The policy's faulty workmanship exclusion barred coverage despite an ensuing loss provision. Gateway II LLC v. Hartford Fire Ins. Co., 2016 N. Y. Misc. LEXIS 1325 (Sup. Ct. N. Y. April 5 , 2016).
Water damage occurred at Gateway. The policy provided, "We will not pay for loss or damage caused by or resulting from any of the following. . . But if loss or damage by a Covered Loss results, we will pay for the loss or damage caused by that Covered Loss." Gateway argued that because of the exception, the damages should be covered under the policy's water-damage coverage.
But no coverage existed when the causing loss was directly related to the original excluded risk. Where the property policy contained an exclusion with an exception for ensuing loss, the exception did not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded loss.The damages sought here were caused by faulty workmanship and therefore not covered by the policy.
Gateway was also eleven months late in notifying the insurer of the loss. This excluded the loss, as well, even if there was no prejudice to the carrier. Under New York law, the notice provision operated as a condition precedent and the insurer did not have to show prejudice to rely on the defense of late notice.
Gateway also sued its agent, Putman Insurance Agency, LLC, for its failure to secure coverage for development construction defects. Putman's motion to dismiss was denied. An insurance agent could be held liable for negligence or breach of contract when its client established that a specific request was made for coverage that was not provided in the policy. Gateway alleged that Putman assured it that sufficient coverage would be obtained. Thus, material issues of fact required a trial to decide whether Putman advised Gateway that the insurance included coverage for faulty workmanship.
