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Posted on Friday, November 16, 2001 - 9:39 pm:   

Have read your post on cause, ensuing and mold damage. Wow, much of the info you state is indeed in the policy. And yes, this is the language in most policies in the U.S. However it appears that you have taken on the responsibility of interpreting this language that at times is jaded with only your thoughts.
It is perfectly acceptable to make policy interpretations as we all do, however try to keep an open mind regarding your colleagues.
mark (Olderthendirt)
Posted on Wednesday, October 31, 2001 - 5:09 pm:   

We could us a set time every week, storms permiting.
mark (Olderthendirt)
Posted on Wednesday, October 31, 2001 - 5:09 pm:   

Suggestion to Roy. You have many talented people on here, would be fun and educational to have chat room discusions on various subjects with people like Jim and others to lead discusions.
Jim Flynt (Jimflynt)
Posted on Wednesday, October 31, 2001 - 12:23 pm:   

Bill, I know you of all people are on top of claims issues and policy interpretations with the very best of adjusters out there.

Have you seen or read any court opinions which you can cite for us here which take issue with the FC&S and PLRB position on ensuing losses from workmanship or materials defects which I have outlined here previously?

Perhaps you would also consider sharing your own policy interpretation of the ensuing loss from defective workmanship and defective materials clause along with your rationale in your reading and interpretation.

Bill, I am sure we would both agree that despite the sometime complex nature of policy interpretation, that adjusters simply must rely on some standard of education and training in policy matters and interpretation other than in guessing what some misguided jury in one set of circumstances in some isolated jurisdiction may decide.

I think even you would accept that situational interpretations by an isolated jury are not the same as building a foundation of policy interpretation knowledge based on some accepted standard uniformly taught or embraced throughout the insurance industry by insurance professionals. Although I would readily concede that especially for a Public Adjuster, situational interpretations, even by the isolated jury, may be of great benefit to an aggrieved insured.

I would dearly love for you, David or any CADO reader to post some legal opinions which are contrary to the ensuing loss clause interpretations of CPCU, FC&S, PLRB and myself.

The challenge as I presented is still open folks, so here's your chance to cite published court cases and shoot holes in my position.
William S. Cook (Wscook)
Posted on Wednesday, October 31, 2001 - 9:35 am:   

Some folks are right some folks are wrong. Erroneous coverage calls, policy interpretations, or claims adjustment procedures by insurers and their representatives are subject to review. We have only to look at the State Farm Case in Utah that cost them at least $ 150 million and the case in California that awarded an insured 18 million and the Ballard case listed below to confirm that adverse positions that are difficult to explain or maintain may have serious consequences when looked at by folks that look at the plain language meaning of a policy rather than the complex theories of best available experts brought to the table by insurers.
Perhaps E&O coverage limits should be re-examined.
William S Cook
Public Adjuster

Fire Insurance Exchange Issues A Statement Regarding The Ballard vs. Fire Insurance Exchange Lawsuit

LOS ANGELES--(BUSINESS WIRE)--Oct. 30, 2001--Fire Insurance Exchange, a member of the Farmers Insurance Group of Companies, made the following statement in response to a Travis County, Texas judge today entering into a final judgement in the Ballard vs. Fire Insurance Exchange lawsuit.

"We are deeply disappointed with today's decision and we plan to appeal. Farmers handled all aspects of this claim appropriately. Our job is to provide our customers with the resources to make the necessary repairs when they file a claim. Unfortunately, the claimant refused to make any repairs to her home.

"We were made aware of a water leak in this claimant's home 11 months after it was discovered. When Farmers was contacted by the claimant in December 1998, the flooring had already been damaged and we made the determination to provide the resources to fix it. Our check was cashed but no repairs were ever made.

"When there was a dispute, the parties went into contractual arbitration and Farmers paid the arbitration amount in full, which compensated our customer for all damage. With the arbitration amount being paid, there were no remaining grounds to support any element of this judgement.

"In total, Farmers paid the claimant more than $2 million to cover the costs associated with this claim. Once again, the claimant refused to make any repairs or start the remediation process. Unfortunately, lawsuits of this magnitude inevitably could raise homeowner's insurance rates for all consumers."

Farmers Insurance Group includes the nation's third-largest home and auto insurers. Headquartered in Los Angeles and doing business in 41 states, the Farmers group of companies provides home, auto, business, life insurance and financial services to more than 10 million households through 17,000 exclusive and independent agents and district managers.


Farmers Insurance Group of Companies

Bill Miller, 512/658-8962

Mary Flynn, 310/600-1443
Jim Flynt (Jimflynt)
Posted on Tuesday, October 30, 2001 - 7:46 pm:   

Bennett, (I would prefer to call you David but since you seem to prefer a last name protocol, I will follow your lead) in the example of an incorrectly wired breaker panel, an ensuing fire which resulted from the defective installation WOULD BE COVERED because fire is not an excluded loss under the Coverages A & B of the HO-3.

(Forget the perils under Coverage C (UPP) of the HO-3 as they have nothing to do with any of this, although causation has everything to do with the ensuing loss clause).

The situation where an ensuing 'water loss' MAY BE COVERED is when the 'water loss' is NOT THE RESULT of defective workmanship or defective materials which is ALWAYS EXCLUDED.

In the example which I first posted, it was clear that the water loss and mold were ONLY the result of the defective installation, and hence, they would be excluded because they were not the result of a cause (or 'peril') which was not excluded.

Furthermore, you advise that a Texas court has ruled that the defective installation (or failure to install if you will) of a shower pan, thus causing ensuing water loss, should have been covered. That it ended up in court only shows and reinforces my point, because the carrier obviously denied the claim by applying and following the very same policy interpretation which I and the FC&S, IIA, CPCU and PLRB advocate as well. (Since you have either read the Texas court opinion or have some intimate familiarization with the case, I would be most appreciative if you could provide us with the name of the case or parties before the Texas courts so as to read the opinion and follow through with a review of any subesquent appeals).

I know this is all confusing, but as the courts have said, it is not ambiguous.

