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Chip Merlin with the Merlin Law Group posted a blog titled,

Policyholders and Public Adjusting Under Attack in the Florida House of Representatives

Some public adjusters were calling me asking about the recent proposed legislation of Florida House Bill 1181. This extraordinarily anti-consumer legislation was filed by a Democrat, Janet C. Long. My impression is that this legislation is a potential nuclear bomb for policyholders and public adjusters. “Chip Merlin”

Click Here to read the article Merlin Law Group

Summary: Under the concurrent causation doctrine, losses caused jointly by an excluded peril, such as flooding or earth movement, and some other peril not excluded by the policy, such as negligence on the part of a third party, are covered. Under earlier cases, coverage was found where the nonexcluded peril played any role in the loss; under the efficient proximate cause doctrine, the nonexcluded peril must have been the predominant factor in the loss. Not all states have adopted the concurrent causation doctrine, but its development prompted Insurance Services Office (ISO) and insurers filing independent policies to alter property forms in an attempt to avoid recovery in concurrent causation situations. Issues regarding the effectiveness of the policy revisions and questions of ambiguity still cause coverage disputes and litigation. The efficient proximate cause doctrine has proved less problematic, but disputes often arise as to what the actual proximate cause was. 

Topics covered:

Operation of the concurrent causation doctrine

An important issue

Amended policy provisions

Some ensuing losses covered

Concurrent causation and the ordinance or law exclusion

Which applies, concurrent causation or efficient proximate cause?

Exclusionary language upheld

Concurrent causation and liability

Operation of the Concurrent Causation Doctrine

 Concurrent causation is a legal doctrine developed primarily in California case law that finds coverage for a loss caused by two (or more) events, despite common property policy exclusions such as earth movement or flooding. An example of concurrent causation is when earth movement causes damage to an insured structure (a cause of loss that is specifically excluded under the property causes of loss form), but the insured claims that the cause of loss was actually a third party’s negligence in bulldozing a slope above the dwelling, arguably a nonexcluded peril under an open perils policy.

 Several cases illustrate the operation of the concurrent causation doctrine. One of the best known is Safeco Insurance Co. v. Guyton, 692 F.2d 551 (C.A. Cal. 1982). Damage caused by flood waters was held to be covered by an all risks homeowners policy, despite its flood exclusion, because the flooding was caused by a third party’s negligent maintenance of flood control structures. This negligence was considered to be an insured peril. Similarly, in Premier Ins. Co. v. Welch, 189 Cal. Rptr. 657 (Cal. App. 1983), the earth movement exclusion of an all risks homeowners policy did not operate to exclude landslide damage to the insured’s house because faulty installation of a drain by a third party was held to be a covered, concurrent cause of loss. (As discussed later, since the time of these two cases the homeowners language no longer promises to “insure against all risks of physical loss to the property described in Coverages A and B except”.” [ISO HO-3, 7-77 ed.]. The current insuring agreement is “We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property. We do not insure, however, for loss”.” ISO HO 00 03 04 91]. An argument frequently used for coverage under the earlier forms was that by promising to insure against all risks the policyholder was lulled into thinking that all and everything was covered, policy exclusions notwithstanding.)

 The Premier case was disapproved in 1986 by Garvey v. State. Farm Fire and Cas. Co., 201 Cal. App. 3d 1174 (1986). Regarding its decision in Premier, the court stated that its analysis should have been “conditioned on the covered risk being independent of the excluded risk. In point of fact, the damaged subdrain was dependent upon the existence of the rainfall and resulting subsurface water in order for the loss to occur. This is clear because the stipulated facts established that the slide would not have occurred even in spite of the rainfall if the drain had not been damaged.” The case eventually reached the California Supreme Court, whose decision is discussed in the next section.

 The key point here is that at least two, independent and concurrent causes of loss interacted with one another and a loss occurred. The concurrent causation courts would look at this and say the cause of loss not excluded caused damage to the insured’s property, in one way or another, and so the property coverage form must pay for the loss.

An Important Issue

 An important issue posed by the concurrent causation doctrine is whether any contribution by a nonexcluded peril would cause a loss to be covered, or whether the nonexcluded cause of loss must be the primary factor leading to the loss.

