Commercial Law Reporter
A Publication Devoted to Commercial Law and Intellectual Property Issues
January 2011

Managing Editor: Karen Libertiny Ludden
Co-Editors: Robert D. Goldstein and Mark Shreve

• Governor Snyder appoints Judge Brian K. Zahra to the Michigan Supreme Court.
• What you need to know about… developments in the ensuing loss doctrine.
• Commercial law update: commercial lease termination results in reversal.

Governor appoints new Michigan Supreme Court Justice by: Karen Libertiny Ludden

Governor Snyder has appointed Michigan Court of Appeals judge Brian K. Zahra to be the next Michigan Supreme Court Justice, taking the place of Justice Maura Corrigan, who was recently appointed to head the Michigan Department of Human Services. Justice Zahra served on the Court of Appeals since 1999, when he was appointed by then- Governor Engler. Before the Court of Appeals, Justice Zahra served on the Wayne County Circuit Court, from 1994 to 1998. He was a partner at the Detroit law firm of Dickinson Wright from 1989 to 1994.

Justice Zahra is a conservative jurist, who has generally taken a strict constructionist viewpoint on interpreting statutes. He is expected to continue the philosophy of the conservative majority of the Michigan Supreme Court.

Ms. Ludden is an attorney in the Troy office of Garan Lucow Miller who handles commercial litigation. You can reach her by telephone, at(248)6417600/(800)875- 7600, or

What you need to know about… developments in the ensuing loss doctrine
by: C. David Miller

Many policies of insurance contain ensuing loss provisions. These ensuing loss provisions frequently follow an exclusionary clause within the policy. Courts have long wrestled with the application of these provisions in this context. Perhaps the simplest interpretation by courts is when they deem the term “ensuing loss” to be

ambiguous and then accept the insured’s interpretation of what is to be covered under the policy. Farmers Chemical Association v. Maryland Casualty Co., 421 F. 2d 319 (1970). In cases like Farmers Chemical, the courts do not analyze the policy provisions to determine application, but rather just conclude that the policy is ambiguous merely because there is more than one possible way of interpreting what the provision says. However, such an approach renders nugatory any ensuing loss provision in all policies of insurance. TMW v. Federal Insurance Co., F. 3d (2010).

Some courts have held that the ensuing loss clause encompasses any loss which follows the exclusion, thereby limiting the exclusion, even where the exclusion includes more than the primary cause of loss. Other courts have held that ensuing loss does not include that which is the natural extension of the exclusion. Prudential Property and Casualty Insurance Co. v. Lillard-Roberts,

2002 WL 31495830 (D.C. Ore.) Still other courts have held that there must be a specific, separate and independent peril that causes the ensuing loss for there to be coverage. Acme Galvanizing Co. v Fireman’s Fund, 270 Cal. Rptr. 405 (1990). Thus, the ensuing loss peril does not stem from the excluded peril but arises separately. There is no way to reconcile the opinions amongst all of the jurisdictions.

A few concepts that do exist in all of the cases (except for the finding of ambiguity) is that each phrase, clause and word of a policy of insurance is to be given effect. The policy of insurance should not be interpreted to render any phrase, clause or word nugatory. Any ensuing loss cannot create coverage for that which has been excluded.

The 6th Circuit Court of Appeals recently has clarified interpretations of the “ensuing loss” provision in an exclusion for any “loss caused by or resulting from (including the cost of making good) workmanship “defects” in an all-risk policy. This Court’s interpretation allowed the full effect of the exclusion, while preserving coverage for losses that may arise from a peril that is not a natural or foreseeable consequence of the exclusion. TMW v. Federal Insurance Co., F. 3d (2010). The Court of Appeals stated “the ‘ensuing loss’ provision clarifies that the insurance company could not use the exclusion to avoid coverage for losses remotely traceable to an excluded clause.” The example employed by the Court involved a construction defect that allowed water infiltration into an electrical socket, which caused a short circuiting event that resulting in a fire and fire damage.

In that scenario, the Court reasoned that the fire damage would still be covered. In TMW, numerous construction defects allowed water to infiltrate the wall to interior components, requiring removal of the exterior wall to make repairs to steel and to provide fire-proofing. The policy excluded “losses cause by or resulting from (including cost of making good) workmanship defects.” The language of the policy, according to the Sixth Circuit, provided a proximate cause analysis, that where “damage came naturally and continuously from the faulty workmanship unbroken by any new independent cause, the exclusion applies and the ensuing loss provision does not.” TMW, citing Michigan Sugars v. Employers Mutual Liab. Ins. Co., 107 Mich. App. 9 (1981). “But if on the other hand, the latter in time flows from a non-foreseeable and nonexcluded cause, it is covered.”

When seeking to apply an exclusion and an ensuing loss clause that follows the exclusion, it is thus important to consider the precise language of the policy. The best argument is one asking the Court to allow the full effect of the exclusion, which necessarily requires consideration of the causation language of the exclusion. Once the scope of the exclusion is determined, it should not be reduced by the ensuing loss provision. Mr. Miller is an attorney in the Detroit office who handles commercial insurance disputes.

You can reach him at (313)446-1530/(800)875-1530 or

Commercial Law Update by Karen Libertiny Ludden

In 600 East 11 Mile, LLC v Demuch, the Michigan Court of Appeals recently reversed the lower court, finding that a question of fact remained as to whether the landlord had properly invoked the early termination clause under the lease. That clause provided that the landlord could require the tenant to vacate the premises within 6 months. In order to do so, however, the landlord had to provide written notice of its election to terminate the lease under paragraph 17 of the lease and could not do so during the first 12 months of the lease. For months 13-18, the tenant had the right to continue said occupancy for a higher rate, not to exceed a certain amount.

In the letter that the landlord sent to the tenant, however, paragraph 17 was not specifically mentioned. The Court held that there was a question of fact and credibility as to whether the landlord intended to invoke paragraph 17. See 600 East 11 Mile, LLLC v Demuch, 2010 WL 4863762 (Mich App), a November 30, 2010 opinion.

Ms. Ludden is an attorney in the Troy office who handles commercial litigation. You can reach her by telephone, at

(248)6417600/(800)875-7600, or If your company is interested in receiving a free in-house seminar on any commercial law topic, please contact