A Builders Risk policy's ensuing loss exception to the exclusion for defective design was held inapplicable. Performing Arts Cmty. Improvement Dist. v. Ace Am. Ins. Co., 2015 U. S. Dist. LEXIS 71592 (W. D. Mo. June 3, 2015).
Plaintiff oversaw the design and construction of a parking garage. The project included installation of a fifty foot retaining wall between the garage and limestone rock face. The design called for concrete fill in the area between the retaining wall and the limestone embankment. The architect and structural engineer provided the design for the retaining wall and the specifications for 18 inches of back-fill between the wall and the embankment. The general contractor requested approval for an increase in the amount of fill, up to 36 inches, which the structural engineer approved.
Construction commenced. During installation of the fill, the wall cracked, requiring an investigation, repair and replacement. Plaintiff's expert determined the design permitted too much fill between the wall and the embankment.
The Builder's Risk policy included exclusions, as follows:
This policy does not insure loss or damage caused by any of the following unless direct physical loss or damage by an insured cause of loss ensues and then this policy insures only such ensuing direct physical loss or damage.
. . .
Error, omission or deficiency in design, plans, specifications, engineering or surveying.
The plaintiff requested coverage, but Ace denied coverage because the wall's failure was caused by the defective design, and no insurable cause occurred thereafter.
Plaintiff filed suit, contending the exclusion did not apply because the wall's failure was "direct physical loss or damage by an insured cause of loss" that "ensued" after the deficient plans.
The exception to the exclusion invoked by plaintiff only came into play if "loss or damage by an insured cause of loss ensued." Plaintiff argued the ensuing cause of loss was the excessive pressure caused by the fill. The court characterized this argument as an attempt to divorce the defective design from the losses it caused.
This argument was not legally viable. An ensuing loss was one that occurred subsequent to the excluded loss. This case presented no subsequent event. A defective wall was created (in accordance with the defective plans), and the defective wall failed. There was no ensuing event that caused the wall to fail. If a defectively designed retaining wall failed to retain the pressure it was intended to retain, one did not characterize the pressure as a distinct and separate event, and the resulting need to replace the defectively designed wall was not an ensuing loss.
This short opinion provides a helpful, conceptual analysis of how the ensuing loss provision is applied.
