Oh, the ironies of insurance and disposable-diaper material. An FC&S Online subscriber recently contacted us about a claim in which a truckload of the absorbent material used to make disposable diapers was ruined by, of all things, “wetness.” The very thing the material was meant to absorb became its demise in this situation, and the insurance carrier denied the claim.
The reason for the denial? The Motor Truck Cargo Legal Liability coverage form excluded loss arising from a series of causes—such as spoilage, changes in texture, extremes in temperature, “wetness, dampness, dryness, corrosion or rust”—unless the loss resulted from specific causes. The causes that would trigger coverage for such things as wetness included fire, lightning, wind or hale, etc. Water damage was not listed.
The advocate for coverage reasoned that the cause of loss was water damage and not wetness. After all, the roof of the truck leaked, letting water in, and that was what ruined the material. Water damage was not excluded; in fact, it was not mentioned at all.
Since water damage was not mentioned and wetness was not defined on the policy, we turned to Merriam-Webster Online. It defines wet as, among other things, “consisting of, containing, covered with or soaked with liquid (as water).” On the surface this definition appears to encompass water damage—but does it in the context of insurance coverage?
Among the most complicated of issues in P&C insurance coverage are the theories of concurrent causation and efficient proximate cause. Concurrent causation finds coverage for a loss that is caused by two or more events, at least one of which is covered on the policy. An example is when excluded earth movement causes damage to an insured structure, but the insured claims that the cause of loss actually was a neighbor's negligence in bulldozing a slope above the dwelling, which is not excluded under a Special Perils form.
As a result of litigation in the 1980s, most insurance companies added anti-concurrent causation language to their policies. This language states that the loss causes that follow the language are not covered regardless of whether any covered cause or event contributed concurrently or in any sequence to the loss.
The Motor Truck Cargo form in question did not preface its exclusion for damage caused by wetness with such anti-concurrent causation language.
The efficient proximate cause rule allows for insurance recovery for a loss that is caused by a combination of a covered risk (arguably in this case, water damage) and an excluded risk (wetness) only if the covered risk was the efficient proximate cause of the loss. This means that the covered risk set a series of events in motion which, in an unbroken sequence, caused the loss (Reference: Couch on Insurance).
Jurisdictions vary as to whether they follow the efficient proximate cause rule or not. But since this form does not preface the exclusionary language for wetness with anti-concurrent causation language, I'm inclined to back the advocate for coverage. I think the efficient proximate cause theory applies: Water damage (covered) led to wetness (excluded) in an unbroken sequence.
What do you think?
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