I used many examples of 'water loss' where coverage or exclusion of such was determined completely outside of the policy provisions of the normal policy water loss exclusion because I wanted newer and Newbee adjusters to understand that only a complete reading and understanding of the policy in it's totality can insure that the adjuster is properly applying coverage for a given situation. I am sure we both could agree that well too many newer adjusters as well as one peril adjusters have a very limited understanding and comprehension of the policy and it's language, meaning and intent. And anything we can do to develop the skills of any adjuster can only inure to the benefit of all adjusters as well as advance the professional image of this industry.

I do know that there are some carriers out there who have 'souped up' policies with names like the Platinum, Gold, Silver or Deluxe policy which may have policy language which would cover an ensuing loss regardless of causation, but the example which I use is the ISO (Insurance Service Office) HO-3 which is generally the policy used by the IIA and CPCU programs in their educational programs and the one most adjusters are most likely to encounter in a majority of claims situations.

I too do not want this to appear as in any way 'personal' to me. My responsibility when trying to serve as a mentor and trainer is to attempt to educate a newer adjuster so that they do not find themselves in a situation where they create coverage by estoppel and then have to pay a claim 'out of their own pocket' in the event they are not carrying E&O insurance.

If in the end, I can keep just one adjuster, especially a newer one, from creating coverage by estoppel, or prevent them from having an E&O action brought against them, or keep them out of court, then I have a thick enough hide to allow you or anyone else to accuse me of being inflexible on this issue or even appearing to be adamant in doing it my way, which I honestly believe is the IIA, CPCU and FC&S way. If I can achieve that one goal, then all of my time, research and discomfort with others will have in the end, been worth it.

With your professional credentials as well as mine, you and I have an added responsibility to share our knowledge in educating new arrivals to the insurance industry and we cannot afford to be the malefactors of incorrect or casual information which can or will ultimately do harm to the adjuster, the Insured, the carrier and this profession.

I do honestly feel that an adjuster following the FC&S method will never find themselves in an estoppel situation nor will they ever be guilty of a bad faith action.

I will look forward to seeing what you come up with after you have a chance to more fully research the policy and the ensuing loss issues.
I spent approximately 30 hours in research and made numerous phone calls to many of the organizations mentioned in my last post as well as reviewing a fairly extensive body of insurance textbooks, manuals and reference materials.

If you can show where I am wrong, I will be the very first to apologize for any mistake I have made in either my logic, my policy understanding and training, or in relying on what are generally considered to be the most authoritative sources in insurance disputes and policy interpretation ambiguities.

Good luck in your research and, hey, no hard feelings on my part. I'll buy the first round of beers after you come back with your answers, regardless of those answers.

David, I'm sure we have much more in common and share many more similar views and values than those few things which separates us and with which we honestly just disagree.
David P Bennett (Whitey)
Posted on Tuesday, October 30, 2001 - 6:48 pm:   

Flynt, I am aware of the PLRB IIA and the other associations your mention, have attended and participated in PLRB lectures and presentations, have been an instructor or team leader at the National Forum. Anyway, my question on the water exclusions was show me where the interior of the dwelling, damaged by water from a leaky roof, window, poor flashing, etc. is excluded. Most of the examples you listed are addressed in areas of the policy which do not have the ensuing loss provision. Under your scenario the improperly wire panel box, which shorted and a fire ensued destroying the building would be excluded because it the cause was the defective workmanship in completing the wiring. Fire is not a named peril in the HO3 for the building, in fact the only named perils in the HO3 are found under the UPP coverage except for the specified perils. One scenario: New house built, plumber forgets to install shower pan, finishes with tile and grout, 1 year later grout falls apart, owner discovers rotten floor supports and additional damage from the obvious leakage. Coverage? According to state court in Texas yes. Even though defective or poor workmanship(it is obvious that without a shower pan, water damage will ensue) coverage does not exist for correcting the workmanship issue but does for the ensuing water damage.

Now as for you inferences on inability to research. Well, would suggest you sit back and wait. You really shouldn't come on so strong, but I will answer each of your scenarios, even though more than half of them do not apply to an ensuing loss provision. I will also find cases which support this position and I will research your cases and address same.

Jim, keep this civil, attacks are generally a sign that one feels threatened. Maybe your position is right, but a lot of the jourisdictions take a liberal view. That also has to be part of the equation.

Yes, I am busy, haven't even had time to play golf over the last two years. But I will make time to address this issue and lay the facts out without attacking your rationale or position. You see I believe the facts speak for themselve and no personal attacks are necessary. Especially when you really don't know who your attacking.
alan jackson (Ajackson)
Posted on Tuesday, October 30, 2001 - 8:25 am:   

Sometimes we have to agree to disagree. Yesterday I had a discussion with the V.P. of Human Resources, Ward North America, San Diego CA. It appears that they have a ERISA violation concerning my Major Medical Coverage. It is pretty clear from reading the code that they are completely in the wrong. Even when shown the code provides for the payment of legal fees for those who stray, they chose to bury their head.

The moral to the story is, that most vendors carriers and alike just don't have a clue about what a statute or a case law is. As my number one lawyer buddy would say, "I guess we are just going to have to go to the court house and give you the chance to back up your'e theory".

Jim, it is usally at the courthouse steps or just after the verdict comes in, that they see the light. Jim, you have led the masses to water, you just can't make them drink. Without a 2" x 4" or jury verdict that is.


Jim, we need to start a claims school. mold, coverage questions, how to do simple legal research etc.. geee There are to many one peril experts out there.
Jim Flynt (Jimflynt)
Posted on Monday, October 29, 2001 - 10:10 pm:   

Bennett, nothing personal at all.

The position which I espoused for the ensuing loss clause is the same position taught and/or taken by all of the following:

CPCU Program
Insurance Institute of America (AIC & Others)
Property Loss Research Bureau (PLRB)
Society of Certified Insurance Counselors Program
Policy Forms and Manuals (PF&M)
Fire Casualty and Surety (FC&S)
Numerous State Supreme Courts
Numerous Appellate Courts

So if some carrier out there wants to go beyond the policy with what amounts to an ex gratia payment, then so be it.

