Mackenzie Moy | Zelle
Commercial property and builder’s risk disputes involving defective work continue to generate significant disputes and litigation. One of the most consequential battlegrounds remains the interpretation and application of the “ensuing loss” (or “resulting loss”) clause. For claims professionals and coverage counsel alike, understanding how courts interpret these provisions is essential to sound claims handling and litigation strategy.
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Commercial property and builder’s risk policies commonly exclude loss which is “caused by” or “resulting from” defective construction-related inputs, including planning, design, specifications, materials, workmanship, and maintenance. These exclusions reflect the fundamental risk-allocation premise that insurance is not a remedy for or warranty of a contractor’s own defective work, but it may cover fortuitous physical loss or damage that flows from the defect, depending how the exception is stated.
Ensuing loss clauses are typically drafted as an exception to the exclusion; even if an excluded peril occurs, coverage is restored for certain subsequent loss as long as it is caused by a covered cause of loss and is not otherwise excluded. A recurring complication in claims and litigation is that the same factual narrative arising out of a construction defect can be characterized in multiple ways: as excluded costs meant to correct a defect, or as a covered ensuing loss. Courts across jurisdictions grapple with the boundary between repairs or replacement of the defective work itself and distinct physical damage attributable to a covered peril but nonetheless flowing from the excluded cause of loss.
Disputes over these clauses tend to cluster around three interpretative questions. First, is the insured identifying a new “peril” or merely describing a greater degree of damage to the same property from the excluded defect? Second, must the excluded defect lead to a separate covered peril or is it sufficient that a covered peril directly caused the claimed damage even if the covered peril was set in motion by the defect? Third, when the exception applies, is coverage restored to only other property damaged by the ensuing peril, or the entire loss, including the cost to replace or repair the defects?
Adding to these questions is the presence (or lack) of anti-concurrent-causation (“AC”) language. ACC clauses aim to override common law causation rules by excluding loss caused “directly or indirectly” by an excluded peril “regardless of any other cause or event that contributes concurrently or in any sequence.” Where present, ACC language can foreclose the argument that a covered peril concurrently contributed to the claimed loss. In practice, insurers’ success on coverage questions involving a defective workmanship exclusion often hinges on whether the exclusion is paired with ACC language.
Key Decisions
Over the past decade, the Eighth Circuit and numerous state courts have decided several cases directly bearing on the interpretation of ensuing loss exceptions.
Eighth Circuit
Joseph Henderson & Sons, Inc. v. Travelers Property Casualty Ins. Co. of America, 956 F.3d 992 (8th Cir. 2020). Iowa City hired Joseph Henderson & Sons, Inc. to design and install a bio-solids building or a wastewater facility. The roof panels of the facility were damaged during a windstorm, and the builder’s risk carrier denied coverage on the grounds that damage was caused wholly or partially by faulty workmanship. The policy’s faulty workmanship exclusion contained an exception restoring coverage where “loss or damage by a Covered Cause of Loss results.”
The Eighth Circuit affirmed the jury verdict for the insured, concluding that the faulty workmanship exclusion did not contain ACC language and was reasonably construed to preclude coverage only for damage caused by faulty workmanship alone, while preserving coverage when a covered event (like the windstorm) contributed to the damage. The court concluded the loss involved mixed causes and explained that coverage remains unless the excluded cause is the sole proximate cause of the loss.
For insurers, Henderson is an example of how important ACC language is to the question of coverage. The defective construction exclusion paired with a “results” exception without ACC language acts like a concurrent-cause carve back: if the jury can attribute any proximate causal role to a covered peril, the insurer may lose the exclusion as a defense.
Commercial Flooring Inc. v. RLI Insurance Company, No. 23-3531 (8th Cir. Mar. 19, 2025). A flooring subcontractor installed a vinyl gym floor and subcontracted out the painting of sports lines. The paint work was defective, including crooked lines, incorrect markings, and smudges. Because the paint could not be removed, the insured had to remove and replace the entire floor. The policy contained an exclusion for losses “caused by or resulting from…defects, errors, or omissions…relating to…workmanship or construction.”