 In 1989, the California Supreme Court settled this question (for California, at least) in Garvey v. State Farm Fire & Casualty Co., 770 P.2d 704. In Garvey, the court held that the California appellate courts had been misinterpreting the cases that first used the doctrine of concurrent causation. Returning to traditional property insurance law, the court said that even in the case of an all risks policy, if a loss can be attributed to two causes, one of which is an excluded peril, courts are to find coverage only if the nonexcluded peril is the efficient proximate cause of the loss, rather than finding coverage whenever a nonexcluded peril is concurrently involved in the loss. (The efficient proximate cause of a loss need not be the one directly prior to the loss. It is the cause that, without which, the loss would probably not have occurred.)

 In Garvey, the homeowners sought coverage when their house addition began to pull away from the main dwelling. The question was whether a covered cause of loss—negligent construction—or whether the excluded cause of loss—earth movement—was the efficient proximate cause. The court sent the case back to the trial court to resolve the question of which of the causes of loss was the efficient proximate cause. However, as 7 Couch on Insurance (Third Edition, § 101:58) notes, “Even the California court which rejected concurrent cause theory in first-party cases explicitly left open the possibility of applying concurrent cause if and when an instance of truly ‘concurrent’ (simultaneous and independent) causes arose in a first-party context, indicating that the court’s decision was largely based on its view that the two causes were not, in fact, independent, and that independent causes are unlikely to occur in the first-party context.”

 The events leading to the claim took place in 1977 and 1978, so the policies involved did not include the post-1983 lead-in language to the exclusions section that eliminated coverage for concurrent causation-type losses.

 However, in Howell v. State Farm Fire and Casualty Co., 267 Cal. Rptr. 708 (Cal. App. 1990), a California court of appeals adhered to the Garvey decision—even in cases involving the post-1983 exclusionary language—and applied the efficient proximate cause doctrine. The property owner brought action under an all risk policy when a landslide severely damaged her home. She presented expert testimony that a fire (a covered cause of loss) had denuded the slope above her home, and thus when heavy rains occurred, the saturated ground gave way (an excluded cause of loss). The court remanded the case to the jury for further determination as to the efficient proximate cause.

 A more recent case purportedly following the concurrent causation doctrine is Davidson Hotel Co. v. St. Paul Fire and Marine Ins. Co., 136 F.Supp.2d 901 (W.D. Tenn. 2001). This loss involved water leaking from a rusted water heater that dripped into a duct in an electrical room, which in turn caused a sprinkler malfunction, which in turn caused extensive water damage. The insurer cited several exclusions: rust or corrosion, electrical disturbance, and water. The court, treating each exclusion in turn, said that Tennessee followed the “concurrent causation doctrine, which allows for recovery where the loss is essentially caused by an insured peril with the contribution of an excluded peril merely as part of the chain of events leading to the loss.” Because the court found that the dripping water was the peril insured against and proximate cause of the loss, it did not matter that the other excluded perils—rust and electrical disturbance—contributed to the loss. 

 Other courts have put their own interpretations on the efficient proximate cause rule. Another California appeals court in State Farm Fire and Casualty Ins. Co. v. Von Der Lieth, 820 P.2d 285 (Cal. App. 1990) upheld a denial of coverage where the trial court had ruled that third-party negligence, rather than earth movement, was the efficient proximate cause of a loss. In this case, the appeals court held that even though the acts of the third party were negligent, they were not the predominant cause of the loss. So this case turned more on the meaning of efficient proximate cause, that is, whether that term means “predominant” or “triggering” than on whether such a cause of loss doctrine should be applied.

 Utah’s Supreme Court, in Alf v. State Farm Fire and Casualty Ins. Co., 850 P.2d 1272 (Utah 1993), has recognized the efficient proximate cause doctrine, but only “when the parties have not chosen freely to contract out of it,” which modern policy language generally does. Citing a Colorado decision, the court held, “the efficient proximate cause rule … must yield to a well-settled principle of law: namely, that courts will not rewrite a contract for the parties.” In Alf, the court made a survey of states’ positions on the efficient proximate cause issue, stating that California and Washington have adopted the rule, while Nevada, Arizona, Colorado, and Wyoming have not adopted the rule or have determined that the express exclusionary terms of insurance policies override it.

Amended Policy Provisions

 Concurrent causation disputes most often involve open perils forms, where the insured could argue that events such as negligence of a third party or faulty construction were insured perils because they were not specifically excluded. Consequently, in 1983 ISO made revisions to the causes of loss forms, revisions intended to avoid the concurrent causation doctrine.

