It’s said that “defeat is an orphan,” but insurable losses often have multiple, concurrent causes. In some cases, one or more of those causes might be outside the scope of coverage, either by omission or exclusion. In Sebo v. American Home Assurance Company, No. SC14-897 (Fla. Dec. 1, 2016), the Supreme Court of Florida ruled that if damage results from “concurrent causes” and, as between the concurrent causes, an “efficient proximate cause” cannot be determined, it is reasonable to find coverage for the entire loss under an all-risk policy, even if one of the causes is excluded from coverage. As a result, Florida insurers whose policies do not contain anti-concurrent causation language may now be saddled with coverage for damage they intended to exclude.
John Sebo, bought a house in Naples, Florida, in April 2005 and insured it with an all-risk property policy issued by American Home. The policy was a manuscript form, providing over $8,000,000 in coverage.
Shortly after the home was purchased, major water leaks occurred during rain storms, and it became evident that the house suffered from significant design and construction defects. In October 2005, Hurricane Wilma further damaged the residence, and Mr. Sebo filed a claim under his policy.
American Home denied coverage for most of the damage, based on an exclusion for “Faulty, Inadequate or Defective Planning.” That exclusion provided:
"We do not cover any loss caused by faulty, inadequate or defective:
- Planning, zoning, development, surveying, siting;
- Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
- Materials used in repair, construction, renovation or remodeling; or
of part of all of any property whether on or off the residence.”
American Home did, however, provide $50,000 in coverage for mold damage.
The residence could not be repaired and was ultimately demolished. Mr. Sebo subsequently sued a number of defendants, including the sellers of the property, the architect and the construction company, among others, alleging negligent design and construction and failure to disclose defects. He later amended the complaint to add American Home, seeking a declaration that the policy provided coverage for the claimed damages. After settling with most of the other defendants, he proceeded to try the case against American Home. The jury found in favor of the insured, and the trial court entered judgment against the insurer
Is There A Doctrine For The House?
On appeal, it was undisputed that Mr. Sebo’s loss had resulted from multiple causes, including defective construction, rain and wind. The Second District Court of Appeal ordered a new trial, “in which the causation of Sebo’s loss is examined under the efficient proximate cause theory.” In cases of concurrent causation, this doctrine provides that the “efficient cause”—the most substantial or responsible factor in the loss—should be considered the sole cause for purposes of determining the availability of coverage. (Pace Aristotle, therefore, the “efficient cause” is not limited to an outside agent that sets the events in motion.)
In reaching that conclusion, the Second DCA expressly disagreed with the ruling of the Third District Court of Appeal in Wallach v. Rosenberg, 527 So.2d 1386, 1388 (Fla. 3d DCA 1988). Wallach had adopted the “concurrent cause doctrine,” which finds coverage wherever an insured risk is one of the concurrent causes of a loss, even if it is not the prime or efficient cause. In Wallach, the Third DCA reasoned that, “where weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy[,] even if one of the causes is excluded from coverage.”
The Second DCA cited California cases, and particularly relied on Garvey v. State Farm Fire &Casualty Co., 770 P.2d 704 (Cal. 1989), to explain the distinction between applying concurrent causation in a liability context and the efficient proximate cause in a first-party property coverage context:
Property insurance is a contract between the insured and the insurer to cover property losses that are either caused by certain perils that are specifically named in the policy or are caused by “all perils” except for those specifically excluded from coverage. … Liability insurance, on the other hand, looks to tort concepts such as fault, proximate cause, and duty. Insuring liability for a person’s negligence includes coverage for a broad spectrum of unnamed perils, i.e., losses of any sort that are caused by the insured’s negligent acts. The covered perils in a property insurance policy determine the premium the insured will pay and the distribution of risk between the insured and the insurer. And as the Garvey court stated, an insured’s reasonable expectations of coverage under the policy ’cannot reasonably include an expectation of coverage … in which the efficient proximate cause of the loss is an activity expressly excluded under the policy.’”
American Home Assur. Co. v. Sebo, 141 So.3d 195 (Fla. 2d DCA 2013).
The Second DCA reviewed Florida cases which have applied both efficient proximate cause (Hartford Accident & Indemnity Co. v. Phelps, 294 So.2d 362 (Fla. 1st DCA 1974)), and concurrent causation theories (Wallach), and it ultimately determined that the nature of an all-risk property policy made the efficient proximate cause theory of liability more appropriate. The Court noted:
As the Garvey 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.
Sebo, 141 So.3d at 201 (citing Garvey, 770 P.2d at 705).
The Supreme Court’s Third Way
The Florida Supreme Court accepted jurisdiction of the question of whether there is coverage when multiple perils combine to create a loss, and at least one peril is excluded, based on the conflict between Wallach and Sebo.
The Supreme Court noted that it had applied the efficient proximate cause test in Fire Association of Phila. V. Evansville Brewing Ass’n, 75 So. 196 (Fla. 1917), which involved a chain of events, with one peril leading directly to a succeeding peril. In that context, coverage would be available if a covered peril sets into motion an uncovered peril, but not where the excluded peril came first.
In contrast, under the concurrent cause doctrine, coverage may exist if an insured risk constitutes a concurrent cause of loss, even when it is not the prime or efficient cause. It was first applied by a Florida court in Wallach.
While it considered the merits of both theories, the Supreme Court noted that the loss at issue presented something of a middle case: it was undisputed that the loss was the result of multiple causes, but none of those causes could clearly be identified as the “prime” or “efficient” cause.
[T]here is no reasonable way to distinguish the proximate cause of Sebo’s property loss – the rain and construction defects acted in concert to create the destruction of Sebo’s home. As such, it would not be feasible to apply the [efficient proximate cause] doctrine because no efficient cause can be determined.
The Supreme Court was not concerned about the issue raised by the Second District Court – that the concurrent cause doctrine could effectively nullify all exclusions in an all-risk policy – noting that some exclusions in the policy contained anti-concurrent causation language. (For example, the pollution or contamination exclusion excluded “any loss, directly or indirectly, and regardless of any cause or event contributing concurrently or in any sequence to the loss” caused by pollutants.) Because the Faulty, Inadequate or Defective Planning exclusion did not employ language avoiding the application of the concurrent cause doctrine, the Supreme Court held that the plain language of the policy did not preclude recovery.
Don’t Let This Happen To You
The Florida Supreme Court’s ruling underscores the importance of including anti-concurrent causation language in exclusions. However, the decision does not wholly preclude the possibility of applying the efficient proximate cause doctrine to a loss in Florida. The Court held that the concurrent cause doctrine applies when there is no reasonable way to distinguish the proximate cause of a loss. Based on the Court’s reasoning, in those instances where there is a clear proximate cause or sequence of events, it appears that the efficient proximate cause theory of liability would still apply.