For years Florida courts were plagued by the issue of determining the appropriate theory of recovery to apply when two or more perils converge to cause a loss and at least one of the perils is excluded from an insurance policy. Florida courts developed two competing (and potentially inconsistent) theories on how to assess coverage: the efficient proximate cause and concurrent causation doctrines. In December 2016, the Florida Supreme Court in Sebo v. Am. Home Assurance Co., 208 So. 3d 694 (Fla. 2016) put an end to this decades-long debate when it formally adopted the concurrent causation doctrine in a case involving multiple perils and a first-party insurance policy.
1. Concurrent Causation in Florida – When Covered and Excluded Perils Combine to Cause a Loss, the Loss is Likely Covered
In Sebo, the insured, purchased a four-year old home in Naples, Florida in April 2005. The home was insured under a manuscript policy written specifically for the Sebo residence and other permanent structures on the property. These structures were insured for over $8 million, including additional coverage for loss of use of the home.
Shortly after the insured purchased the home, water began to intrude during rainstorms. Major leaks were reported to the insured’s property manager in May 2005, only a month after the home was purchased. The leaks were located in various rooms in the main home, both upstairs and down. In August 2005, after a particularly heavy rainstorm, paint began to fall off the walls, and in October 2005, Hurricane Wilma struck Naples further damaging the property. By this point, the residence was damaged beyond repair and had to be demolished. It was undisputed that defective construction combined with rainwater and hurricane winds caused the damage.
Sebo’s insurer denied the majority of the claimed damage – including the demolition and rebuilding costs – on the basis of the policy’s construction defect exclusion, which stated:
8. Faulty, Inadequate or Defective Planning
We do not cover any loss caused by faulty, inadequate or defective:
a. Planning, zoning, development, surveying, siting;
b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading compaction;
c. Materials used in repair, construction, renovation or remodeling; or
d. Maintenance;
of part or all of any property whether on or off the residence.
The court found that the insured’s claimed damage combined in such a way that it was impossible to discern the proximate cause of the property loss – i.e., the rain and construction defects acted in concert to destroy the insured’s home. The court further held that it would not be feasible to apply the efficient proximate cause doctrine because, given the combined nature of the damage, no efficient cause could be determined. Ultimately, the court applied the rationale from Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988) and held that “where weather conditions 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.” Sebo, 208 So.2d at 700, citing Wallach. Accordingly, under Florida’s application of the concurrent causation doctrine, if excluded and covered events combine to cause damage, then the loss is covered if at least one covered cause of loss contributed to the damage.
The Sebo Court’s analysis is based, in part, on the fact that the covered perils – wind and rain – and excluded perils – construction defects – combined to cause indivisible damage. Importantly, the Court found it significant that certain policy exclusions were written “to avoid applying the [concurrent causation doctrine.]” Id. Namely, the construction defects exclusion was not prefaced by an anti-concurrent causation clause (ACC).
2. An Anti-Concurrent Causation Clause Alters Application of the Concurrent Causation Doctrine in Florida
A typical ACC Clause, which often prefaces an insurance policy’s exclusionary provisions, states:
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 sequence to the loss.
The District Court of Appeals in Sebo recognized that “Florida courts have not definitively weighed in on” whether ACC clauses are enforceable in Florida. Am. Home Assur. Co. v. Sebo, 141 So. 3d 195, 202 (Fla. Dist. Ct. App. 2013), review granted, decision quashed sub nom. Sebo v. Am. Home Assurance Co., 208 So. 3d 694 (Fla. 2016). That court found that the policy language at issue “was insufficient to exclude losses arising from concurrent causes.” Id. Both the appellate court and the Florida Supreme Court recognized that Sebo’s policy has some exclusions with specific ACC language, but the construction defects exclusion did not have the ACC language.
The Sebo Supreme Court found it significant that the insurer explicitly wrote sections of the policy to avoid applying the CCD, and concluded that failure to include an ACC clause with the construction defects exclusion expressed an intent to apply CCD with construction defect claims. Therefore, while the Florida Supreme Court did not outright apply or approve ACC clauses, its dicta infers that they are enforceable to alter application of the CCD in Florida.
Post-Sebo, it has never been more important for insurers to include ACC Clauses when their intent is to contractually alter and/or trump the default concurrent causation law, and to understand the application of ACC clauses when making coverage determinations. The inclusion of an ACC clause in a policy can significantly alter the available coverages when excluded and covered perils combine to cause the same damage, and may prove decisive in determining coverage for hurricane losses when wind and flood damage combine.
Posted by Anaysa Gallardo Stutzman and Christine Renella
