We have discussed on a number of occasions the issue of causation when there are multiple causes of loss, some covered and some not covered. Most jurisdictions apply what is known as the efficient proximate cause analysis with a minority of jurisdictions applying the concurrent causation analysis, both of which are explained on our blog here. The Florida Supreme Court issued a decision last week applying the concurrent causation theory in a case where the court concluded it was not clear which of the causes of loss was the predominant cause. Sebo v. American Home Assurance Co., Docket SC14-897 (Dec. 1, 2016).
In Sebo, the insured’s residence suffered water damage during rainstorms shortly after he bought the home. Water intrusion (a covered loss) occurred following defective construction (excluded loss). AHAC denied coverage for all but mold damages, which was subject to a $50,000 limit. Sebo filed suit against, among others, the architect who designed the home and the contractor who built the home claiming negligent design and construction. A jury found in favor of the insured, and the trial court entered judgment against AHAC for more than $8 million.
On appeal, the Second District reversed, ordering a new trial in which causation would be examined under the efficient proximate cause theory. The Second District first reviewed the First District’s decision in Hartford Accident & Indemnity Co. v. Phelps, 294 So.2d 362 (Fla. 1st DCA 1974), which applied the efficient proximate cause doctrine to a first party property case. The Phelps court determined that the proximate cause of the loss was a plumbing leak (covered loss), not settlement (an excluded loss), and therefore the loss was covered. The Second District then reviewed the Third District’s decision in Wallach v. Rosenberg, 527 So.2d 1386 (Fla. 3d DCA 1988). In Wallach, a sea wall collapsed causing damage to the insured’s neighbor’s property. The insured’s policy covered negligence of the insured, but did not cover earth movement or water pressure caused by a storm. All experts agreed that the Wallach’s sea wall either did not have tie rods or that the tie rods were deteriorated, and that had the tie rods been in good condition, the sea wall would not have collapsed. The trial court issued jury instructions stating that the insurer bore the burden of establishing that the excluded risk “was the sole, proximate cause of damage or loss to the property.” The Third District affirmed the jury’s verdict against the insurer, and approved of the jury charge stating that “[w]here 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 District in Sebo rejected the Third District’s approach in Wallach, reasoning that “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.” American Home Assurance Co. v. Sebo, 141 So. 3d 195 (Fla. 2d DCA 2013).
The Florida Supreme Court quashed and remanded the Second District’s decision. The court first explained its interpretation of the efficient proximate cause doctrine. That is, at least under Florida’s interpretation, where a covered peril sets into motion an uncovered peril, coverage exists. When, however, an uncovered peril results in a covered peril, there is no coverage. The Florida Supreme Court noted that it had applied this rule in Fire Ass’n of Phila. v. Evansville Brewing Ass’n, 75 So. 196 (Fla. 1917). The decision in Sebo did not purport to overrule Evansville Brewing, and thus it appears that the efficient proximate cause rule continues to apply in Florida where there is a “chain of events” resulting in a loss.
The Florida Supreme Court then stated that the concept of “concurrent causation” is applicable where both perils are “independent” of each other, “neither peril could have created the loss alone,” and thus, in the court’s view it is not possible to determine which cause of loss is the “proximate cause.” The court explained that the “concurrent causation” concept applies when “there is no reasonable way to distinguish” whether the “rain [or] construction defects” caused the loss because both causes “acted in concert” and resulted in damage to the home. The court concluded that, even if a construction defect is excluded, the loss is covered. The court further explained that, on the facts before it, “it would not be feasible to apply the efficient proximate cause doctrine because no efficient cause can be determined.” Addressing the Second District’s concern that concurrent causation would potentially nullify all exclusionary language, the Florida Supreme Court expressly disagreed with that notion, and stated that “AHAC explicitly wrote other sections of Sebo’s policy to avoid applying” the concurrent causation doctrine, but did not do so with respect to the faulty construction exclusion, and therefore, the “plain language” did not preclude recovery.
The Florida Supreme Court appears to clearly retain the efficient proximate cause rule with respect to circumstances where there is a “chain of causation” involving one peril resulting in a second peril. Which doctrine applies in a particular case is likely to be the subject of substantial further litigation. Sebo also appears to clearly recognize that anti-concurrent causation language is enforceable, thus avoiding this debate where the exclusion at issue contains an anti-concurrent causation clause.