If you and Kim or anyone else wants to ignore prevailing case law and the professional experts, and then do it your own darn way, then so be it.

But if you want to do it right, then read the cotton pickin' policy the way the courts and others mentioned above have, and follow the industry standard. For you to suggest that FC&S, IIA, CPCU, State Supreme Courts are all incorrect while you and Kim and one or two others are the only ones with enough brilliance or ingenuity to see it properly, would to me, squarely put your viewpoint at odds with the overwhelming majority of professionals, experts, trainers, scholars, academicians, and authorities in insurance.

As I have challenged others before in this same thread, please post just one opinion or one weblink to a court opinion (which was upheld on appeal) which differs from my viewpoint and agrees with yours.

I think if you will do your homework and research, you will find that you can't or won't find even one higher court opinion to support your position and your shortsighted policy interpretation of the ensuing loss clause. I'm so sure of that I'll bet you a cold case of delicious Coors Light!

Finally, I posted all of the examples involving 'water loss' because you asked that someone point out where there were other exclusions within the policy which address 'water loss' other than THE ONE where you blindly hang your hat.

You offered the challenge of showing you other exclusions affecting 'water loss' within the policy and I met your challenge, so don't complain that you now don't have the time to do proper research or respond specifically. I make it a practice to take the time to do my research carefully as well as thoroughly in order to get it right, and so do FC&S, PF&M, IIA, CPCU and others because the rest of us simply can't afford to get it wrong.

I honestly think if you will read the policy carefully and use common sense, you will sooner or later come to agree with FC&S, PF&M, CPCU, IIA and court after court in this land. If not, I simply don't know any other way or have anything left to say to open the apparent closed mind.

Jim Flynt, AIC, CIC, AAI, AIS, IIA (Plus 29 other successfully passed exams in semester courses in various CPCU and IIA Programs)
David P Bennett (Whitey)
Posted on Monday, October 29, 2001 - 9:52 pm:   

Flynt, you obviously have taken this way to personal. If I had the time to answer each of your scenarios, well then I guess I wouldn't be working. In browsing without going into detail you have various specific exclusions which apply which don't have the ensuing loss provision. However, if you want to deliberate the matter, Lets put it this way, some carriers have taken the position that the exclusion you site is the proximate cause and therefor all other damages arising from are excluded. Other carriers and myself and obviously Kim, take the position that the ensuing loss of water leaking into the structure is not an excluded loss and therefor the resulting water damage is covered unless you have a long term leakage exclusion. Look if you want to talk apples to apples then do so, don't get up in the air and throw out obvious situations when which analyzed are not all within the same basket as the original scenario nor do they all have the same ensuing loss provision.

Without too much review, the insured causing damage, one would expect that the act of destroying the pipes would result in water damage to the structure, there for no coverage as an intentional act. However you may have coverage if the insured was found to be mentally incompetent at the time. (check New Mexico) On the earthquake, well no coverage for earthquake damage, house destroyed by earthquake, damage by earthquake, resulting surface water damage is generally excluded, thats like trying to say your entitled to coverage under your HO policy for back up of sewers and drains when your house is also damaged by flood.

Lets call a truce and say we agree to disagree. There are companies who take either position, and cases (property only, lets stay away from the liability cases which address exception language)throughout the country which go one way or the other.

Overall a good discussion and valid points on all sides.

Jim I believe if you check with the prominant property attorneys in the country, Doug Houser, Joe Gerber I could go on, I believe you will find arguements for both sides.

David Bennett IIA, AIC, SCLA, RPA and various other insurance training schools etc. etc.
Jim Lakes
Posted on Thursday, October 25, 2001 - 3:44 pm:   


You are being a little to hard on Kim and David.

Although they are incorrect in their policy determination of coverage and I agree with you about this issue, maybe we should explain to them why they are wrong and provide the exact policy verbiage. I donít think asking more questions that require answers contrary to their way of thinking is going to change their thought process.

I sincerely hope that they are taking this conversation and discussion as guidance and not criticism.

Jim Lakes RPA
National Catastrophe Director
RAC Adjustments, Inc.
Jim Flynt (Jimflynt)
Posted on Wednesday, October 24, 2001 - 11:20 am:   

(Part 1 Answer To David's Question)

David asks us to show him where in the HO-3 policy that 'water damage' is excluded other than in the following policy language:


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.

c. Water Damage, meaning:

(1) Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether driven by wind;

(2) Water which backs up through sewers or drains or which overflows from a sump; or

(3) Water 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.

Direct loss by fire, explosion or theft resulting from water damage is covered.

Now David (and Kim) would suggest when an adjuster sees water damage at a risk loss we run immediately to this section with these provisions of the policy dealing spefically and solely with 'water loss', and if we do not find that water damages are as a result of one of the 3 itemized exclusions, then water damage coverage is provided by the policy. They would suggest that one needs to look no further as there are no other policy exclusions or provisions, as far as they can see or tell, that exclude water damage.

I beg to disagree with that point of view and know that most of you will as well, and I'll point out why in just a few moments by use of example.

David even goes further to suggest that 'intervening cause of weather and rain' are causations rather than some other peril or excluded causations. But for the rain occurring would go his argument, there would be no damage.

David (and Kim) seem to be singulary focused as well as perhaps obsessed with the one water exclusion section in the policy (quoted above) while being blind to other applicable policy provisions. Provisions which may, which can and which often do determine water loss coverage or exclusion without any regard whatsoever to the singular water loss exclusion quoted above, which David and Kim rely solely on to determine water loss coverage or exclusion, to the detriment of being blind to other applicable policy provisions affecting water losses.
Jim Flynt (Jimflynt)
Posted on Wednesday, October 24, 2001 - 11:18 am:   

(Part 2 Answer to David's Question)

Now let's take a look at a few examples and let David apply his incorrect methodology of policy interpretation of ONLY looking to the water damage exclusions quoted above to inform us whether there is coverage for the water damages in the scenarios I present.

