With formidable winds, tremendous storm surge and prolonged rain, the damage caused by Hurricane Florence will no doubt reignite the age-old debate: what happens when damage is caused by both covered and excluded perils? The two predominant cause tests utilized in multiple cause scenarios are the “efficient proximate cause” test and the “concurrent causation” test. Under the “efficient proximate cause” test, if the efficient proximate cause of the damage is a covered peril, then there is coverage for the damage. Under the “concurrent causation” test, if a covered and excluded peril contribute concurrently to the damage, then the damage is covered, regardless of the degree of damage caused by the respective perils.
In order to avoid the confusion caused by these often convoluted
causation scenarios, insurance companies are incorporating anti-concurrent
causation language in their policies. Anti-concurrent
causation language typically excludes a loss if an excluded peril contributes
concurrently or in any sequence with a covered peril to cause the damage. For
example, a typical anti-concurrent causation clause may read as follows: “where
an excluded peril contributes directly or indirectly to cause a loss, then
coverage is excluded regardless of any other cause or event that contributes
concurrently or in any sequence to the loss.”
South and North Carolina courts appear to diverge on the
proper causation test in these situations.
South Carolina courts appear to have adopted the “efficient proximate
cause” test to determine coverage when a covered peril and an excluded peril
contribute to a loss. In King v. North
River Ins. Co., 278 S.C. 411, 297 S.E. 2d 637 (1982), the Supreme Court of
South Carolina held that it was sufficient for coverage “to prove that the
event insured against was the efficient cause of the loss, even though not the
sole cause.” Id. at 638. In King,
the question before the court was whether the proximate cause of a roof
collapse was vandalism or malicious mischief when bottles thrown on a roof clogged
the roof drains. Id. The court
concluded that the expert testimony was sufficient to support the conclusion
that the clogging of the downspouts was the efficient and proximate cause of
the roof collapse. Id.
While there is little case law since King that addresses the issue, there is no reason to believe that
when presented with the issue, South Carolina courts would deviate from this
holding. What is less clear is how courts will decide which party bears the
burden of apportioning coverage in these situations. In King, supra, the court
did not appear to require the insured to allocate the damage caused by the
covered peril. In contrast, in Hanover
Fire Ins. Co. of New York v. Ivey, 250 F.2d 110 (4th Cir. 1957), the court
appeared to recognize that the insured was required to provide evidence of the
amount of damage caused by the covered peril of wind versus the damage caused
by the excluded peril of water. Therefore, the scope of coverage remains
unclear under South Carolina law even when a court determines there is coverage
under the “efficient proximate cause” test.
Conversely, North Carolina has adopted the “concurrent
causation” test. In Avis v. Hartford Fire Insurance Co., 283 N.C. 143,
195 S.E. 2d 545 (1973), the Supreme Court of North Carolina recognized the
general rule that “coverage will extend when damage results from more than one
cause even though one of the causes is specifically excluded.” Id. at 549. In Avis, the insureds sought coverage for damage to wood in their
house. Id. at 546. The insureds had
their home painted, and paint began to blister and peel from some of the
woodwork. Id. The painter tried to remove the paint and
repaint it, but the wood would not hold the paint and became damaged. Id. The Supreme Court held that it was
not only the inherent qualities of the wood that led to the damage, but the
extraneous acts of the painter contributed to the damage. Id. at 549. The court concluded that since the loss was not caused
solely by the inherent defect, there was coverage under the all-risk policy. Id. at 550; see also, Erie Insurance Exchange v. Bledsoe, 141 N.C. App. 331,
540 S.E.2d 57 (2000) (excluded peril must be sole cause of damage for damage to
be excluded).
The jurisdictional divergence ends at the acknowledgement
and enforceability of anti-concurrent causation language. South Carolina and North Carolina both recognize
the effectiveness of anti-concurrent causation language. In South Carolina Farm Bureau Mutual Insurance
Co. v. Durham, 380 S.C. 506, 671 S.E.2d 610, (2009), the Supreme Court of
South Carolina upheld the application of anti-concurrent causation language to
a loss in which both covered and excluded perils contributed to the loss. Id. at 613. In Durham, the insured drained its pool of water, and the pool was
subsequently lifted by the hydrostatic pressure of the ground water, damaging
the pool. Id. at 611. The policy
excluded damage caused by the pressure of water below the ground. Id.at 612. The court recognized that
both the draining of the pool, a covered cause of loss, and the water pressure
contributed to the loss. Id. at 613.
The court also recognized the existence of both the “efficient proximate cause”
and “concurrent cause” test, but determined that the existence of
anti-concurrent causation language contained in the water damage exclusion
meant that neither doctrine applied. Id. Instead
since the pressure was a cause of the loss, the anti-concurrent causation
language meant the entire loss was excluded. Id.
In Builders Mutual
Insurance Co. v. Glascar Properties, Inc., 202 N.C. App. 323, 688 S.E.2d
508 (2010), the Court of Appeals of North Carolina also recognized the
effectiveness of anti-concurrent causation language. In Builders Mutual, the insured’s home was broken into and vandals
left water taps running causing extensive damage, including mold. Id. at 510. The insurer denied coverage
for the mold citing an exclusion for fungi. Id.
The insured, citing Avis, supra, and its progeny, tried to argue
that because there was more than one cause of the loss and one was covered, the
entire loss should be covered. Id.at
511. However, the court recognized that none of the cases cited by the insured
involved a policy that contained anti-concurrent causation language. Id. While the vandalism may have
contributed to the mold loss, the anti-concurrent causation language in the
mold exclusion still barred coverage. Id.
at 512.
Given the confluence of wind and water that will characterize
Hurricane Florence, it is likely that claims arising from the storm will
involve more than one peril. To the extent any of the perils is excluded, it
will be critical to identify what damage was caused by each corresponding peril
in the investigation and adjustment process.
Of course, the first step is to determine the applicable policy
language. If the policy excludes any of the
perils causing damage, it is imperative to determine whether the policy
contains anti-concurrent causation language. The inclusion of anti-concurrent
causation will likely lead to a denial of the claim, assuming that any of the
perils is excluded. If there is no anti-concurrent causation language, then the
applicable state’s law will dictate whether the causation analysis is driven by
the “efficient proximate cause” or “concurrent causation” test.
