What Is an Ensuing Loss Clause?
Understanding Ensuing Loss Clauses
An ensuing loss clause is a provision in property insurance policies that essentially acts as an exception to an exclusion. In simple terms, it means that while damage caused by specific excluded perils (like faulty craftsmanship or design defects) may not be covered, any resulting damage that follows if caused by a covered peril can be covered. Understanding how ensuing loss provisions operate within the framework of exclusions and coverage restoration is crucial for both policyholders and insurance claim professionals.
For example:
- A construction defect causes a pipe to burst.
- The policy excludes the defect, but the resulting water damage might be covered if water damage is a covered peril under the policy.
This creates a chain of events: initial excluded cause ➜ ensuing covered peril ➜ covered damage.
Why Ensuing Loss Clauses Are Often Disputed
Insurance carriers often argue that the ensuing damage is still too closely linked to the excluded peril. Policyholders argue that the ensuing peril is independent and separate, triggering new coverage.
The key question in ensuing loss disputes is:
Was the ensuing damage caused by a new, distinct peril that is otherwise covered under the policy?
This is where the interpretation of policy language and legal precedent becomes essential.
Ensuing Loss Clause vs. Exclusion
Insurance policies often follow this format:
- Exclusion: Damage caused by X is not covered.
- Ensuing loss clause: But if that damage causes Y, and Y is a covered peril, then Y is covered.
Let’s look at a sample policy language:
“We do not cover loss caused by or resulting from faulty design or construction. However, any ensuing loss caused by a covered peril is covered.”
In this example:
- Faulty design is excluded.
- Fire or water damage caused as a result may be covered.
- The insurer may still deny costs directly linked to repairing the defect itself.
How Do Ensuing Loss Clauses Work?
Example 1: Faulty Workmanship Leading to Fire
- A contractor installs electrical wiring incorrectly (excluded peril).
- The wiring sparks a fire (covered peril).
- The fire destroys a portion of the home.
Result:
The cost to fix the faulty wiring is not covered.
But the ensuing fire damage is covered.
Example 2: Construction Defect Causing Water Damage
- A roof is improperly installed (excluded peril).
- Rainwater enters and damages ceilings, floors, and insulation (covered peril).
Result:
The roof installation is excluded.
The resulting water damage is covered under the ensuing loss clause.
Example 3: Improper Grading Causing Soil Movement
- The grading around the foundation is improper (excluded).
- Over time, this leads to earth movement, which causes cracks in the foundation.
However, if the policy also excludes earth movement, then neither peril is covered, and the ensuing loss clause doesn’t help unless the final damage stems from a covered peril.
Common Misunderstandings About Ensuing Loss
Many policyholders mistakenly believe that all resulting damage is covered under their policy. That’s not true. The ensuing peril must be separate and distinct, not just an extension of the original issue.
For example:
- If poor design causes cracking, and the cracks worsen, it is still not covered.
- But if that cracking causes a collapse, and collapse is covered, then ensuing loss coverage may apply.
Ensuring Loss Coverage in Different Policy Types
Homeowners Insurance:
- Often includes ensuing loss clauses in HO-3 and HO-5 policies.
- Standard exclusions apply, but resulting damage may still be covered.
Commercial Property Insurance:
- Policies like CP 10 30 (Special Causes of Loss Form) also include similar language.
- Coverage can hinge on specific business operations and systems.
Always verify whether your specific policy includes broad or limited ensuing loss protection.
Challenges Florida Policyholders Face
Despite their intent, insurance companies frequently misapply or ignore ensuing loss clauses.
Denials are often based on:
- Mislabeling all damage as excluded
- Arguing that the ensuing peril was not independent
- Failing to perform adequate causation analysis
- Denying based on “concurrent causation” theories
In Florida, hurricane damage, wind-driven rain, and roof collapse are common causes for invoking ensuing loss clauses.
For example:
- Windstorm causes damage to roof tiles (sometimes excluded if due to wear and tear).
- The wind then drives rain into the home (ensuing peril – covered).
Tip: Florida insurers often attempt to attribute losses to wear and tear or maintenance issues. But with a proper legal strategy, ensuing loss clauses can restore coverage when damage results from covered perils.
How Insurers Deny Ensuing Loss Claims
Insurers frequently attempt to deny these claims by:
- Arguing the ensuing peril is not truly separate, but rather a natural continuation of the excluded event.
- Applying anti-concurrent causation clauses that bar recovery if covered and uncovered perils contributed to the loss.
- Claiming there is no independent intervening peril to trigger coverage.
These tactics often succeed when homeowners are unfamiliar with the policy language or fail to provide evidence of separate peril causation.
Common Policyholder Mistakes Regarding Ensuing Loss
- Assuming all resulting damage is covered: Not true unless it stems from a covered peril.
- Failing to document the chain of causation: You must show how the ensuing peril is distinct and covered.
- Not hiring legal or claim experts: Insurers often exploit vague language. Our expert Florida insurance claim lawyers can help prove eligibility for ensuing loss.
Why Ensuing Loss Can Be the Key to Claim Recovery
Ensuing loss clauses are not loopholes; they are essential protections built into your insurance policy. Understanding them gives you leverage in claims disputes and grounds to challenge unfair denials. If you’ve experienced property damage and your insurer is pointing to an exclusion, don’t stop there. Determine if a covered peril ensued because that could be the key to getting your claim paid.