Foran Glennon Palandech Ponzi & Rudloff

April 2015

New York Court of Appeals unifies New York’s ensuing loss law in a single decision

Joseph Tiger and Charles Rocco

In Platek v. Town of Hamburg, the New York Court of Appeals unified New York ensuing loss law in a single decision.  Prior to Platek, no single decision encapsulated New York’s interpretation of ensuing loss provisions.  Instead, various decisions set forth different aspects of the law.  Platek confirmed all aspects of the existing law, including those that developed from lower court and federal court decisions, and will likely be the leading New York ensuing loss decision in the future.  Below are the key aspects of New York ensuing loss law addressed by Platek.

The Insured Has the Burden of Proof.  Insureds sometimes argue that because ensuing loss provisions are part of exclusions, insurers bear the burden of proof.  Others ignore the burden of proof.  New York law is clear that the insured bears the burden of proving application of ensuing loss provisions.  “Although the insurer has the burden of proving the applicability of an exclusion, it is the insured’s burden to establish the existence of coverage. Thus, where the existence of coverage depends entirely on the applicability of an exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied.”  Platek v. Town of Hamburg, 24 N.Y.3d 688, 694 (2015) (internal citations omitted).

Ensuing Loss Requires a Separate Peril.  An ensuing loss requires an insured demonstrate that a new and separate covered peril arose from the original excluded peril.  In the absence of a new and separate covered peril, there is no ensuing loss.  “An ensuing loss provision… provides coverage when, as a result of an excluded peril, a covered peril arises and causes damage.”  Platek, 24 N.Y.3d at 695 (quoting 2 Ostrager & Newman, Insurance Coverage Disputes § 21.04(h) at 1721 (17th ed. 2015)).

Ensuing Loss Requires Damage to Separate Property.  Insureds must demonstrate that the new and separate covered peril damaged property separate from that damaged by the original excluded peril.  For example, if a building collapses due to excluded faulty workmanship, there can be no ensuing loss for the building itself because it was already damaged by the excluded peril.  If the building collapsed onto separate property, damage to that property would be considered an ensuing loss.  “An ensuing loss provision does not cover loss caused by the excluded peril, but rather covers loss caused to other property wholly separate from the defective property itself.”  Platek, 24 N.Y.3d at 694 (quoting Montefiore Med. Ctr. v. American Protection Ins. Co., 226 F.Supp.2d 470, 479 (S.D.N.Y. 2002)).

An Ensuing Loss Exception Cannot Swallow the Exclusion.  Courts consider whether application of the exception would contravene the purpose of an exclusion.  In particular, the ensuing loss provision cannot restore coverage for the very damage originally excluded. “[C]ourts have sought to assure that the [ensuing loss] exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk.”  Platek, 24 N.Y.3d at 694 (quoting Narob Dev. Corp. v. Insurance Co. of N. Am., 631 N.Y.S.2d 155, 155-156 (1st Dept. 1995)).

Precise Phrasing of Ensuing Loss Exceptions is Unimportant.  Insureds sometimes argue that if an exception to an exclusion lacks some variant of the word “ensue,” it is not an ensuing loss provision and should be broadly read.  Until Platek, countering such an argument was cumbersome.  It required showing that different New York courts, considering differently-written ensuing loss exceptions, applied the same analysis.  Platek expressly ruled that the precise language of an ensuing loss exception is unimportant.  “[I]t is unimportant that [the Insurer] did not label the exception an ‘ensuing loss provision,’ or use ‘ensuing from’ instead of ‘resulting from’ in the policy as these clauses are common in all-risk policies, and while rarely identical they share more similarities than differences.”  Platek, 24 N.Y.3d at 696 (internal quotes and citations omitted).

Conclusion.  Platek unifies in a single decision the whole of New York ensuing loss law.  Moreover, by confirming previous rulings by lower courts and federal courts, the New York Court of Appeals ended any possible argument as to whether those decisions were correct.  To demonstrate ensuing loss under New York law, an insured has the burden of showing that a new and separate covered peril arose from the original excluded peril and caused damage to property separate from that damaged by the original excluded peril.  This standard applies regardless of the precise phrasing of the ensuing loss provision.  Going forward, Platek will likely be the leading New York ensuing loss decision.