What really caused that claim?

Courts have long been split on which of two legal theories of recovery appropriately apply in cases when some causes of damage are covered under an insurance policy and others are excluded. Concurrent causation is the legal doctrine that applies when loss or damage occurs because of two or more causes, one that is covered, such as negligence on the part of a third party, and one that is excluded, such as 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. However, the insured claims that the cause of loss was actually a third party’s negligence in bulldozing a slope above the dwelling, arguably a non-excluded peril under an open perils policy. In jurisdictions that apply concurrent causation, coverage is found if the non-excluded peril played any part in the loss.

In the example, if the insured was able to show that the negligent bulldozing played any part in causing the earth movement, under the concurrent causation doctrine the loss would be covered. In order to analyze coverage, the insurer must determine if either of the elements that caused the damage are covered causes. If so, then there will be coverage for the loss, if not there will be no coverage for the loss.

Applying efficient proximate cause

Alternately, the efficient proximate cause doctrine covers a loss caused by a combination of a covered peril and an excluded peril only if the covered peril was the efficient proximate cause of the loss. “The efficient proximate cause of the loss is the cause that sets the other causes in motion that, in an unbroken sequence, produce the result for which recovery is sought” McDonald v. State Farm Fire & Cas. Co., 837 P.2d 100, 1004 (Wash. 1992).

Disputes often arise as to what is considered to be the efficient proximate cause. An example of efficient proximate cause is when basement flooding causes a wire to short, which in turn causes a house fire. Although the damage from a fire would normally be covered, in this case since the fire was sparked by a noncovered cause, there would be no coverage under the efficient proximate cause doctrine.

The first step in analyzing coverage is to determine if the initial cause is covered under the insurance policy, then the insurer must determine if the initial cause was the efficient proximate cause of the damage. If the initial cause is covered, and it is the cause of loss that set the other causes in motion, the damage should be covered under the policy.

For example, if a restaurant is vandalized and the vandals cause a water leak which causes extensive damage to the restaurant, under the policy there will be coverage for the initial vandalism damage but not for the ensuing water leak, which is an excluded cause of loss. Coverage for this damage would likely exist under the efficient proximate cause doctrine, though, because without the vandalism there would have been no water leak. The majority of jurisdictions follow the doctrine of efficient proximate cause, while a minority of jurisdictions still adhere to the concurrent causation approach.

Florida is a jurisdiction that generally adheres to the concurrent cause doctrine. In a case in 2016, the Supreme Court of Florida applied the concurrent cause doctrine in a case where water leakage and construction defects worked in concert to cause home damage. The Court determined that there was no reasonable way to distinguish if the negligence or the water was the proximate cause of the loss, so the proximate cause theory was not the appropriate doctrine to apply. Sebo v. Am. Home Assurance Co., 208 So. 3d 694 (Fla. 2016).

On the other hand, Oklahoma follows the efficient proximate cause doctrine. In a case from 2003, a U.S. District Court in Oklahoma applied efficient proximate cause to find coverage when a pipe ruptured due to freezing (a covered water loss), which resulted in extensive mold damage. The policy in place excluded coverage for loss consisting of or caused directly or indirectly by mold. In making its decision, the court followed Oklahoma case law, which held that if the proximate cause of the loss was covered, the entire loss was covered. The court further stated that the exclusion did not expressly disclaim coverage when one or more covered causes contributed to the mold-related loss. Kelly v. Farmers Ins. Co., 281 F. Supp. 2d 1290 (W.D. Okla. 2003)

Insurers have attempted to limit their exposure through anti-concurrent cause provisions, which indicate that a loss caused by a combination of covered and excluded causes of loss will not be covered. If a cause of loss falls within the terms of a policy exclusion that also includes an anti-concurrent causation provision, the loss will be excluded regardless if another unexcluded cause of loss qualified as the “proximate cause.” Despite whether a jurisdiction decides to follow concurrent causation or efficient proximate cause, most jurisdictions will uphold policy language unless it directly conflicts with state law.

So generally, anti-concurrent cause provisions are enforced, but some courts choose to acknowledge the enforceability and refuse to apply them in cases where they are construed to conflict with other policy provisions. While the majority of states uphold anti-concurrent causation provisions, California, Washington, and West Virginia, all refuse to enforce the clauses by means of case law, statutes or a combination of the two.

Hannah E. Smith, JD, (hsmith@alm.com) is an insurance law editor with FC&S Online, the authority on insurance coverage interpretation and analysis for the P&C industry. It is the resource agents, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues. The need for specialized services is the calling card of the best-of-breed approach,