The insured's claim for business interruption losses resulting from the city's vacate order was not covered as an ensuing loss in Rapid Park Indus. v. Great N. Ins. Co., 2010 U.S. Dist. LEXIS 115747 (S.D.N.Y. Oct. 15, 2010).
The insured leased a parking garage. Great Northern insured the premises under a business owners' policy. The policy included coverage for "Business Income with Extra Expense" subject to certain exclusions and limitations.
The insured was notified by the city that it had to vacate the premises because the floor-slab had deteriorated, exposing rebars. Further cracks and sagging created a danger of collapse. When a claim adjuster visited the site, he determined there was no danger of imminent collapse and that the garage could have been repaired. His report suggested that the garage's deterioration was caused by water.
Great Northern denied coverage based on four exclusions for "Planning, Design, Materials or Maintenance," "Settling," "Wear and Tear," and "Acts and Decisions." These exclusions exempted from coverage losses or damage caused by, among other things, faulty workmanship, inadequate maintenance, defective design, cracking, settling, wear and tear, and deterioration.
The insured admitted the damage was caused by "deterioration," but argued exceptions to some of the exclusions provided coverage for "ensuing loss or damage caused by or resulting from" water. The court disagreed. While there was evidence that water played some role in causing the garage's deterioration, there was no basis for concluding that the relevant damage was "ensuing," i.e., taking place afterward. Other courts construing exclusions for deterioration, wear and tear, rotting, dampness, etc., refused to apply an ensuing loss exception to cover water damage where water was arguably a cause of the damage, but not a consequence of the otherwise excluded peril.
Because there was no indication that water damage was subsequent or collateral to a covered peril, and thus caused an "ensuing" loss, the insured failed to identify an exception to the otherwise applicable exclusions to coverage under the Policy.