(1) An unmarried homeowner in a fit of uncontrollable rage at a plumbing bill which he considers excessive, for recent repairs at the insured residence, takes an axe to all of the pipes and plumbing fixtures in the residence, with water then escaping the 'plumbing system' and causing $20,000.00 of resulting water damage to the residence.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(2) Ian and Ivory Ignoramus, who live in Paramus, decide to spend the winter in Florida and while they are away for 4 months, their pipes freeze at the residence premises with a resulting pipe rupture which then causes $35,000.00 in water damages to wood floors, carpets, walls, paint and furniture. The house was not heated nor was the plumbing system drained at the time of loss.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(3) Tom and Tina Traveler move from Hoboken to California because of a job relocation for Tom's job. They place their unoccupied house on the market for sale. The house sits on the market vacant for two years. One night a group of teenagers decide to vandalize the house, and after breaking into the residence, they turn all of the water fixtures on while stopping up all of the sinks and 3 bathtubs. Water overflows throughout the risk with water damages in excess of $60,000.00 before it is ultimately discovered days later by a nosy neighbor looking through a window.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(4) An earthquake in Bakersfield causes the Spanish clay tile roof of Joe Insured's one story single family residence premises to collapse. Another aftershock the next day causes the remaining walls to cave in as well. Two days later a rainstorm occurs and causes water damage to whatever is left of Joe's furniture as well as to the wall debris leftover from the earthquake collapse. Joe files a claim and argues that this water damage should be covered as it was due to the 'intervening rainstorm' and 'intervening weather' rather than the earthquake itself.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(5) An Insured, Paul Proud, decides to try his hand at a new hobby and builds a detached garage himself including putting on a new roof which he has never done before. A week later he buys his wife a $10,000.00 Bose Stereo as a surprise gift for her upcoming birthday. He stores the stereo in the garage which is otherwise vacant of any other personal property. The next day a rainstorm occurs and water entering into the garage through the roof destroys the $10,000.00 stereo system. There are no openings created by the rainstorm in either the roof or walls.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(6) Robert Ruthless decides to have a new 10,000 square foot home built on a new farm he has purchased while he and his wife are away in England for a year on a job assignment. His builder, Rudy Reckless fails to have the building site sited by a land surveyor or engineer and builds the house partially on Robert's farm with the greater almost 7,000 square feet of it being built on an adjacent farm. Robert and his wife return to the farm just before their neighbor Randy Revenge, a crusty old bastard, decides to operate one of the bulldozers from his excavating company to plow through the portion of the house built on Randy's farm accidently and inadvertantly. Robert calls his lawyer only to find out that Randy Revenge had the perfect legal right to remove the trespass from his farm without being guilty of any civil or criminal offense. Now, a week later, a rainstorm occurs and the remainder of the residence premises are damaged by water.

Is there coverage under the HO-3 policy for this water loss? Why or why not?

(7) As all adjusters know and are aware of, the Insured's policy application and the Declarations Page are also part of the insurance contract, and thus part and parcel of the policy. Information within either the policy application and/or the Declaration Page ('Dec' Page) can also serve to establish, modify, expand, deny or revoke policy coverages.

Susie Samuels files a claim for water damage to the interior of Susie's residence premises from a recent windstorm. The adjuster agrees that damages appear solely to be the result of the windstorm blowing the roof shingles completely away from the roof subsequently allowing wind driven rain to cause $45,000.00 in water damage to the residence and personal property contained within. However, the adjuster notices on the Dec Page of the policy and on the ACCORD Loss Notice as well, that the policy expired 4 months to the day before the windstorm.

Is there coverage under the HO-3 policy for this water loss. Why or why not?

(8) Dewey Cheatem, a public adjuster moves into his new house which was just completed by the builder yesterday. Today there is a rainstorm with subsequent interior water damages to the residence premises. Dewey discovers that the roofing of his residence presmises was installed incorrectly with no application of felt paper and included substandard and problematic materials which an engineer finds were rotting before they were installed. Dewey argues that if a rainstorm had not happened (an 'intervening cause of the weather' as David labels it) there would be no water damage inside his brand spanking new home (1 day old).

Is there coverage under the HO-3 policy for this water loss? Why or why not?

David I would love to hear from you and/or Kim so you can explain whether these water loss scenarios fall within the purview of 'your' sole exclusions [(1)Flood, (2)Back-Up and (3)Sub-Surface] for water loss damages.

I could outline dozens of other scenarios involving 'water loss' which would fall outside the purview of the 'water loss' exclusions which I have quoted and with which you seem to be bridled. By looking at other portions of the policy which may apply, most adjusters would arrive at the correct policy interpretation and policy applications of policy language. For any adjuster to only look, as you are doing, at the one section of policy exclusions which specifically excludes water loss under 3 circumstances, they would be erroneously disregarding other important vital policy provisions which carry as much or greater weight in many water loss scenarios.

I would enjoy reading how you can stand by the position you have already taken on one hand, and now find water damage exclusions for the many different water damage loss scenarios I have presented above, all the while standing by the one section of the policy which you argue is the only one which is applicable.

We wait to hear.
Jim Flynt (Jimflynt)
Posted on Wednesday, October 24, 2001 - 1:52 am:   

David, with all due respects, properly designed houses which are properly constructed with proper building materials are designed not to leak or allow the outside infiltration of water. Nor are they projected nor expected to be laden with hidden mold growth behind walls without some explainable albeit unexpected causation.

Let's not confuse the words 'causation' with the word 'peril' with which you seem to be singularly focused.

I have no argument with you that 'all risk' policies do not require 'perils' as such, yet water entry into a house as described in my first paragraph IS CAUSED by some unanticipated event with unforseen consequences. Therefore, if the defective workmanship did not cause this water infiltration and ensuing mold, then please tell me what did?

Obviously water does not infiltrate into houses without cause.

Obviously home designers and architects and housing contractors do not plan, design and build houses with the expectation that water infiltration and mold growth would occur absent some causation 'event.'

It is not only important but imperative that a causation be deduced to explain the presence of water and mold where it is not supposed to be.

In my first post I mentioned the 'but for' test to determine whether an ensuing loss was a stand alone separate event with a separate cause which would allow for coverage under the ensuing loss clause. On the other hand, in the example I provided courtesy of the Public Adjuster, the real question presented was: But for the defective workmanship would the water loss have occurred? But for the defective workmanship would the water loss have occurred and then caused the mold growth?

