The insurer's motion for summary judgment to deny coverage for the homeowners' fuel oil leak was rejected based upon the policy's ensuing loss provision. Estate of Konell v. Allied Prop. & Cas. Ins. Co., 2013 U.S. Dist. LEXIS 101081 (D. Ore. July 19, 2013).
The insured argued that a windstorm caused a fuel oil leak from a line to the furnace which had been temporarily disconnected for repair and not capped. Damage caused by windstorm was covered. Damage caused by faulty workmanship was excluded. Finally, discharge of pollutants was not a covered peril. Nevertheless, an exception to the exclusion stated that pollution "caused by a Peril Insured Against," which included "windstorm," was covered.
Further, an exception to the faulty workmanship exclusion provided that "any ensuing loss to property [described above and not excluded] is covered." The insured argued that the windstorm occurred after the faulty workmanship and, thus, was an ensuing cause of the loss.
The insurer responded that under the facts presented, there were not two separate but contributing perils to one loss, as required for an ensuing loss. Instead, a windstorm was the only way in which pollution damage could fall within a potentially covered loss in the first instance. Therefore, coverage was excluded for a loss caused in part by a listed exclusion (faulty workmanship), even though the ensuing loss provision provided coverage for that same loss if caused in part by a covered peril (windstorm).
The federal district court found no Oregon law on how to apply the ensuing loss exception to the faulty workmanship exclusion in the policy. Therefore, the court relied upon the wording of the policy.
The ensuing loss exception to the faulty workmanship exclusion was broadly worded by covering "any ensuing loss to property . . . not precluded." Thus, a loss resulting from faulty workmanship was covered if it was caused by an otherwise covered event. Here the loss was caused by the escape of pollutants which was a covered peril if caused by a windstorm. The insureds argued the windstorm (covered peril) caused the disconnected fuel line (excluded peril) to leak, resulting in pollution damage (covered loss if caused by the covered peril of a windstorm) to the insured's residence. The court determined that Oregon would find the ensuing loss provision provided coverage for the loss. Otherwise, the ensuing loss exception to the faulty workmanship exclusion would be meaningless.
Whether a windstorm caused the oil leakage was a disputed fact issue that barred summary judgment.
