The cost of removing and replacing cracked flanges to prevent future leakage was not covered as an ensuing loss under a builder's risk policy in RK Mechanical, Inc. v. Travelers Prop. Casualty Co. of Am., 2011 U.S. Dist. LEXIS 83958 (D. Colo. Aug. 1, 2011).
The insured, RK Mechanical Inc., was a subcontractor hired to install plumbing for a residential construction project. RK was an additional insured on the general contractor's policy with Travelers. RK installed approximately 170 CPVC flanges on the project. Subsequently, two of the flanges cracked, allowing water to overflow and causing water damage to the project. Travelers was notified of the flange failure and resulting water damage.
RK subsequently removed and replaced the two cracked flanges and began water remediation. Travelers paid for the cost of the water damage due to the cracked flanges.
RK then examined all of the flanges installed in the project and discovered many were cracked and/or showed signs of potential failure. RK removed and replaced the cracked flanges. RK tendered a claim and demand for indemnity to Travelers for these repair costs. Travelers denied the claim. RK then sued for breach of contract and declaratory relief. The parties filed cross motions for summary judgment.
The court first determined that coverage for faulty and defective materials, workmanship, and maintenance were excluded. The court then turned to the ensuing loss provision, which read:
3. We will not pay for "loss" caused by or resulting form any of the following. But if "loss" by a Covered Cause of Loss results, we will pay for the resulting "loss."
. . .
d. faulty, inadequate or defective . . . materials, workmanship or maintenance.
The court agreed that the costs to remediate and repair property damaged by the water and caused by the cracked flanges fell within the ensuing loss provision. The court disagreed, however, that each of the remaining flanges posed a risk of loss that was covered as an ensuing loss.
An ensuing loss provision did not cover loss caused by the excluded peril; it covered loss caused to the property wholly separate from the defective property itself. Here, it covered the escaping water, not the cracked flange. Therefore, the cost of correcting the defect was not an ensuing loss.
