Resolving the Multiple Peril Puzzle in First Party Insurance Claims
By: Brett M. Carey
First party insurance claims involving multiple perils present unique challenges when assessing whether an insurance policy provides coverage. For example, suppose an insurance policy covers damage resulting from fire, but not earthquakes. Does the policy provide coverage if an earthquake breaks a gas main that starts a fire? What about if a loss was caused by an unrelated but simultaneous earthquake and lightning strike that jointly start a fire?
The answers to these questions come from knowing whether to apply the efficient proximate cause or concurrent cause doctrines. This article will explain the difference between the two doctrines and address a relatively recent decision from the Florida Supreme Court, which provides some clarity about the distinctions between the two doctrines. Finally, we explain how insurers can—and should—take matters into their own hands by including specific language in their insurance policies that would override the application of either doctrine.
Efficient Proximate Cause vs. Concurrent Cause Doctrines
The efficient proximate cause and concurrent cause doctrines are “competing theories on how to determine coverage” when two or more perils “converge to cause a loss and at least one of the perils is excluded from an insurance policy.” Sebo v. American Home Assurance Company, Inc., 208 So. 3d 694, 697 (Fla. 2016). Importantly, the “concurrent cause doctrine and efficient proximate cause doctrine are not mutually exclusive.” Paulucci v. Liberty Mut. Fire Ins. Co., 190 F. Supp. 2d 1312, 1319 (M.D. Fla. 2002). “Rather, they apply to distinct factual situations.” Id.
Efficient Proximate Cause
The efficient proximate cause doctrine applies to a claim with multiple causes or perils that are dependent. Id. Causes are dependent “when one peril instigates or sets in motion the other.” Id.
The efficient proximate cause doctrine was first applied in Florida in Fire Ass’n of Phila. v. Evansville Brewing Ass’n, 75 So. 196 (Fla. 1917). In that case, the court considered a chain of events where one peril directly led to another peril. The court drew a distinction between a covered peril setting an uncovered peril into motion and an uncovered peril setting a covered peril into motion. The court held that coverage exists under the first scenario, but not the second.
Let’s take a look at the first hypothetical above: if an insurance policy covers damage resulting from fire, but not earthquakes, does the policy provide coverage if an earthquake breaks a gas main that starts a fire? The answer is no. First, the efficient proximate cause doctrine applies, because one peril (the earthquake) sets in motion the others (broken gas main and a fire). Under the efficient proximate cause doctrine, we look to the peril that set in motion the chain and ask whether it is covered. Here, the policy does not cover damage resulting from earthquakes, and so the resulting fire damage is not covered. If the policy had instead covered damage resulting from earthquakes, but not fire, then the policy would have provided coverage in this scenario.
The concurrent cause doctrine applies to a claim with multiple causes or perils that are independent of each other. Paulucci, 190 F. Supp. 2d at 1319. Causes are independent when they are unrelated, “such as an earthquake and a lightning strike, or a windstorm and wood rot.” Id.
The concurrent cause doctrine originated from the California Supreme Court in State Farm Mut. Auto. Ins. Co. v. Partridge, 514 P.2d 123, 133 (1973). Under Partridge, where a loss involves multiple perils and neither peril could have created the loss alone, but instead combine to create the loss, there is no prime or efficient cause. In that scenario, the court held there should be coverage for the entire loss if at least one of the perils is covered.
The Third DCA followed Partridge and applied the concurrent cause doctrine in Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988). In Wallach, a neighbor’s sea wall collapsed, which led to “a domino-like crumbling” of a portion of the insureds’ sea wall. The insureds sought coverage for the loss, arguing that their neighbor’s negligence in maintaining the sea wall was a covered peril under their homeowners’ policy. The insurer argued that the loss was excluded by the policy’s earth movement or water pressure exclusions.
The Third DCA found that the efficient proximate cause doctrine provided “little analytical support” where it can be said that the loss would not have occurred but for the joinder of two independent causes. Thus, the court applied the concurrent cause doctrine and held 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.”
Importantly, Wallach did not reject the efficient proximate cause doctrine. It simply found that the efficient proximate cause doctrine is not applicable to a claim with multiple causes or perils that are independent of each other.
Now let’s take a look at the second hypothetical above: if an insurance policy covers damage resulting from fire, but not earthquakes, does the policy provide coverage if a loss was caused by an unrelated but simultaneous earthquake and lightning strike that start a fire? In this situation, the answer is yes. As an initial matter, the efficient proximate cause doctrine would not apply because one peril is not singularly setting in motion other perils. Instead, the concurrent cause doctrine applies because the loss resulted from causes or perils that were independent of each other. In this scenario, the concurrent cause doctrine would “mandate coverage regardless of which peril was covered and which peril excluded.” Paulucci, 190 F. Supp. 2d at 1319.
