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September 22, 2016

COA states that where insurance policy contains an “all risk” provision, a loss is not covered if it comes within any specific policy exclusion

In Michigan Battery Equipment, Inc. v. Emcasco Insurance Company, No. 326945, the Michigan Court of Appeals held that an insured’s policy did not cover damage caused by wet rot because it was a risk specifically excluded under the policy. Due to prolonged water infiltration through deteriorated rubber grommets in the roof, the roof trusses of Michigan Battery Equipment’s warehouse rotted. Snow and ice accumulation caused the rotted trusses to split, crack, and fall down a few feet. Emcasco denied Michigan Battery’s insurance claim.
 
The Court of Appeals affirmed the trial court’s grant of summary disposition in favor of Emcasco, holding that Michigan Battery’s policy did not cover the loss because the policy excluded from coverage damage caused by wet rot. The Court of Appeals analyzed the language of the policy, applying insurance contract interpretation principles to determine whether the policy excluded the damage.  Michigan Battery insured its property with an “all-risk” policy issued by Emcasco. The Court of Appeals asserted that even where a policy contains an “all risk” provision, a loss is not covered if it comes within any specific exclusion contained in the policy. The applicable policy provided various exclusions, including exclusions for (1) damage caused by collapse and (2) damage caused by fungus, wet rot, dry rot, and bacteria. The Court of Appeals noted that such exclusionary clauses are strictly construed in favor of the insured, but clear and specific exclusions must be given effect.
 
The Court of Appeals determined that wet rot caused the damage and that Emcasco identified wet rot as a particular exclusion—a type of risk that it would not insure.  The Court of Appeals also held that none of the exceptions to the wet rot exclusion applied.  Therefore, the policy did not cover the risk of wet rot and any resulting loss. Accordingly, the policy specifically did not cover the damage. 
 

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