Ensuing Loss Provision Does Not Expand Coverage
April, 2007
In a case of first impression in Indiana, the Indiana appellate court holds that third party negligence that set into motion the efficient proximate cause of the insured Library’s loss of a historic building was clearly and unambiguously excluded from coverage under defendant’s all-risk insurance policy. Hartford Casualty Ins. Co. v. Evansville Vanderburgh Public Library, 860 N.E.2d 636 (Ind. App. 2007).
Facts
The Evansville Vanderburgh Public Library (“Library”) had acquired a building listed on the National Registry of Historic Buildings intending to integrate the building into a new Central Library. An underground parking garage was to be built adjacent to the historic building. Excavation for the underground garage included installing an earthwork retention system, in part to protect the building during excavation.
During installation of the retention system, the contractor utilized a high frequency, variable moment vibratory hammer to install sheet piling. During the process, the existing historic building was damaged and was ultimately declared a total loss. The Library’s own investigation concluded that the design and use of the pile driving hammer and cantilevered earth retention system caused or contributed to the damage.
The Hartford policy contained a General Exclusion excluding loss or damage caused by or resulting from “design, specifications, workmanship… construction, renovation…” and from “furnishing of work, materials, parts or equipment in connection with the design, specifications, workmanship… construction, renovation….” The policy also contained an “ensuing loss” clause stating that if physical loss or damage by a Covered Cause of Loss ensued, Hartford would pay only for such ensuing loss or damage.
Hartford argued that the General Exclusion precluded the loss from coverage. It asserted that the Library’s loss was the ultimate result of the contractor’s excavation work because the vibratory hammer used to install sheeting sent vibrations through the ground which caused sand in the soil beneath the building to compact.
The Library conceded that the policy excluded coverage for construction activities losses (e.g., the cost of repairing defective construction work) but argued that the ensuing loss provision was an exception to the Exclusion, and any otherwise covered loss that might ensue or result from such construction activities was covered. The Library claimed that the ensuing loss provision limited the scope of the exclusion by breaking, for coverage purposes, the link between an excluded loss and another loss it causes. The Library contended that if the second loss was not excluded from coverage by any other policy provision, then it was also not excluded by the provision containing the ensuing loss provision.
Analysis
The Indiana Court of Appeals held that the loss was excluded. In so doing, it stated that “an exception to an exclusion cannot create coverage where none exists. Exclusion clauses do not grant or enlarge coverage; rather, they are limitations on the insuring clause.” The court further stated:
In the case before us, the only way that Hartford’s Ensuing Loss Provision can “re-grant” coverage, using the verb coined by the Amerisure court, is if the cause of the loss from which the ensuing loss arises is a “Covered Cause of Loss.” Here it is not. In fact, it is not even a question of interpretation; the language is clear.
The court then applied the efficient proximate cause rule, which had not been expressly applied by the Indiana courts, to hold that the third-party negligence that set into motion the efficient proximate cause of the Library’s loss was clearly and unambiguously excluded from coverage.
Learning Point
Ensuing loss provisions cannot be relied upon to expand coverage, but only to restore or “re-grant” originally existing coverage that would otherwise be negated by other policy provisions/exclusions.
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