Florida Supreme Court Support for Homeowner “Concurrent Causation” Property Claim May Benefit Insureds in Other States, Too
By Michael C. Perlmuter, JD, President & General Counsel
The State of Florida is known for giving us pristine beaches for winter get-aways and views of spectacular space missile launches. Now, beyond family vacations and rocket ships, a recent insurance-related case adjudicated in Florida rendered a ruling from which insureds may be able to benefit in the future.
The Florida Supreme Court in 2016 issued a ruling which, in at least that state for starters, closed a significant loophole which has been festering for 30 years or so as to how insurers should respond to claims involving what is known as “concurrent causation” and which, in turn, will render a positive outcome for the insured.
Okay, this may not sound as exciting to most as a couple of weeks on the beach, watching a blast off from the Kennedy Space Center at Cape Canaveral or meandering among the Disney characters in Orlando, but if you are involved in a loss that involves a concurrent causation issue, the Florida opinion may result in you feeling more like Cinderella than Goofy.
“Concurrent Causation and Anti-Concurrent Causation Clauses in Property Policies” does indeed sound academic. However, it is an issue that many insureds have run into through the years and most recently with the damage created by Hurricane Matthew. Before that, it was Superstorm Sandy — and before that, it was Hurricane Katrina. So, if you live in an area where hurricanes or wind-driven rainstorms or tornadoes can and do strike, which is far beyond the borders of the sunshine state, this is an important topic.
Picture this very common sequence of events:
- A hurricane strikes a coastline area where you own a warehouse;
- Strong winds damage the front of your building; and
- Heavy rains cause a flash flood that also causes damage to the front of your warehouse.
The insurer’s claim adjuster will tell you it is impossible to separate the damage caused by flood from the damage caused by wind. He or she will then refer you to the parts in your commercial property policy that cover damage to the property caused by wind, and then to the section that excludes damage caused by flood. Your warehouse has been damaged by two causes, one of which is excluded and one of which is covered.
Is the loss covered or not?
Let’s talk history. For a long time, losses were covered under standard application of the Concurrent Causation Doctrine. Concurrent causation holds that if a loss is caused by two perils, one of which is excluded and one of which is covered by the applicable property policy, then the loss is covered.
This doctrine prevailed through 1970s and 1980s. However, several California court decisions in that time period prompted some insurers to modify their policies in such a way as to structure the outcome, where there is concurrent causation to their advantage.
Beware of anti-concurrent causation language!
In response to these California cases, ISO (the “Insurance Service Office,” the standard prototype commercial policies used exactly “as is” or as a model for carriers’ own tailored commercial property policies) and many commercial insurers revised their property policies during the past two or three decades to include anti-concurrent causation wording. This wording was designed to ensure that losses caused by certain perils would be excluded even if other covered perils were involved in the loss.
Note to readers: Most commercial policies apply on an “all-risk” basis. In most all-risk polices, including the standard ISO all-risk policy, exclusions are divided into two main groups. Only the exclusions in the first group are subject to anti-concurrent causation wording (if anti-causation language exists). Anti-concurrent causation wording essentially states that any loss caused by any of the listed perils is excluded, even if a second peril contributed to the loss and the second peril is covered. The exclusion applies whether the two perils occurred at the same time or one occurred before the other. The seven exclusions are typically, as follows:
- Ordinance or law
- Earth Movement
- Government Action
- Nuclear Hazard
- Utility Services
- Water (Flood)
- Fungus (mold)
Now, returning to the original example above, suppose your property policy does not contain an anti-concurrent causation clause and your warehouse is damaged by both wind and flood. Will your loss be covered?
It depends.
Even in the absence of anti-concurrent causation language, some courts do not apply the Concurrent Causation Doctrine. Instead, they apply what is known as the “Efficient Proximate Cause Theory.” That doctrine provides that where there is a concurrence of different perils, the one that set the other in motion or the primary cause is the cause to which the loss should be attributed. If the primary cause is a covered peril, then the loss is covered. If it is excluded, then the loss is not covered.
As with most application of doctrine and principle in insurance law, different states apply different rules in this area. Four states refuse to enforce anti-concurrent causation clauses: California, North Dakota, Washington, and West Virginia. Courts in 18 states have acknowledged the validity of anti-concurrent causation clauses: Alabama, Arkansas, Arizona, Colorado, Indiana, Louisiana, Massachusetts, Michigan, North Carolina, New Hampshire, Nevada, New Jersey, New York, Pennsylvania, South Carolina, South Dakota, Tennessee, and Texas. In the remaining states, it appears to be an open issue. But, be aware, even among the courts that have enforced anti-concurrent clauses, there are distinctions.
Recent court case in Florida
The 2016 Florida case, John Robert Sebo, etc. v. American Home Assurance Company, Inc.,
might prove to be an important decision with wide-ranging applicability towards restoring the original doctrine.
The Florida Supreme Court considered what doctrine to apply and how to apply it in the case of Mr. Sebo, who had purchased a “manuscript” homeowner’s policy (not a standard form, but one created specifically for the Sebo residence), which insured against “all risks” and provided $8 million in coverage. Soon after purchasing the property, water began to intrude during rainstorms. Next, paint along the windows just fell off the wall. Then, Hurricane Wilma struck the Sebo residence in Naples, Florida and did more damage.
After months of leaks and this series of events, Sebo reported the damage to his carrier. After investigating the claim, his carrier denied coverage for most of the damage based upon its reasoning that the damage was primarily caused by improper construction (the Efficient Proximate Cause Doctrine). The Sebo house ultimately could not be repaired and had to be demolished.
Then, the fun started as Sebo filed suit against a number of defendants. After settling out against all of the defendants except for his own insurance company, Sebo amended his complaint to add his carrier as a defendant on a first party claim. At trial court, the jury found for Sebo against his carrier. The carrier appealed and the Second District reversed and remanded for a new trial, stating that when multiple perils — some covered, some excluded –combine to create one loss, causation should be reviewed under the Efficient Proximate Cause Theory, not the Concurrent Causation Doctrine.
On secondary appeal, the Florida Supreme Court reversed, concluding that “when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurring Cause doctrine.” The court examined the two theories, ultimately settling on the Concurrent Causation Doctrine by following the reasoning of the Third District in Wallach v Rosenberg: “Where weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage.”
According to the Florida Supreme Court in Sebo, if the carrier wished to avoid the application of the Concurrent Causation Doctrine, it could have done so within the policy. Since there was no dispute that the rainwater and hurricane winds combined with defective construction to cause the damage to the Sebo property, and the policy did not preclude the application of the concurrent causation doctrine, the loss was covered.
Clearly, the Sebo case only has precedent in Florida. Yet, Florida, where many “combined peril” losses occur due to the convergence of hurricane winds and flooding, is closely watched by other jurisdictions where these events are less frequent.
Will other states utilize the reasoning and adopt the holding of the Florida Supreme Court, finding coverage under the Concurrent Causation Doctrine in all-risk policies without anti-concurrent language?
Will other states extend further and refuse to enforce or apply anti-concurrent causation language in situations where they conflict with provisions favoring coverage?
Will some courts go further and find that anti-concurrent language is simply against public policy?
Stay tuned! This is an ever-changing area of law. Ideally, the Florida position will migrate to other states. Overall, this is an instance where the insured, whether business or homeowner, must be aware of the coverage and exclusion provisions of their policy and how their particular state views language terminology and application, recognizing that insurers will attempt to skew the outcome to their advantage. An insured will be best equipped, certainly where perils combine and at least one is excluded under the policy, with a public insurance claims adjuster who is skilled in contending with these complicated matters rather than trying to handle the claim on their own.