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Webinar Recap: Exclusion Part 2 (Words Matter Part 5)

By March 27, 2024No Comments

On March 15, 2024, Wheeler, DiUlio & Barnabei hosted a lunch & learn webinar, Exclusions (Part 2): Knowing What Isn’t Covered is the Key to Getting Coverage. This was the fifth installment of the Words Matter series.

In Exclusions Part 1, Partner Anthony DiUlio discussed the exclusion framework, reviewed specific exclusion arguments, and listed pitfalls to avoid.

In Exclusions Part 2, Partner DiUlio continues his deep dive into the exclusions section by describing ensuing loss language and providing specific exclusion arguments, such as wear and tear.

What is Ensuing Loss?

Most policies have exceptions to exclusions that cover resulting damages, even when the excludable cause is part of the loss. This is extremely common with exclusions like wear and tear. This is generally referred to as ensuing loss.

For example, Travelers’ ensuing loss policy states, “Any ensuing loss not excluded by any other provision of this policy is covered.”

That said, if the insured can prove that the “but for” cause of damage was not wear and tear, or some other exlcusion, the ensuing loss provision may apply. Here is the question you need to ask yourself, would this loss have happened on this date, at this time, but for X cause of loss? If the answer is no, then X is the cause of loss.

Lets look at an example. You have an old roof that is worn and torn, passed its useful life, but still doing its job of protecting the property from the elements. A storm comes on Jan. 1, 2024 and blows off shingles, breaks seals, creases some shingles. The question is, would those shingles have blown off or otherwise been damaged on Jan. 1, 2024 but for the storm? No, they only were damaged at that time because of the storm. Therefore, the storm is the cause of loss, not wear and tear. Sure, maybe the shingles would have fallen off at some point in the future, but not then and there if it weren’t for the storm.

Now lets dive into some other exclusions.

Exclusion #1: Theft and Vandalism

Theft and vandalism are two commonly mistaken concepts. However, the exclusions vary depending on the specific facts of a claim.

Is it considered theft or vandalism if copper pipes are cut from a property under construction and then taken away by an unknown third party? The answer is yes. Truth it, its both. The cutting of the pipes is vandalism, taking them from the property is theft. It is very possible only one of these is covered but the fact that the other is not, is generally not enough for an insurance company to deny the entire loss.

Be sure to read your entire policy to understand the extent and specifics of your coverage. Having this understanding can ensure claims of this nature are presented correctly.

Take the Travelers’ policy as another example. Travelers’ theft exclusion states, “Theft in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied.” In this example above, the insured would not be covered under theft as the property was under construction.

However, Travelers’ vandalism policy states, “Vandalism and malicious mischief, including arson, and any ensuing loss caused by an intentional and wrongful act committed in the course of the vandalism or malicious mischief, if the dwelling has been vacant for more than 60 consecutive days immediately before the loss. Vacant means substantially empty of personal property necessary to sustain normal occupancy. A dwelling being constructed is not considered vacant.”

So, if someone were to steal the copper pipes during construction along with other items in the home, vandalism coverage applies. Coverage is available as the property is not vacant and other intentional destructive acts occurred.

Exclusion #2: Wear and Tear

Wear and tear is one of the most commonly quoted exclusions and is typically not covered under many policies. However, wear and tear-related claims are often cited incorrectly as this damage is usually not the ultimate cause of loss to the property. Although wear and tear is evident, it will not always be excluded as it may not be the cause of the damage.

Use the “But/For” Test discussed above to overcome these improper denials. If the insured can prove that the loss would not have happened at the moment in time if not for the covered event, then the insured may have support for the claim.

Remember, ask yourself, “If not for x happening, would this loss have happened at this time, in this place?” If the answer is no, you have a strong argument that the loss was not caused by wear and tear.

Exclusion #3: Improper or Negligent Construction

Almost every policy excludes improper construction. For instance, the insured will not get a new roof just because the roofer he or she hired did not do a sufficient job. But, if the roof was constructed poorly and water damaged the property due to that poorly constructed roof, then coverage is available for the ensuing loss under many policies. Be sure to review this language to see if any of the resulting damage from a contractor’s negligent work is covered.

Key Takeaways

In conclusion, remember these five key points when filing a claim with exclusions:

  • Read the full policy
  • Cause matters, not the effect
  • The But/For Test can help determine exclusions (Would the loss have happened when and where it did but/for x?)
  • Only present the covered loss
  • Take away the basis for exclusion before they deny it, or openly express that you aren’t claiming excluded items

Do you have additional questions about exclusions not covered in this webinar? Contact Wheeler, DiUlio & Barnabei today for more information.