A subsequent loss provision within an insurance policy works to preserve coverage when a loss that is excluded under an insurance policy results in a subsequent or "subsequent" loss that would otherwise be covered.
While exception clauses are well recognized in the Maryland case law, the extent of subsequent loss clauses has never been determined by Maryland appellate courts. In a later case, a federal court in Maryland was instructed to predict how Maryland's Supreme Court would decide the unresolved question of whether a subsequent loss clause is applicable to a covered loss that is causally related to an excluded danger, or only applies when the covered loss is the result of an independent or substitute event.
In this case 1
In support of its denial, the insurer retained an expert who concluded that part of the Hotel's roof system "scaled back" during the storm, mainly due to incorrect installation of the roof system during the construction of the hotel three years before. According to the insurer, the subsequent loss clause within the policy 2 did not apply because the windstorm was not an independent cause of property damage. Instead, the insurer claimed that incorrect execution was only to blame for the losses because, however, for the defective roof, the storm would not have damaged the hotel.
While the hotel did not contest its roof was defective, it maintained the damage caused by an insured hazard ( ie </em ?, the windstorm) that occurred after and differed from the defective roof. Thus, the subsequent loss clause would require the insurer to cover all the hotel's losses that can be traced to the storm.
The Court finally provided that the Maryland Act favored a broad construction of the subsequent loss clause which did not require an independent or compensatory event. According to the court, the damage caused by the windstorm that occurred after the incorrect installation of the roof was a covered subsequent loss. However, the court found that the incorrect exclusion of crafts prevented coverage for the cost of repairing or replacing the hotel's defective roof.
1 Bethany Boardwalk Grp. LLC v. Everest Sec. Ins. Co. No. 18-3918, 2020 WL 1063060 (D. Md. 5 March 2020).
2 The subsequent loss provision in the subject policy provided that the insurer "will not pay for loss or damage caused by or caused by" incorrect performance, "[b] unless [faulty workmanship] results in a covered cause of loss, "The insurer will" pay for loss or damage caused by the covered cause of loss. "