The better way to think of an ensuing loss is, as one court has said, to think of it as a subsequent loss. And as all of the court decisions I could find pointed out, that subsequent loss has to be from a causation or peril separate from the excluded original event. And according to the courts as well, it has to be a separate, hence subsequent, event as well.

If the homeowner cannot positively assert and the adjuster cannot define a causation other than defective workmanship or defective materials as I outlined in the example in my earlier posts, then obviously the causation would be the result of the defective workmanship or defective materials. And as the courts have said, the ensuing loss would then be excluded based on the exclusions contained within the policy for defective workmanship or defective materials.

If you can fathom any causation for water damage to have magically appeared without ANY causation, I for one, would love to hear your theory.

And absent a causation explanation, the carrier response of denial in my earlier post stands not only as the correct response but as the only response for those who would follow the language and meaning of the policy.

I am open to any reader providing or posting with even one court opinion in support of a different interpretation of the ensuing loss clause from the one I have taken and the one which is supported by FC&S, PLRB, and case law from courts in every jurisdiction I was able to find.

Your argument is not with me David.

Your argument is with every single court decision related to the ensuing loss clause from cases and courts (including numerous State Supreme Courts) from all around the country.
David P Bennett (Whitey)
Posted on Tuesday, October 23, 2001 - 9:41 pm:   

Jim, again excellent discussion and rationale for your position. I still disagree, when dealing with an all risk policy, you do not have specified perils when dealing with the building. In your original example the defect or defective material did not cause the ensueing damage by water or mold. First, show me where in the policy that water damage is excluded (other than the flood, surface water or underground water exclusion). In addition, most jourisdictions will look upon the reasonable discovery by the insured. We all agree that the cost to correct the defect is not covered. But the water damage is where we differ. I have yet to see an exclusion for water damage to the building in an all risk policy, whether it leaks in from the roof, comes through an opening whether natural or not, comes from a an improperly installed flashing or a poor seal on a window. I believe you have an intervening cause of the weather and rain as without the rain, the defect could not cause the ensueing damage either directly or indirectly.

Using the Wisconsin case as a basis, the resulting water damage, which is not excluded in the all risk of physical damage policy, would be covered. Now the mold and mildew may or may not be covered depending on the policy wording for long term leakage. (Of course Texas courts aren't buying the long term leakage and are using the reasonable date of discovery to afford coverage)
Jim Flynt (Jimflynt)
Posted on Tuesday, October 23, 2001 - 9:20 pm:   

Mark, Thanks for the 'heads up'.

May I suggest you try your hand at the answers to the question you pose and then let others comment. I'll weigh in too if Alan Jackson or Ghostbuster get too far out of line.
mark (Olderthendirt)
Posted on Monday, October 22, 2001 - 1:58 pm:   

Jim; you have explained this as well as it is possible for a human to do. Where difficulty arises is when there is a defect, ie gutters improperly installed. The Insured is unaware that (s)he has a mold problem. Then we get wind driven water from a storm or an ice dam, and the amount of water increases enough to make the insured aware. (It is amazing how much more people notice after a storm) Do we deny the entire loss as pre-exsisting (defect) ?; seperate old damage from new?; or pay everything?
Jim Flynt (Jimflynt)
Posted on Monday, October 22, 2001 - 12:07 pm:   

Ensuing Losses 101 (Part 1)

Now, let's examine and talk about ensuing losses more carefully and in greater detail.........

A thief enters a residence insured under an unendorsed DP policy (Dwelling Policy) and steals a window air conditioning unit (original loss). On the way out the door, he decides to vandalize the home (ensuing loss) by spray painting graffiti on the walls. What is covered and what is not?

As we all know, theft is not a covered peril under the DP. So there is no coverage for the theft of the A/C unit (original loss) but vandalism is a covered peril, so the vandalism (ensuing loss) is covered.

In the example which David Bennett used in describing an improperly installed electrical panel, while there is no coverage for the defective workmanship and hence the breaker panel, the 'ensuing' fire loss is covered because fire is not an excluded peril under most insurance policies.

Now let's look at a few more examples.

Suppose there is a defective workmanship loss with an 'ensuing' loss caused by a 'general condition of flooding' under an HO-3 policy would there be coverage for the ensuing loss?

Suppose in another example that there is first a defective materials claim made under an HO-3 with an 'ensuing loss' caused by earthquake. Would there be coverage for the ensuing loss?

I believe that in the two examples above, even the most naive among us could agree that the answer is clearly no. And the reason, is that both general conditions of flooding and earthquake are specifically excluded causes of loss. Further, nothing in the 'ensuing loss' provisions works to expand coverage to include causes of loss which are previously excluded by inherent policy language.

Many adjusters will recall that during the Northridge Earthquake, that homeowners policies which did not cover earthquake as a covered peril, did in fact cover 'ensuing losses' for fire, explosion, or glass breakage which resulted from the initial earthquake event. Again, the reason being simply that these are otherwise normally covered causes of loss under the HO policies.

In Richland Valley Products, Inc. v St. Paul Fire & Casualty Co., the Wisconsin Court of Appeals made the distinction between the original or direct loss from the 'ensuing loss.' They went on to say that "the ensuing loss clause did not apply because the ensuing causation was not a loss that otherwise would have been covered under the policy." Interestingly, they used the example of an ensuing fire to make the point "in contrast, if the ensuing causation had resulted in a fire, the fire loss would have been covered under the ensuing loss clause because fire was a loss otherwise covered under the insured's policy."

In Acme Galvanizing Co. v. Fireman's Fund Insurance Co., the California Court of Appeals expressly stated "that a covered ensuing loss must be an independent covered peril separate from the initial excluded peril.

A research monograph entitled Judicial Interpretation Of The Ensuing Loss Exception by the Federation of Defense and Corporate Counsel provides the following:

"The purpose of the ensuing loss exception is to provide coverage for certain losses that occur subsequent to an excluded loss. However, courts generally agree that ensuing loss clauses do not provide coverage for the excluded loss itself.