 And, as noted earlier, one of the revisions was the deletion of any reference in the causes of loss forms to “all risks of direct physical loss.” Although the term all risks is sometimes still used by those in the insurance industry, the deletion of “all” was intended to avoid creating “reasonable expectations” among insureds that the policy would cover any loss, even one that is the subject of an exclusion.

 Also, in the property forms (both commercial and personal), the insuring agreement was written so as to apply to “risks of direct physical loss, unless the loss is excluded under the Exclusions That Apply To Property Coverages…” (italics added; AAIS Form 5, Ed. 2.0). The emphasized portion was added to state more strongly the point that the broad grant of coverage is not all-encompassing.

 The introductory language added in the exclusions section is more clearly aimed at avoiding liability for concurrent causation type losses. This is a statement that some of the loss causes described in the exclusions section are not covered “regardless of any other cause or event contributing concurrently or in any sequence to the loss. Nearly identical language can be found on the basic, broad, and special causes of loss forms of the ISO commercial property program.

 The excluded causes of loss affected by this language are building ordinance or law; earth movement and volcanic eruption; governmental action; nuclear hazard; utility services (off-premises power failure in the homeowners forms); war and military action; and water (including mudslide or mudflow, back ups or overflows from a sewer, drain, or sump). The ISO homeowners forms adds “intentional loss” to the list of excluded causes of loss. For these exclusions, no coverage is provided no matter what other cause of loss may precede and bring about these excluded causes.

 As an example, an insured building and retaining wall may be partially destroyed by an explosion. An hour later the earth behind the retaining wall slides down the hill and completely razes the building. Although explosion is a covered peril and the proximate cause of the loss, the risk of earth movement is not covered if the concurrent causation language is read literally.

Some Ensuing Losses Covered

 The 1984 homeowners forms added a second group of exclusions to the section I exclusions. The prefacing language stated that “we do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not excluded or excepted in the policy is covered. This group excludes coverage for loss caused by weather conditions (but only if the weather conditions contribute to one of the excluded causes of loss such as earth movement), acts or decisions, and faulty, inadequate, or defective planning, construction, maintenance, and so forth. But if a loss not otherwise excluded results from one of these, that ensuing loss is covered. 

 Under this group of exclusions, if a chimney cleaner inadequately cleaned the chimney and a fire ensued, the resulting fire loss would be covered. The cost to reclean the chimney would not be covered. But if the negligent act of an individual or individuals resulted in a flood, as it did in Guyton, there would be no coverage.  

 These exclusions of coverage for loss or damage caused by acts or decisions (or failure to act) of individuals and groups, and faulty, inadequate, or defective planning, design, materials, or maintenance, have precluded coverage for claims involving an excluded peril that might once have succeeded under the theory that third party negligence was a concurrent covered peril are being successfully denied.

 For example, in Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338 (9th Cal. 1989), a federal court of appeals held that the exclusion of third party negligence (and the exclusion for damage by inherent defect) barred recovery when the insured’s apartment building cracked and settled due to subsurface water that damaged the improperly designed building.

 More recently, in Winans v. State Farm Fire and Casualty Co., 968 F.2d 884 (9th Cal. 1992), the court ruled that a defect in construction of a house caused by the contractor’s negligence in failing to remove loose soil from beneath the home during construction, which was discoverable only after an intensive after-loss expert inspection, was a latent defect excluded under the policy. The court stated that where “the defect is not apparent upon reasonable inspection but only after a post-failure examination by an expert, then the resulting loss is caused by a ‘latent defect’.”

Concurrent Causation and the Ordinance or Law Exclusion

 A few cases involving ordinance or law exclusion as pertaining to concurrent causation have reached court review. Although the losses involved differ, the basic principle of the cases is similar. In each case, a covered peril caused extensive damage to the insured structures, which were then ordered condemned and razed by city officials. The insurers invoked the ordinance and law exclusion and the exclusionary lead-in language eliminating coverage where an excluded peril is involved concurrently or in any sequence in the loss. In each case, the courts found the exclusion inapplicable.

