Ensuing Loss Provision in Commercial Windstorm Policies Provides Exception to Certain Exclusions, Under Texas Law

A “wear and tear” exclusion is found in virtually every insurance contract, essentially reinforcing the policy does not cover degradation from everyday, normal use. Because every piece of property deteriorates over time, it would be too expensive for insurers to cover such losses. Insurance only covers losses due to unexpected events. However, even where an insured property is damaged by wind or hail, “wear and tear” is still the most common exclusion raised by carriers during its adjustment of claims.

A recent decision from a Texas federal court was the first Texas decision in a number of years to weigh in on the ensuing loss provision, finding it to be an exception to certain exclusions in a standard windstorm policy, rendering the concurrent causation doctrine inapplicable. Citing decisions from across the country, the court interpreted the language in the ensuing loss clause to mean that “wind and hail” (a "specified cause of loss") is an exception to the “wear and tear” exclusion. Significantly, the court’s policy interpretation analysis equally applies to a number of other excluded causes of loss in most commercial windstorm policies, which include decay, hidden/latent defects and cracking:

“Defendant first moves for summary judgment claiming that Plaintiff has not provided "reliable evidence capable of segregating damages alleged to have been caused during the policy period" from those damages attributable to events outside the policy period, thereby invoking the concurrent causation doctrine. Plaintiff counters that Defendant has not shown an exclusion is applicable. The policy states that, inter alia, wear and tear, decay, deterioration, hidden or latent defect, and cracking are excluded from coverage. However, the policy also states that "if an excluded cause of loss listed in 2.d.(1) through (7) results in a 'specified cause of loss' or building glass breakage, we will pay for the loss or damage caused by that 'specified cause of loss' or building glass breakage." Wind and hail are among the phenomena listed to define 'specified cause of loss' in the policy. . .. At bottom, Defendant argues this clause must be read to require the wear and tear, or other excluded causes, directly cause the hail or wind, an impossibility. Defendant's argument is nonsensical for two reasons. First, if the insurance contract were read in such a manner, the clause would never be applicable because wear and tear, cracking, or the like could not cause a 'specified cause of loss' within the meaning of the policy. This would render the clause mere surplusage, an outcome courts must strive to avoid. Second, Defendant's assertion runs counter to the Fifth Circuit's reading of an extremely similar provision in General Acc. Inc. v. Unity/Waterford-Fair Oaks, Ltd., 288 F.3d 651 (5th Cir. 2002), wherein the court characterized such a clause as an "exception to" or "repeal of' an exclusion denying coverage. Other courts have reached identical conclusions on nearly identical provisions. . . Accordingly, the undersigned finds and concludes that while Defendant has met its burden to show an exclusion applies, Plaintiff has also met its burden to show an exception restores coverage, necessitating the presentation of this matter to a jury for determination of the precise extent of the damage. Because the exception applicable here covers all damage to the roof that predated the June 19, 2020 storm as listed in Defendant's brief, Plaintiff cannot logically be made to apportion damages, thereby rendering the concurrent causation doctrine inapplicable.”

Carriers routinely weaponize the “wear and tear” exclusion in underpaying or outright denying claims, without regard for the unambiguous ensuing loss provision which can operate as an exception to several exclusions. Thus, it was not surprising in this case that the carrier quoted extensively from the policy in its claim decision letter to justify its denial, but conveniently edited the excerpts to leave out the “ensuing loss” provision. The Court held the carrier’s choice to “mischaracterize [their expert] report and selectively quote the policy could raise the spectre of misrepresentation” under the Insurance Code, and allowed for the insured’s extra-contractual claim to be presented to a jury at trial. Creekwood Real Estate v. Mount Vernon, Case No. 2:21-cv-00188-M-BR, Doc. 64 (N.D. TX June 14, 2023).

At Lundquist Law Firm, our commercial insurance claim lawyers are well-versed in the multitude of ways insurance companies attempt to skew the claims process for their benefit, including their misuse of exclusions and other policy provisions. If you are a commercial property owner needing assistance with commercial policy coverage or with a wrongfully delayed, underpaid, or denied property damage claim, we can help.