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November 21, 2023

NYS Appellate Court Reverses in Favor of Policyholder in Ensuing Loss Case

Homeowners’ insurance policies generally exclude coverage for property damage caused by faulty workmanship. However, these exclusions typically have an exception for (meaning that there is coverage for) “ensuing loss,” which includes any additional, distinct property damage caused by the initial uncovered damage. In a recent decision involving a water damage claim, Ewald v. Erie Ins. Co. of N.Y.,1  the New York State Appellate Division, Fourth Department, analyzed these types of policy provisions at length and, in a reversal, granted summary judgment in favor of the policyholders. 

The Ewald case arose from a claim of water damage caused by a leak during a bathroom renovation. The homeowners hired contractors to remodel a bathroom, and during the renovation, a significant water leak from an improperly glued pipe connection caused extensive water damage to other parts of the home. The insurance company denied the homeowners’ claim for the resulting water damage to the home, citing the policy’s faulty workmanship exclusion. The homeowners sued the insurer for coverage, arguing that the water damage should be covered under the policy’s ensuing loss exception to the faulty workmanship exclusion. 

The trial court granted the insurer’s motion for summary judgment, finding that the damage was excluded under the policy. On appeal, the Fourth Department unanimously reversed and granted summary judgment in favor of the homeowners. The court found that the water damage to the rest of the home was separate and distinct from the uncovered faulty workmanship and thus was an ensuing loss. The court further noted that the homeowners met their burden to show that the claim was for damage resulting from the faulty workmanship and not a claim for coverage for the faulty workmanship itself. Thus, the court held that the insurance company was obligated to cover the water damage claim.

The Ewald decision contains a good analysis and discussion of the interplay between the faulty workmanship exclusion and the ensuing loss exception, which is an issue that arises frequently with respect to property damage claims. Insurers, policyholders, and their attorneys should examine policy language closely in determining whether there may be coverage for these types of claims.

If you have any questions regarding the content of this alert, please contact Sanjeev Devabhakthuni, partner, at; Tony Piazza, Insurance Coverage & Regulation Practice Area chair, at; or another member of the firm’s Insurance Coverage & Regulation Practice Area.

 1 Ewald v. Erie Ins. Co. of N.Y., 214 AD3d 1382 (N.Y. App. Div. 2023).

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