Water intrusion caused by a contruction defect was not covered under the all risk policy's ensuing loss provision. See Friedberg v. Chubb & Son, Inc., 2011 U.S. Dist. LEXIS 123582 (D. Minn. Oct. 25, 2011).
Extensive water damage was discovered in the insureds' home when a small hole in the exterior wall was being repaired. Chubb's adjuster and an expert found water intrusion causing rot, mold, and damage to the home's wood framing and insulation. Chubb denied coverage because water intruded through the roof and wall, resulting in gradual deterioration. The insureds filed suit.
The policy excluded coverage for construction defects, but insured "ensuing covered loss unless another exclusion applies."
The court agreed there was a prima facie case for coverage because the home suffered a physical loss. The burden, therefore, shifted to Chubb to show the exclusions were applicable.
The insureds argued they were entitled to coverage because Chubb could not show that the overriding cause of the loss was faulty construction. But the experts agreed that a construction defect had allowed water to enter the residence. The water intrusion was not independent of the construction defect. Therefore, it was unreasonable to conclude that the construction defect was not the overriding cause of loss.
Finally, the ensuing loss provision did not restore coverage. Without faulty design and workmanship, water would not have entered the residence. With faulty construction, water damage was inevitable. Therefore, there was no separable and distinct peril that led to deterioration, rot and warping. Consequently, Chubb was entitled to summary judgment.