The Washington Supreme Court has said (McDonald v. State Farm Fire & Casualty)

"the ensuing loss clause may be confusing, but it is not ambiguous. Resonably interpreted, the ensuing loss clause says that if one of the specified uncovered events takes place, any ensuing loss which is otherwise covered by the policy will remain covered.

The Washington Supreme Court in that same decision goes one step further however in stating:

The uncovered event itself, however is NEVER COVERED (emphasis mine). The intent of the ensuing loss clause is not to enlarge the list of items covered under the policy.
Jim Flynt (Jimflynt)
Posted on Monday, October 22, 2001 - 12:06 pm:   

Ensuing Losses 101 (Part 2)

Now, let's go back to the original posting which I made wherein I described both the subject coverage question as well as the applicable policy language.

We see that the policy language states under:


2. We do not insure for loss to property described in Coverage A and B caused by any of the following:

a. Weather Conditions. However, this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in paragraph 1. above to produce the loss;

b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body;

c. Faulty, inadequate, or defective:

(1) Planning, zoning, development, surveying, siting;

(2) Design, specifications, workmanship, repair,
construction, renovation, remodeling, grading,

(3) Materials used in repair, construction,
renovation or remodeling; or

(4) Maintenance;

of part or all of any property whether on or off the
"residence premises."

We need go no further to see that any cause of loss caused by or the result or any causation arising from the list which followed would NEVER be covered (except in the specific provisions which give back limited coverage in a collapse scenario).

This first sentence is where the exclusion for defective workmanship within the policy is found. It is also where the exclusion within the policy for defective materials is found. It is simple. Is is forthright. And it is in plain English as Kim says. And the language and meaning in this first sentence cannot be read as being ambiguous in any way.

Now, just as with exclusions for flood or earthquake or war, the policy has in this first sentence established the exclusion for defective workmanship and defective materials. Perhaps the policy could have or should have used paragraph after paragraph of verbage to say the same thing, yet even the courts of this land recognize the exclusion created, if one is to believe the case law readings from various jurisdictions.

When the policy then goes on to say in the very next sentence:

"However, any ensuing loss to property described in Coverages A & B NOT EXCLUDED or EXCEPTED in this policy is covered.

For those who are having a difficult time in understanding this concept, please realize that ensuing loss (not excluded or excepted in the second sentence) is and rightfully would be nulled by the exception and exclusion created in the first sentence of this ensuing loss provision.

Thus any original loss due to defective workmanship or defective materials would be excluded. And, any ensuing loss which was directly or indirectly caused (ONLY) by defective workmanship or defective materials would also be excluded, unless it was a named peril under named peril coverage or a peril insured against or not excluded under an open perils policy.

In the coverage scenario in the intial posting which I made, the initial claim made was for damage from defective installation (workmanship) of gutters and a roof valley. You will recall that resulting or ensuing damage was caused first by 'water' and then by resulting mold contamination.

From my initial communication with the Public Adjuster who asked for a coverage interpretation, even he described the loss as being solely and singularly caused by the initial defective workmanship event. There was no subsequent separate covered loss event and no other event in the damage chain other than the defective workmanship event. That is why I suggested and continue to maintain that there was and is no covered cause of loss for water and mold damage for 'ensuing damages' under the loss scenario presented to me.

To me, this is not a 'gray area' of policy interpretation in the slightest. The facts outlined and acknowledged by the Public Adjuster were clear and so is the policy language, meaning and intent.

That is why I asked in a subesquent post, what causation Roger, or Kim or David would attach to the ensuing loss. If the water entered into the risk as a result of a windstorm which blew off shingles or ice damages from weight of ice then obviously there would be coverage for the damages less an offset for damage to gutters and/or roof valley defective workmanship. (Although ironically, I would be the first to argue that there might be coverage for the materials if they were not 'defective.')

If, on the other hand, the resulting water damage and mold damage flowed simply and only as a result of the defective workmanship, there would be no coverage for the ensuing water damage and ensuing mold damage. And a perusal of current case law from widely scattered jurisidictions around the country would I believe, generally and almost exclusively support my contention.

Even when there is coverage for an ensuing event where there is first a defective materials or defective workmanship event, the astute adjuster should make note of such in his file report to the carrier in order to initiate or allow rightful subrogation by the insurer.

As the Federation of Defense and Corporate Counsel has stated in the previously cited monograph:

In general, when a property policy contains an exclusion with an exception for ensuing loss, courts seek to ensure that the exception does not swallow the exclusion by precluding coverage for ensuing losses that are "directly related to the original excluded risk."

In the coverage question scenario I first presented, that is the exact nature of the water and mold damage; hence, that the damages were in fact 'directly related to the original excluded risk' as treated in the immediately preceding paragraph.

As the Washington Supreme Court has said so very well, "the ensuing loss clause may be confusing, but it is not ambiguous."

While I may not have cleared up your confusion on this issue, I do hope that I have erased any ambiguity of why there is no coverage for the resulting or 'ensuing' water and mold damages for the Public Adjuster's claim in my initial post describing the defective workmanship coverage question scenario. The carrier was absolutely correct in the example provided in applying the policy language to deny the claim, and hopefully now, you too can see why.
Jim Flynt (Jimflynt)
Posted on Thursday, October 18, 2001 - 9:46 pm:   

I am going to respond to the comments posted here with two separate posts. The first to comment on the posts to date, and the second to more fully explain the answer and why so many don't seem to be 'getting it.'

Mark is 'on the right track' when he asks the question was there an occurrence which gives rise to coverage for an 'ensuing loss'? He just doesn't go far enough in his exploration. I'll explain why in my second post.

Roger gives us some excellent information relating to liability insurance in his explanation of 'proximate cause' but casualty practice doesn't carry over well to property insurance claims adjustment.

For the uninitiated, what Roger is saying complies with the theorem of liability: A Duty Owed plus a Duty Breached plus a Proximate Cause plus Damages equals Negligence (which is a Tort). Torts are more appropriately (and almost exclusively) addressed within the insurance policy under Section II- Liability Coverages.

