doctrine of efficient proximate cause governs situations where a risk specifically insured against sets other causes in motion in an unbroken sequence between the insured risk and the ultimate loss.  In such situations, the insured risk is regarded as the proximate cause of the entire loss, even if the last step in the chain of causation is an excepted risk.    When an insured can identify an insured peril as the proximate cause of the entire loss, then there is coverage even if subsequent events are specifically excluded from coverage. 
 
´Georgia Law           
´Under Georgia law, insurance contracts are to be read in accordance with the reasonable expectations of the insured where possible.  Richards v. Hanover Ins. Co., 250 Ga. 613, 299 S.E.2d 561, 563 (Ga. 1983); Broome v. Allstate Ins. Co., 144 Ga. App. 318, 241 S.E.2d 34, 35 (Ga. Ct. App. 1977) (“ambiguities in an insurance contract shall be construed most favorably toward the insured and most strongly against the insurer.  This is particularly true where construction of an exemption or exclusion is at issue”).  The policy should be read as a layman would read it.  S. Trust Ins. Co. v. Dr. T’s Nature Prods. Co., 261 Ga. App. 806, 584 S.E.2d 34, 36 (Ga. Ct. App. 2003). 
 
 
´When dealing with concurrent causation, Georgia has adopted the efficient proximate cause doctrine.  In fact, efficient proximate cause is well-grounded in Georgia jurisprudence.  See Dunbar v. Davis, 32 Ga. App. 192, 122 S.E. 895 (Ga. Ct. App. 1924) (“The proximate cause is the efficient cause, the one that necessarily sets the other causes in operation.  The causes that are merely incidental…are not the proximate causes and the responsible ones, though they may be nearer in time to the result”). 
 
 
´Georgia uses the major efficient or dominant proximate cause approach, which is also followed by 3/5 states.  The proximate cause is the efficient cause, the one that sets the other causes in operation.  Dunbar v. Davis, 32 Ga. App. 192, 122 S.E. 895 (Ga. Ct. App. 1924)
 
´Travelers Indem. Co. v. Wilkes, 102 Ga. App. 362 (Ga. Ct. App. 1960)
´The court found that in the absence of a specific provision in the policy to the contrary, it is generally sufficient, in order to recover on a windstorm policy, to show that the cause designated therein was the efficient cause of the loss, although other causes contributed thereto. 
´
Burgess v. Allstate Ins. Co., 334 F.Supp.2d 1351 (USDC Northern Dist. Of Ga. 2003)         
 
Section I-Your Property
Losses We Do Not Cover Under Coverages A and B:
We do not cover loss to the property described in
Coverage A -- Dwelling Protection or
Coverage B -- Other Structures Protection consisting of or caused by:
4. Water or any other substance on or below the surface of the ground, regardless of its source. This includes water or any other substance which exerts pressure on, flows, seeps, or leaks  [*1358]  through any part of the residence premises
 
 
In addition we do not cover loss consisting of or caused by any of the following:
15. a) wear and tear, aging, marring, scratching,  [**13]  deterioration, inherent vice, or latent defect;
b) mechanical breakdown;
c) growth of trees, shrubs, plants or lawns whether or not such growth is above or below the surface of the ground;
d) rust or other corrosion, mold, wet or dry rot;
18. Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam or fuel:
a) from a plumbing, heating, air conditioning or automatic fire protection system or from within a domestic appliance; or
b) from, within or around any plumbing fixtures, including, but not limited to shower stalls, shower baths, tub installations, sinks or other fixtures designed for the use of water or steam.
 
 
´The crux of Allstate’s argument is that the policy unambiguously excludes coverage for mold; therefore, it properly denied Plaintiff’s claim and all additional claims should fail. 
 
´Plaintiff’s assertion was that the insurer should have to pay for her claims for water damage to her foyer and basement and that the resulting mold was caused by these covered events.  The insured argues that he water damage proximately caused her loss, such that even though the ensuing mold is listed as an exclusion, the entire loss should be covered. 
´
Burden of Proof     
 
´When an insured can identify an insured peril as the proximate cause, then there is coverage even if subsequent events are specifically excluded from coverage.  See Burgess v. Allstate Ins. Co., citing Bowers v. Farmers Ins. Exch., 99 Wn. App. 41, 991 P.2d 734, 738 (Wash. Ct. App. 2000)
 
´In Burgess, the Court held that the insured presented sufficient evidence to create a genuine issue of material fact on coverage under the policy. 
´
OCCURRENCE
 
´“[O]ccurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
´Under Georgia law, the term accident means an event which takes place without one’s foresight or expectation or design.  See SawHorse v. Southern Guar. Ins. Co., 269 Ga. App. 493, 604 S.E.2d 541 (Ga. Ct. of Appeals 2004)
 
 
´An Aetna policy defines "occurrence" as "property damage neither expected nor intended from the standpoint of the insured."
 
´The term “occurrence”, where used in this policy, shall mean any one loss, disaster, casualty or series of losses, disasters, or casualties arising from one event. 
´When the term “occurrence” applies to a loss or series of loses fro the perils of tornado, cyclone, hurricane, windstorm, hail, flood, earthquake, volcanic eruption, riot, riot attending a strike, civil commotion and vandalism and malicious mischief, one event shall be construed to be all losses arising during a continuous period of 72 hours. 
 
´A Continental insurance policy defines an “occurrence” as “an event or continuous or repeated exposure to conditions, which unexpectedly cause Personal Injury and/or Property Damage … during the policy period. 
 
´Georgia courts have confirmed the plain reading of such clauses. 
 
´See, e.g., Continental Casualty Co. v. Synalloy Corp. , 667 F.Supp. 1563, 1573 (S.D. Ga. 1986); Continental Cas. Co. v. Parker, 288 S.E.2d 776, 778, 161 Ga. App. 614, 616 (Ga. Ct. App. 1982).
´Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 288 Ga. 749 (2011)
´The Court of Appeals correctly determined that these acts constituted an “occurrence” under the CGL policy.  The Supreme Court of Georgia further held that an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property.  In reaching this holding, the Court rejected the assertion by the insurer that the acts of Whisnant could not be deemed an occurrence or accident under the CGL policy because they were performed intentionally.
 
´The Court found that a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.  Citing Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1, 16 (Tex. 2007).