In 2013, years after Wallach, the Second DCA was faced with a case involving property damage to a home due to construction defects and Hurricane Wilma. In that case, American Home Assurance Co. v. Sebo, 141 So. 3d 195 (Fla. 2d DCA 2013), the Second DCA rejected the concurrent cause doctrine.
In Sebo, the plaintiff purchased a four-year old home and an “all risks” insurance policy to cover the home. The house and other permanent structures on the property were insured for over $8,000,000. Shortly after buying the residence, water began to intrude into the home during rainstorms and major water leaks were reported throughout the home. It became evident that the house suffered from major design and construction defects. Shortly thereafter, Hurricane Wilma further damaged the residence. The plaintiff reported the damages to his insurer, which investigated the claim and denied coverage for most of the claimed losses, except for $50,000 in mold coverage, pursuant to the policy’s defective construction exclusion. Ultimately, the property could not be repaired and was eventually demolished.
The plaintiff brought suit against a number of defendants for negligent construction, negligent design, and failure to disclose defects in the property. Moreover, the plaintiff sought a declaration that his insurer provided coverage for the claimed damages. A trial proceeded against the insurer only, and the jury found in favor of the plaintiff.
On appeal, the Second DCA reversed the judgment and remanded the case for a new trial. The Second DCA held that the causation of the plaintiff’s loss should be examined under the efficient proximate cause theory, instead of the concurrent cause doctrine, which had been applied by the Third DCA in Wallach. The court reasoned that the concurrent cause doctrine did not apply to first party property loss cases and, thus, created a conflict between the Second and Third DCAs.
Florida Supreme Court
The Florida Supreme Court accepted jurisdiction of the case and framed the issue as “whether coverage exists under [the plaintiff’s] all-risk policy when multiple perils combined to create a loss and at least one of the perils is excluded by the terms of the policy.” Sebo v. American Home Assurance Co., Inc., 208 So. 3d 694 (Fla. 2016).
The court first looked to the language of the insurance policy to determine whether coverage existed: while the policy would cover damages resulting from wind and rain, it excluded coverage for losses cause by defective construction.
Importantly, there was no dispute in the case that the rainwater and hurricane winds combined with the defective construction to cause the damage to the plaintiff’s property.
The court found that there was no reasonable way to distinguish the proximate cause of the property loss—the rain and construction defects acted in concert to create the destruction of the home. Thus, the court reasoned that it would not be feasible to apply the efficient proximate cause doctrine. Accordingly, the court held that when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurrent cause doctrine.
Contracting around the concurrent cause doctrine
In its Sebo opinion, the Second DCA noted that, “[e]ndeavoring to avoid coverage for uninsured perils under either the efficient proximate cause theory or the concurrent cause notion, insurers began adding language known generically as anti-concurrent cause clauses to their policies.” The Second DCA noted that California has rejected the application of these clauses, but “Florida courts have not definitively weighed in on this topic.”
However, the Florida Supreme Court’s Sebo opinion implies that such clauses are valid. The court stated:
[W]e disagree with the Second District’s statement that the [concurrent cause doctrine] nullifies all exclusionary language and note that [the insurer] explicitly wrote other sections of Sebo’s policy to avoid applying the [concurrent cause doctrine]. Because [the insurer] did not explicitly avoid applying the [concurrent cause doctrine], we find that the plain language of the policy does not preclude recovery in this case.
Even before Sebo was decided, the court in Paulucci held that “parties can contract around the concurrent cause doctrine through an express anti-concurrent cause provision.”
Sebo provides a good example as to why anti-concurrent cause clauses are beneficial to insurers. Had the policy contained an anti-concurrent cause provision, then the insurer may have been successful in enforcing its defective construction exclusion.
What Sebo means
Ultimately, the Florida Supreme Court’s Sebo decision did not announce a new or profound rule: it simply restored the law to a state where the efficient proximate cause and concurrent cause doctrines coexist.
Of course, not all cases will have facts that are as straightforward as the hypotheticals discussed in this article. However, in light of the fact that Sebo involved a Hurricane Wilma claim, insureds that find themselves in similar situations after hurricanes Matthew and Irma may rely on the Florida Supreme Court’s opinion in an effort to find coverage.
Overall, it is important to remember that when you are faced with a loss involving multiple perils, the first question to ask is not “which doctrine applies?” Rather, the appropriate question is “what are the facts?”
 These hypotheticals were addressed and answered in Paulucci v. Liberty Mut. Fire Ins. Co., 190 F. Supp. 2d 1312, 1319 (M.D. Fla. 2002).