I like the way Kim thinks and approaches policy interpretation through a breakdown of policy language step by step. Unfortunately, she errs in taking that gigantic leap from step one to step two and in so doing, arrives at an erroneous conclusion. (More about this in the next post).

Kim, I would tell you that the argument that you as an examiner have been doing it this way for 15 years does not hold any water with me nor does it legitimize your answer to the instant problem. We all know many examiners, adjusters and staff who learned it wrong to start with, and continue to do it the wrong way year after year. I must ask, have you ever researched this particular question of ensuing loss with the PLRB or FC&S?

David, I'm sorry that I put so much emphasis on the word 'peril' and not more on causation. The cause of loss of the ensuing loss is an IMPORTANT question, and as you will see in my next post, it defines whether there is coverage for an ensuing loss or not.

Alan, as always thanks for the kudos and for alertly keeping me on my toes. Perhaps with your help we can ease our readers past what is without question a confusing, although not ambiguous, coverage question.

Stay tuned..................
alan jackson (Ajackson)
Posted on Thursday, October 18, 2001 - 6:06 pm:   

The answer is MAYBE, if a ensuing loss occurs, and the damage is caused by a seperate peril, other than construction defect. Is water leaking or entering through the roof covered in the case submitted?

Several hours on Westlaw has made this issue as clear as mud. Jim, how do you come up with such interesting complex questions? Stay tuned, more research in the works. Maybe Jim can give a few more facts, if there are any.
alan jackson (Ajackson)
Posted on Monday, October 15, 2001 - 8:43 am:   

As for this damage occuring over a period of time. Would a "reasonable" amount of time be allowed for the insured to discover the loss? How many people inspect their roof evry day, week, month etc.. much less anywhere else that may be hidden. Would the day the insured noticed the damage come into play? How much time after discovering the damage would be considered "reasonable" before submitting the claim? This whole thread has made me rethink some of the things I have been doing over the years.

Leave it to Jim, to make us put our thinking caps on.
David P Bennett (Whitey)
Posted on Sunday, October 14, 2001 - 9:10 pm:   

Jim, I too will have to respectfully disagree with your initial assessment. I don't agree that a loss has to be from a peril when dealing with a HO3 or All risk coverage. Most policies state that they insure against direct physical loss except for losses excluded or limited. I agree that a loss to the building by those exclusions you cite are indeed not covered. example: faulty shingles (a common problem) in fact present the homeowner with a loss. (the cost to replace) a shower pan which was supposed to be installed but was not and the ceramic tile was laid as the base. (this situation has been tried in Texas) My take on the exclusionary language, is that you don't owe for the damage from these exclusions, but the wording for ensueing loss opens up the coverage to additional damage. Lets look at this scenario: A new electrical panel is installed but the electrician wires two breakers incorrectly. Now, as a result of this the breakers short and a fire erupts which damages the dwelling. The defective workmanship resulte in a seperate and ensuing loss of fire. Fire is not excluded in the policy (except for arson by the insured(s) thus the resulting damage by fire is covered. In your initial case, the defect resulted in water entering the dwelling causing water damages. I believe you have a seperate ensuing loss of water, which should be covered under the policy. The repairs necessary to correct the defect are not covered. Now if you have a long term water leakage problem, you may have another excluded peril which would apply.

This was the position taken by Maryland Casualty and several other prominent insurers. If any of the carriers are reading, I am sure I can speak for all in saying, PLEASE COMMENT.
Posted on Friday, October 12, 2001 - 2:53 pm:   


The web URL I mentioned should have been: unless you already have an account established with them. Most of their accounts incidentally are free.
Kim Adams
Posted on Friday, October 12, 2001 - 2:50 pm:   


I too must take exception to your policy interpretation. You are adding language and theory to the policy that isn't there.

The key portion of this policy that makes the resultant water damage covered is:

"2. We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered."

Let's break this down. First, any ensuing loss means any loss which results from a peril. The next part is "not excluded or excepted in this policy....". From the first part of sentence, we are directed to refer to the ensuing loss which I have already defined as any loss that results from a peril. The next part of the sentence means that you determine what the ensuing loss is and try to apply an exclusion to that loss.

So, we have a loss caused by defect in workmanship which is clearly excluded in the policy. The ensuing loss is the resultant water damage. Now, we look for exclusions pertaining to water damage. What do we find?

We find the exclusion for water damage, meaning:

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; or
b. water which exerts pressure on, or seeps or leaks through a building, sidewalk, foundation, swimming pool or other structure."

The water damage exclusion simply doesn't apply to the resultant water damage in this instance which is why I as a property claims examiner, company field adjuster and catastrophe adjuster have paid literally 100's of these claims over the past 15 years of my adjusting career.

If the insuring community wanted this section to refer specifically to "exceptions to exclusions", they should have been more specific. The fact that we are having this discussion on this board, implies it is a grey area and as such should go in the insured's favor. The policy should be read in its plain language meaning, not technical diagnosis of issues that are beyond the understanding of the average policyholder.

Sorry but I am with Alan Jackson on this one and would be interested in hearing his attorneys' interpretation on this coverage question.
Posted on Friday, October 12, 2001 - 2:49 pm:   

Jim, in answer:

The proximate cause is generally considered to be an act legally sufficient to result in liability. It is an act without which an action could not have occurred and in this case that ace or circumstance is a construction defect, which differs from the immediate cause.

The immediate cause is the last event in a series of events which causes another event, particularly an injury, to occur which does not necessarily establish liability. In this instance the immediate cause is the water damage resulting in further mold damage.

That is the general guideline but as I have mentioned before, the precise definition is to be discerned in case law not in Blackís.

Under the policy you quoted, this loss would in most jurisdictions be an excluded one I think, for whatever that is worth. Again, it depends a lot on the jurisdiction involved but if memory serves correctly, most of the US Supreme Court decisions on proximate cause would uphold this theory. They are as you are aware reticent to re-write contracts unless there was serious overreaching on one side or unless they determine that it would be against public policy to let it stand.