 In Digravina v. Merchants Mutual Ins. Co., 1991 WL 90737 (S.D. N.Y. May 23, 1991), a heavy rain and windstorm caused a portion of the insured building’s roof to collapse. A civil engineer’s report stated that the collapse of the entire roof was imminent and that the building should be condemned. The report further stated that if the roof were to collapse, there was a “real danger” that the masonry sidewalls could explode outward with great force. The report concluded, “It did not appear to be economically feasible to attempt to repair the roof and walls of the building, and … that the building should be razed.” The municipality notified the insured that the building was an unsafe structure and ordered the insureds to demolish the building.

 The insurance policy contained the standard ISO concurrent causation exclusionary lead-in language excluding loss caused by certain perils (including loss caused by enforcement of any ordinance or law) regardless of any other cause contributing concurrently or in any sequence to the loss.

 The insured made claim for the entire $430,000 cost of replacement of the structure. The insurance company moved for a summary judgment limiting its payment to $94,000, representing the cash value of the repair or replacement of that portion of the building roof actually damaged by the partial collapse. The court awarded the entire $430,000 to the insureds. The insureds argued that the storm so damaged the building that the only practical course of action was to raze the entire structure. The court held that “the storm, and not the town’s subsequent action, constitutes the cause in fact of a constructive total loss of the insured building…. [A]n independent engineer concluded that the building must be razed before the town issued its demolition order. The town’s action was not causally related to the constructive total loss of the building. The storm caused the loss.” In effect, this is adopting the efficient proximate cause rule, and denying the exclusionary lead-in language of the policy.

 Another case dealing with this issue, Norfolk & Dedham Mutual Fire Ins. Co. v. DeMarta, 799 F. Supp. 33 (E.D. Penn. 1993), comes to the same conclusion. The insured’s claim for loss of their house when it was demolished by the city was covered by a homeowners policy because the loss was actually caused by collapse due to hidden decay, a covered peril. The court held that the decay had already started prior to the city’s demolition undertaken to avoid further damage. According to the court, the demolition merely recognized the collapse that had already occurred because of the hidden decay. The ordinance or law exclusion was held to be inapplicable under these circumstances.

 And in Davidson, the court found for ordinance and law coverage when, following the loss, building inspectors required compliance with several building code provisions. It should be noted, though, that the insurer first based its declination on the fact that it believed no covered loss had occurred.

Which Applies, Concurrent Causation or Efficient Proximate Cause?

 It often appears as if the doctrine of concurrent causation and the doctrine of efficient proximate cause are interchangeable theories of recovery. They are not, though sometimes they can entwine within the same loss.

 7 Couch on Insurance (Third Edition, §101:57) states, “In cases involving multiple causes that act to produce a loss, with at least one cause falling within the policy coverage and at least one falling outside it, the most common approaches to determining whether recovery should be allowed on the insurance contract are the efficient proximate cause rule and the concurrent cause rule. The efficient proximate cause rule allows recovery for a loss caused by a combination of a covered and an excluded risk only if the covered risk was the efficient proximate cause of the loss “meaning that the covered risk set the other causes in motion which, in an unbroken sequence, produced the result for which recovery is sought”. This rule is essentially a simple restatement of the traditional views that proximate cause is the efficient cause “which may also be stated as proximate cause being the cause which sets in motion an unbroken chain of events which produces the loss.” Couch continues, “”it is a fine line indeed between concluding that one of ‘two causes’ was the ‘efficient proximate cause,’ and concluding that only one of the two alleged causes met the definition of ‘proximate’ cause at all. There is little to differentiate the efficient proximate cause analysis from the ordinary requirement that there be a proximate cause relationship between the loss and a covered risk. The concurrent cause rule, on the other hand, takes the approach that coverage should be allowed whenever two or more causes do appreciably contribute to the loss, and at least one of the causes is an included risk under the policy. This approach is employed by many jurisdictions “at least in some contexts.” (As we will see, this is often the case with liability coverage.)