The Eighth Circuit affirmed summary judgment for the insurer, concluding the ensuing loss clause did not restore coverage because the insure failed to identify a specific covered peril. The faulty workmanship itself immediately damaged the floor, so the exclusion controls. The court held that an ensuing loss clause is triggered only when an excluded peril results in a distinct covered peril, when there are two separate events, and rejected the insured’s attempt to label two types of damage (repainting versus replacing) as two perils. The court further reasoned that reading the ensuing loss clause to cover loss caused solely by faulty workmanship would nullify the workmanship exclusion.
State and District Court
Illinois – Tracy Holdings LLC v. West Bend Mutual Insurance Company, 333 F.Supp.3d 809 (C.D. Ill. 2018). The insured’s hotel property was renovated and, following renovations, the insured discovered water damage to the windows. The policy contained a negligent work exclusion with an ensuing loss clause, as well as a repeated seepage exclusion without an ensuing loss clause. The insured argued that the ensuing loss clause in the negligent work exclusion also applied to the repeated seepage exclusion. The court disagreed, holding that the ensuing loss provision applies only to the negligent work exclusion, and is not a free-floating coverage restoration mechanism applicable across all exclusions.
Michigan – 19900 W. Nine Mile v. Hanover, 676 F.Supp.3d 534 (E.D. Mich. 2023). The insured experienced interior water damage as a result of melting snow and ice, which infiltrated through openings resulting from faulty or defective maintenance. Although the policy at issue excluded faulty or defective maintenance, it included an ensuing loss provision stating that “if an excluded cause…results in a Covered Cause of Loss,” the insurer will pay for the loss caused by the covered cause of loss. The trial court granted summary judgment for the insured, finding that the interior water damage caused by melting snow and ice was covered even though water entered through openings tied to faulty or defective maintenance. The court thus drew a line between covered interior water damage and excluded costs to repair the faulty roof itself: even when an excluded maintenance condition contributed to the loss, the resulting loss provision preserved coverage for the ensuing interior damage attributable to a covered cause of loss, while still excluding the defect or maintenance repair.
Missouri – Cockerham v. American Family Mutual Insurance Company, 561 S.W.3d 862 (Mo. Ct. App. 2018). The Missouri Court of Appeals held that a “resulting loss” exception in a homeowners’ policy applied to damage to a telescope support system’s piers and pole and to the home’s foundation, all of which followed from a faulty concrete pour during construction of an addition to the residence. The policy at issue did not define “resulting loss,” but the court concluded that the ordinary meaning is “when one loss resulted from another loss caused by faulty construction such resulting loss was covered.” Cockerham reinforces Missouri’s broad, plain-language approach to ensuing loss provisions. Under this approach, courts enforce the exception according to its literal terms and do not judicially impose a requirement that an ensuing loss arise from a new, independent, and non-foreseeable cause separate from the original defect. This can have the effect of reinstating coverage, however, when the exception may be read to apply only in rare, non-foreseeable scenarios.
Wisconsin – Cincinnati Ins. Co. v. Ropicky, 16 N.W.3d 634 (Wisc. Ct. App. 2024). Homeowners sustained damage to their home during a rainstorm when water poured through a gap between the wall flashing and the gutter. The insurer determined the policy did not afford coverage for the loss under a construction defect exclusion. The court concluded that the loss was covered by the ensuing loss exception to the construction defect exclusion. The court held that an ensuing loss is not merely any loss occurring after an excluded peril, but the ensuing loss must have been a “likely or necessary consequence” and must “result from a cause in addition to the excluded cause.” The court acknowledged that other courts read ensuing loss provisions more narrowly but declined to adopt a narrow approach.
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The ensuing loss provision remains one of the most active and unpredictable areas of commercial property coverage litigation. The contrast between Henderson and Bob Robinson at the Eighth Circuit illustrates how difference in policy language, particularly the presence or absence of ACC language, and the insured’s ability to identify a truly separate coverage peril can be outcome determinative. Early and thorough causation analysis, separation of damages, and precise reservation of rights language are essential to get out ahead of these disputes.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.