If you have the time you can probably find some current case law from either the DCA level or the US Supreme Court index at:
mark (Olderthendirt)
Posted on Friday, October 12, 2001 - 12:45 pm:   

Jim again you are forcing us to think! Two thoughts, was there an occurance invovled which could give rise to coverage for "ensuing water damage" The intent of the wording may differ from what it says (wouldn't that be a shock) and if it can be interputed in favor of the policy holder then coverage applys. The Insurers write the contracts and this part of the relationship is unequal, therefore THE BENEFIT OF THE DOUBT GOES TO THE HOMEOWNERS. Without a covered occurance the exclusion stands imho.
alan jackson (Ajackson)
Posted on Friday, October 12, 2001 - 11:38 am:   


You have really out done yourself this time. How many times have we paid for interior water damage after a rain when we discovered the water entered through a defective chimney flashing? Water entered due to a construction defect, (improperly installed or maintained chimney flashing. I really don't see any difference from water entering through a defective chimney flashing and water entering through a defective roof valley or gutter.

However, I printed your org. questioned and hand delivered it to several of my attorney friends. Needless to say their ears perked up. The answer to the question, which every way it goes, could have a impact on the industry.

This is prob. the best coverage question I have seen on this site. Keep up the good work.

p.s. the carrier could always file a dec. action on the coverage question.
Jim Flynt (Jimflynt)
Posted on Friday, October 12, 2001 - 11:19 am:   

Roger is correct of course that when a case goes to court that anything can happen.

In the instant situation a prudent carrier would likely move for summary judgment.

However, I argue that if the 'proximate cause' of this loss is defective workmanship or defective materials or both, then the loss is excluded by policy language. Roger would it seems argue otherwise.

But I would throw the question back to Roger: if this loss is not the result of defective workmanship/materials, what was the cause of loss, whether covered or not?

Just to stay on your toes, please recall specifically those policy provisions which also address concurrent causation.

What I failed to clarify in my earlier post, is a better more clearer picture of 'ensuing loss' in the situation given.

Should this insured sustain a loss by fire, if the roof was blown off by a windstorm, or if the risk suffered some other damage from another covered peril then those damages from that 'ensuing loss' would be covered despite or regardless of the previously excluded loss from defective workmanship or defective materials or both. That was the other intent of the language in construction of the 'ensuing loss' policy language wording.
roger eyman
Posted on Friday, October 12, 2001 - 10:04 am:   

The answer to your question depends to a large extent upon the jurisdiction in which this loss occurred, as some are more plaintiff oriented than others. Basically, this is a proximate cause issue, which of course is ultimately a jury determination. That is a crap shoot either way.
Jim Flynt (Jimflynt)
Posted on Friday, October 12, 2001 - 1:17 am:   

I was recently asked for a policy interpretation opinion for the following claims circumstance:

A homeowner under an HO-3 policy suffers ensuing water damage which causes ensuing mold damage due to a 'construction defect' which the Public Adjuster in this instance acknowledges.

The nature of the 'construction defect' is that gutters improperly installed allowed water to back up into the soffit and wall cavity. Further that a roof valley improperly installed allowed water to back up into the attic area.

The Insuror in this particular situation and circumstance has denied coverage citing policy exclusions for 'construction defects' with expert opinion the initial water infiltration was caused by improper installation of gutters and roof valleys.

Public adjuster agrees that exclusion for 'construction defects' would not cover for replacement or repair of 'construction defects' but is seeking coverage for resultant water and mold damage. In relying on that policy exclusion language which includes the following wording However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered he argues that his insured is entitled to coverage for the resultant water and mold damage.

Is the Public Adjuster right?

Or, was the carrier correct in policy application in denying this claim?

I argue that the carrier was indeed correct in policy interpretation and policy language application.

Let's explore a little and find out why.

First of all, let's agree that we are using the HO-3 04 91 Edition or later.

Next, the HO-3 policy basically says we will pay for all loss (Coverage A & B) which is not specifically excluded (my words) subject to policy and term limits.

Let's remember the policy language exclusion

2. We do not insured for loss to property described in Coverages A and B caused by ANY of the following....

c. Faulty, inadequate or defective:

(2) ....workmanship.....
(3) Materials.......

Thus we do not insure for loss caused by ANY defective workmanship or ANY defective materials.

The test for determining that threshold would be the "BUT FOR" test. But for the defective workmanship or but for the defective materials would this loss have occurred?

In this particular situation, the answer is a clear no.

Therefore there is no coverage for this loss unless the ensuing loss provisions apply.


2. We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered.

c. Faulty, inadequate or defective:

(2) Design, specifications, workmanship, repair, construction, renovation, remodeling.....

(3) Materials used in repair, construction, renovation, or remodeling.....

The Public Adjuster argues that the policy language "any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered" thus applies to his situation.

However, what this language is actually referring to is an 'exclusion' or 'exception' to an exclusion.

What possible exclusion to this exclusion can the policy be talking about?

Well here, now let's recall the policy language under SECTION I - PERILS EXCLUDED AGAINST language as follows:

We do not insure, however, for loss:

1. Involving collapse, other than as provided in Additional Coverage 8.:

So let's take at look at Additional Coverages

8. Collapse: We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:

a. Perils Insured Against in Coverage C - Personal Property

f. Use of defective materials or methods in construction, remodeling, or renovation if the collapse occurs during the course of the contruction, remodeling, or renovation.

Remember that collapse is not a peril.

Also remember, that defective materials and workmanship is not excluded for coverage IF the loss occurs during the period of construction, remodeling or renovation AND IF the defective materials and workmanship cause a COLLAPSE.

The intent of the policy language in providing an exclusion to the defective workmanship and defective materials exclusion was to acknowledge the presence of the other policy language providing policy coverage for defective workmanship and defective materials in the very specific situation where full or partial collapse occurs and when the occurrence happens during the course of construction, remodeling or renovation.

So, sorry Mr. Public Adjuster, there is no coverage for 'ensuing loss' other than as described in the collapse provisions of the policy.

If anyone wants to respond to argue otherwise, I would respectfully request only that they not do so unless they specifically quote policy language in their arguments and advise us of policy edition of the HO-3 policy being utilized for review.

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