Chip Merlin posted about the Wear and Tear Exclusion just last month in Wear and Tear Exclusions Versus Depreciation For Resulting Damage To Worn and Torn Older Parts of a Structure. Explaining about wear and tear, Chip gave this example:

The judge made up his own example of ten old bolts giving way and then the rest of what the bolts failed to hold up, crashed and broke the rest of the old structure. The worn-out bolts may not be covered, but if you have the right ensuing loss provisions after the “wear and tear” clause, the rest of the loss is covered—even if the rest is old.

The older parts of the structure are the ensuing loss. They did not suffer a loss because they were worn out and broke. They suffered a loss because other parts of the structure broke from “wear and tear.” Those ensuing parts of the loss are depreciated on an actual cash value basis. If replaced, they are then valued at Replacement Cost.


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Homeowners and commercial property owners may find themselves in situations where a contractor or subcontractor performed construction on the property that was defective or faulty and may have resulted in additional loss to the property. Are these damages covered by insurance?
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A public adjuster called with a common situation—a property loss occurred during repair and the insurance company had initially denied the claim, saying that the loss was from defective construction. The smart public adjuster thought the property damage caused in part by defective construction could lead to coverage under an ensuing loss provision. The policyholder did not want to get bogged down in years of possible litigation with its repair contractor.
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A recent case out of Massachusetts examined an ‘ensuing loss’ clause and found that there was not coverage provided for the loss at issue.1 Abbott, a manufacturer of a milk-based product, entered into a contract packing agreement with Hood to produce 40 million bottles of Myoplex. Hood was required to conduct specific quality control testing. Some testing was so Myoplex remained contaminant free, others so it remained hermetically sealed. A secure seal test involved puncturing bottles under pressure, so it was a destructive test.

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If there is a design defect to a part of your property, then most insurance policies will contain exclusions for those design defects. Depending on the type of policy that you have and it’s wording, if a separate loss occurs as a result of a design defect, it may be covered under your policy. Well what type of loss could follow from a design defect? There are too many possibilities to try to explain in a list, but consider a wall not designed correctly that falls down and causes direct damage to other areas of the insured property. Replacement of the improperly designed wall may not be covered, but if the claim involves the cost of repairing other areas of the insured property damaged when the wall fell, that should be covered.


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In my experience, an insurer oftentimes acts differently than its lawyers. What I mean is that the way in which an insurance claim is handled changes dramatically once it is handed off to a defense lawyer. Insurance defense lawyers oftentimes argue different reasons for the denial of a claim than its client wrote in its denial letters to my client. This sometimes leads to insurance defense lawyers arguing that a policy provides much less coverage than the insured believed it provided. But in zealously advocating for their client, sometimes insurance defense lawyers go too far, as was the case in RLI Insurance Company v. Willbros Construction (U.S.) L.L.C., et al.


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Property policies usually include a mold exclusion. Water damage, however, is a commonly covered “cause of loss.” Mold growth and water infiltration have a close causal tie, and there has been a raging dispute in the industry over whether property policies respond to mold losses when water infiltration, a covered cause of loss, caused or contributed to the mold. The debate is complicated by fairly common exclusionary language that incorporates an “ensuing loss” exception:.

We do not cover loss caused by:

***
(2) rust, rot, mold or other fungi. …

***
We do cover ensuing loss caused by collapse of the building or any part of the building, water damage, or breakage of glass which is part of the building if the loss would otherwise be covered under this policy.


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The chicken or the egg causality dilemma is commonly stated as “which came first, the chicken or the egg?” To ancient philosophers, the question about the first chicken or egg also evoked questions of how life and the universe began. Similarly, yet minus the philosophical dilemma, in first party property insurance policy interpretation, parties are often confronted with a causality question of which came first, the windstorm event or some other cause?


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