 Florida is one jurisdiction that adheres to the concurrent cause doctrine. In Paulucci v. Liberty Mutual Fire Ins. Co., 190 F.Supp.2d 1312 (M.D. Fla. 2002) the roof of the insured’s two-story structure, which he used for storage, collapsed during a tropical storm. The insured claimed the weight of water on the roof of the 1920s building caused it to collapse, while the insurer argued that the building was so deteriorated that wet and dry rot caused the collapse. The court said “‘Concurrent cause doctrine’ and ‘efficient proximate cause doctrine’ are not mutually exclusive, but rather, the concurrent cause doctrine applies when multiple causes are independent, and the efficient proximate cause doctrine applies when the perils are dependent.” The court went on to say that it was not persuaded by the California Supreme Court’s reasoning in Garvey, and “without Florida authority applying the efficient proximate cause doctrine to first party insurance contracts when relevant perils are independent, I must find the concurrent cause doctrine is the prevailing default standard in Florida.” This collapse part of the loss was remanded for jury action as to its cause.

 On the other hand, Oklahoma follows the efficient proximate cause doctrine. In Kelly v. Farmers Insurance Co., 281 F.Supp.2d 1290 (W.D. Okla. 2003), the court applied the doctrine to find coverage when a covered water loss (a pipe ruptured because of freezing) resulted in extensive mold damage. The policy excluded coverage for “loss either consisting of, or caused directly or indirectly by “mold.” The court followed Oklahoma law, which held that if the proximate cause of the loss was covered, the entire loss was covered. Further, the exclusion “did not expressly and specifically disclaim coverage when one or more covered causes contributed to the mold-related loss.”

Exclusionary Language Upheld

 Despite the theory of recovery advanced, most jurisdictions will uphold policy language unless it specifically conflicts with state law. So, in State Farm Fire and Casualty Co. v. Bongen, 925 P.2d 1042 (Alas. 1996) there was no coverage when a mudslide, resulting partially from clear cutting of trees above the insured’s residence, damaged his home. The insured argued that public policy should not allow an insurer to circumvent the efficient proximate cause rule. But the court said the exclusionary language was clear and unambiguous, and so the denial was upheld.

 And in Paulucci, discussed earlier, the court said that “parties can contract around the concurrent cause doctrine through an express anti-concurrent cause provision.

Concurrent Causation and Liability

 Although we commonly think of concurrent causation or efficient proximate cause in terms of property coverage, these theories are often applied to liability situations. But in these situations, particularly when an exclusion such as the motor vehicle exclusion in a homeowners policy is involved, attempting to find coverage simply by including “negligence” in the complaint will not be sufficient to trigger coverage. For example, in Mailhiot v. Nationwide Mutual Fire Ins. Co., 740 A.2d 360 (Vt. 1999) the plaintiffs alleged that their son’s injuries were the result of the Wymans’ negligence in supervising their son. The son drove an ATV with the plaintiffs’ son as a passenger, when he lost control and crashed, causing the passenger severe injuries. But the court said that the allegedly negligent supervision was inseparable from the excluded activity of operating the ATV off insured premises, and therefore the concurrent causation doctrine did not apply.

 But in K. Cawthon v. State Farm Fire & Casualty Co., 965 F.Supp. 1262 (W.D. Mo. 1997), the court, applying Missouri law, found that the doctrine of concurrent causation operated to give coverage under a homeowners policy when a helper was killed while helping the insured remove a tree. The insured attached a rope to the tree and to his truck; a tree limb was dislodged and struck the helper. The court said the predominant cause of the helper’s death was the manner in which the rope was secured around the tree and the result would have been the same regardless of the means used to dislodge the tree. 

 Insurers have attempted to limit their exposure through the language excluding coverage for liability “arising out of” a certain activity, such as ownership, maintenance, or use of an excluded motor vehicle. But in jurisdictions applying the concurrent causation doctrine, coverage turns on whether the activity causing the loss can be attributed to an excluded vehicle or to another nonexcluded cause. The plaintiffs in Estate of Pennington v. Wolfe, 262 F.Supp. 2d 1254 (D. Kan. 2003) argued that the claim was “proximately caused by the concurrence of both vehicle-related and nonvehicle-related negligent acts, and the motor vehicle exclusion does not preclude coverage for nonvehicle-related acts to cause damage. The court agrees.” Here, Wolfe was driving a pickup from which a large piece of farm equipment fell. The plaintiffs hit the equipment, veering into oncoming traffic, and were killed. The Wolfes’ auto policy paid its limits, and the estate brought suit to recover under the farmowners policy. The court held that failing to remove the equipment from the highway and warn others it was there were actions independent of operation of a motor vehicle, and so, applying Tennessee law, the doctrine of concurrent causation operated to give coverage.

Source FC&S Expert Coverage Interpretation