Molten zinc flowed out of the ruptured galvanizing bucket. It damaged or destroyed equipment, the furnace burners, and other equipment. Acme Galvanizing presented its substantial claim, only to have Fireman's Fund deny it because of the latent defect exclusion.

All parties agreed that the rupture of a defectively welded seam initiated the event. They also agreed that the latent defect exclusion applied to that rupture. However, Acme argued that flowing zinc caused most of the damage and considered that damage a covered ensuing loss.

The court disagreed.

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It is very important to read the entire exclusion, not just the title. This is because many exclusions provide limited coverage under specific circumstances. The limited coverage begins when the excluded cause of loss triggers a secondary cause of loss. The loss that results from that secondary cause of loss is considered an ensuing loss.

However, not all ensuing losses are covered. They must be caused by a covered secondary cause of loss. Each exclusion must be read carefully because some cover all secondary causes of loss (provided they are not excluded elsewhere). Others cover only fire and explosion and still others cover only specified causes of loss.

Click here to view the analysis of CP 10 30–Causes of Loss–Special Form.

The 1906 San Francisco earthquake destroyed most of that city. However, some suggest that the earthquake itself caused only 1/3 of the damage. Fire caused the rest. The fires were secondary causes of loss to the earthquake. The earthquake damage was excluded. The fires would have also been excluded unless the earthquake exclusion included an ensuing loss exception.

Click here for an emarketing article that illustrates ensuing loss within the earthquake exclusion.

Coverage within an exclusion may be sufficient for some customers but not all customers. While there may be some ensuing coverage following an earthquake, much of the damage is still excluded. Are your customers aware of their need for earthquake insurance, even if they are in the middle of the United States?

Click here for letters you might send to your customers to make them aware of your concern for their earthquake exposure and your offer to arrange the coverage.