After the insurer denied coverage in a homeowner's policy for construction defects under various exclusions, the court found the ensuing loss provision was ambiguous. Kesling v. Am. Family Mut. Ins. Co., 2012 U.S. Dist. LEXIS 38857 (D. Colo. March 22, 2012).
After purchasing a home from the sellers, the insureds noticed problems with the deck of the home. Massive cracking appeared, causing lifting and leaking on the deck and water running through the exterior foundation wall into the home. There was also damage to the roof and crawlspace.
The insureds had a homeowner's policy with American Family, which covered accidental direct physical loss to property described in the policy unless the loss was excluded. They requested coverage for "conditions, defects and damages." American Family denied coverage because wear and tear, as well as damage to foundations, floors and roofs were excluded. The policy did provide coverage, however, for "any resulting loss to property described . . . above, not excluded or excepted in this policy.
When coverage was denied, the insureds sued American Family. On American Family's motion for summary judgment, the court agreed that the damages claimed fell within the policy's exclusion for loss caused by faulty, inadequate or defective construction or design. But the question remained as to what, if anything, was removed from the exclusion by the resulting loss provision?
The exception was broadly worded. "Any resulting loss" could be interpreted to mean just that - any loss, other than the repair or replacement of the defective construction, that resulted from that defective construction. This would mean damage to parts of the home other than the defective construction that resulted from water or moisture infiltration resulting from the defective construction would be covered. On the other hand, "any resulting damage" could be limited to damage that was separate and independent from that which was directly caused by the defective construction.
Because there were two reasonable interpretations of the resulting loss provision, the court found there was an ambiguity to be construed against the insurer.
This was not the end of the analysis, however. The "any resulting damage" exception was itself subject to the proviso that no other exclusion or exception applied. Only damage to parts of the house other than the deck, the roof and the crawlspace resulting from water or moisture infiltration caused by defective construction would amount to "resulting damage" within the meaning of the exception to the exclusion. There were still genuine issues of material fact concerning the existence of such damage or whether any such damage fell within another exclusion or exception in the policy. Therefore, American Family's motion for summary judgment was denied.