Are concurrent losses covered? Maybe not.
The concurrent cause rule basically holds that if two or more events cause a loss, with one being excluded under the policy terms and the other(s) being covered, the policy should provide coverage for the loss. As discussed in Davidson Hotel Company v. St. Paul Fire and Marine Insurance Company, 136 F. Supp.2d 901 (2001), this rule allows for coverage "where the loss is essentially caused by an insured peril with the contribution of an excluded peril merely as part of a chain of events leading to the loss." The thinking behind this ruling and other concurrent causation cases is that the cause of loss that is not excluded caused damage to the insured's property in one way or another, so the property coverage form must pay for the loss.
As a modification of the concurrent cause rule, some courts developed the efficient proximate cause rule. Couch on Insurance states that this rule permits recovery for a loss caused by both a covered cause of loss and an excluded cause of loss if the covered cause was the efficient proximate cause of the loss. That is, the covered cause set the other causes in motion that, in an unbroken sequence, produced the result for which recovery is sought. (Note that courts have not reached a consensus on the precise definition of efficient proximate cause, although most jurisdictions do require an analysis of the events to determine the nearness or proximity of the cause to the effect.)
Another modification of the rule is the independent concurrent causation theory. This theory involved two separate and distinct, but concurrent causes of loss, one covered and one excluded. In such situations, only the damage from the covered cause of loss is covered by the policy. For example, a flood washes over a building and at the same time, a fire breaks out in an upstairs room. The damage from the flood is excluded under a standard commercial property form, but the fire is a covered cause of loss. So, the damage to the upstairs room is covered.
The anti-causation clause
Never one to sit idly by and let the courts handle any and all disputes over concurrent causation, the insurance industry developed its answer to the issue: The anti-concurrent causation clause. This clause, found in standard property policies, acts as an attempt to keep excluded causes of loss excluded so that even if two causes of loss occur simultaneously, the loss due to the excluded cause of loss is not covered, regardless of the circumstances. Most anti-concurrent causation clauses read similarly to this: "We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequel to the loss."
This means that when any of the listed causes of loss occur (such as earth movement, flood, governmental action, war), any damage that results from the listed causes of loss is excluded, even if a covered cause of loss (such as fire or wind) occurs at the same time or in sequence. The anti-concurrent causation clause thus allows the insurer to deny coverage for a loss and, in effect, circumvent concurrent causation judicial holdings.
The anti-concurrent causation clause has gained national attention most recently due hurricane damage. Many claims were initially denied because of the clause, surprising and angering insureds, and leading to quite a few lawsuits. An example of this is Leonard v. Nationwide Mutual Insurance Company, 499 F.3d 419 (5th Cir. 2007). In this case, the insured's home was damaged by hurricane winds and storm surge. The water claim was denied by the insurer using the anti-concurrent causation clause, and the insured sued claiming the clause was ambiguous.
When the case went to the appeals court, that court found that the anti-concurrent clause was not ambiguous, that the water damage exclusion excluded damage from storm surge, and that there was no coverage for any loss caused by water or storm surge, even if wind damage occurred with the water damage (although any damage that could be shown to be caused solely by wind would be covered).
Another example is the case of Cameron Parish School Board v. RSUI Indemnity Company, 620 F. Supp. 2d 772 (2008). Here, the school board sued the insurer pursuant to a commercial property all risk policy for severe flood damage caused by Hurricane Rita. The insurer relied on the anti-concurrent causation clause in the policy to deny coverage. When the coverage dispute went to trial, the trial court took note of the Leonard ruling and decided that the anti-concurrent causation clause was enforceable.
The court ruled that anti-concurrent causation clauses deny coverage whenever an excluded peril and a covered peril combine to damage property. The clause was not ambiguous, was not precluded from operation by case law, statutory law or public policy, and precluded coverage for flood damage since the clause expressly excluded such damage.
So, the anti-concurrent causation clause has become an essential part of property policies, upheld by court rulings and not rendered useless by state laws or public policy. It is true that some policies today have exceptions to the anti-concurrent causation clause; for example, the ISO causes of loss--special form declares that if an excluded loss such as earth movement or water or nuclear hazard results in fire, the insurer will pay for the loss or damage caused by that fire. However, anti-concurrent causation clauses continue to stand as a plausible alternative to the expansive scope of the concurrent causation rule.
David D. Thamann, JD, CPCU, ARM, (email@example.com) is managing editor for FC&S, a sister publication of PropertyCasualty360-National Underwriter and part of ALM.
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