For years, Florida courts have been seesawing between two different doctrines to determine whether there is coverage under a property policy when two perils – one excluded and one included — combine to cause a loss. Two districts of the state’s intermediate level appellate court have applied one test and a third has applied another, with the most recent decision being American Home Assur. Co. v. Sebo, 141 So.3d 195 (Fla.Ct.App., Sep. 18, 2013). On October 7th of last year, the state’s highest court accepted review in the Sebo matter, and oral argument was conducted on September 2, 2015. Some clarity will finally emerge in the Sunshine State with respect to this issue.
When multiple perils combine to cause a loss under a first-party insurance policy, two prevailing theories are employed by virtually all of this country’s courts to decide whether coverage is afforded. A majority of states – 34 as of 2007 – have adopted the efficient proximate cause doctrine for analyzing this issue. Under that test, the finder of fact must determine the peril that was the most substantial and responsible factor in the loss. If that factor – the efficient proximate cause – is a covered peril, the loss is covered. Conversely, if it is an excluded peril, the loss is not covered.
The other theory is the concurrent cause doctrine. When multiple perils act in concert to cause a loss and at least one of the perils is insured, the loss is covered even if the insured peril is not the prime or efficient cause. This is the clear minority rule, employed in only seven states as of 2007.
The policyholders in Sebo owned a high-end home in Naples that began to experience serious water intrusion shortly after they purchased it. After Hurricane Wilma did additional damage in October of 2005, it was determine that the structure suffered from “major design and construction defects” that could not be satisfactorily repaired, and it was ultimately demolished. The insureds made claim for the policy’s limit of liability in the amount of $8,000,000, but the insurer denied because the contract of insurance excluded loss occasioned by faulty workmanship and design.
A declaratory judgment action followed. The policyholders prevailed at trial, but in 2013 a unanimous panel of the Court of Appeal’s Second District reversed and remanded.
There was no dispute that there were multiple causes of loss, including the excluded peril of defective construction and the included peril of rain, and Judge Stevan Northcutt’s opinion noted that Florida had used both the efficient proximate cause doctrine and the concurrent cause doctrine in such cases in the past. Pursuant to the First District’s decision in Hartford Acc. & Indem. Co. v. Phelps, 294 So.2d 362 (Fla.Ct.App. 1974), the state’s courts began employing the former theory. In 1988, however, the concurrent cause doctrine was adopted by the Third District of the Court of Appeal in Wallach v. Rosenberg, 527 So.2d 1386 (Fla.Ct.App. 1988), and that was the test used at trial in the Sebo matter.
Judge Northcutt’s 2013 opinion announced that the Second District favored the earlier approach. In his words:
we disagree with the rule stated in Wallach and applied by the circuit court in this case. As the [Garvey v. State Farm Fire & Cas. Co., 48 Cal.3rd 395, 257 Cal.Rptr. 292, 770 P.2d 704 (1989)] court pointed out, a covered peril can usually be found somewhere in the chain of causation, and to apply the concurrent causation analysis would effectively nullify all exclusions in an all-risk policy.
In addition to addressing the proper standard, there is a possibility – albeit a remote one – that the justices may use their decision to address anti-concurrent causation (ACC) clauses as well. The insurer in Sebo contended that ACC language was another reason why there was no coverage, but the Court of Appeal rejected that argument because the faulty workmanship and design exclusion was not prefaced by such a provision. At oral argument earlier this month, however, Sebo’s counsel injected the issue back into the case by arguing that carriers could always protect themselves against the consequences of the concurrent cause doctrine by using ACC language in their exclusions.
A small handful of states currently refuse to enforce ACC clauses pursuant to either statutes (California and North Dakota) or court decisions (Washington and West Virginia). Some twenty states have held ACC provisions to be valid, but the majority of states (including Florida) have yet to weigh in on the issue.