ENSUING LOSS vs. RESULTANT DAMAGEIn this comment we consider the recen - PDF document

O ENSUING LOSS vs. RESULTANT DAMAGEIn this comment we consider the recent BC Supreme Court decision in tonnes of molten zinc onto surrounding equipment at the insured’s plant. The court found that the cause of the loss was inherent vice/latent defect (excluded). The court then turned to “ensuing loss” exception We interpret the ensuing loss provision to apply to the situation where there is a “peril” i.e., a hazard or occurrence which causes a loss or injury, and independent but resulting from the original excluded peril, and this new peril is not an excluded one, from which the loss ensues . . . [emphasis added] There was no peril separate from the initial excluded peril of the welding failure and kettle rupture. The spillage of molten zinc was part of the loss directly caused by that peril, not a new one. If the molten zinc had ignited a fire or caused an explosiowhich destroyed the plant, then the fire or explosion would have been a new covered peril with the result that the ensuing losswould be covered. Similarly, in Vermont Electric Power Co. Inc. v. Hartford Steam Boiler Inspection and Insurance Co. 72 F. Supp. 2d 441 (U.S. Dist. 1999), the court said: Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to ensure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss direA resultant damage exception, on the other hand, does not require any new or separate peril to apply. There simply needs to be physical damage to property entirely separate from the property that was subject to the excluded defect. There are many Canadian cases on point, particularly in the context of the faulty design/workmanship exclusion. On an initial impression, one might question the result in as relying on an overly technical distinction among the terms used in connection with the exceptions to the various exclusions. On different facts that might possibly be so. In thiscase however, there was extensive, and essentially uncontested, evidence concerning the negotiation of the relevant terms of the policy. The underwriter and broker carefully negotiated those terms to give rise to a particular result. The underwriter adamant that the insurer could not, at least for the premium offered, agree to wording which would permit cover for stock damage caused by leakage of ammonia from the refrigerant system, unless that leakage were caused by an insured peril (i.e., fire, explosion, etc.). The wording of the exclusions and of the refrigerant endorsement were carefully and intentionalcrafted to achieve just that result. While many cases will not be characterized by this sort of detailed evidence concerning negotiation of the policy terms, it is important to note the care that is, at least in some cases, placed on the specific wording Mr. Tucker was counsel for the insurer in Versacold. For further enquiries please contact Mr. Tucker at or 604-691-7553, or another member of Owen Bird Law Corporation’s insurance law practice group. Page 2