Trouble in the Sunshine State: Florida Applies the Insured-Friendly Concurrent Cause Doctrine for Multiple Cause Losses

A multiple cause loss is exactly what it sounds like; it is a loss with multiple, or a combination of, causes.  An example would be a bursting water pipe that was caused by both cold weather and a homeowner’s negligent failure to maintain above-freezing temperatures in a home.  These losses become significant for insurance purposes when one cause of a loss is a covered peril, but another cause is excluded from coverage.

Courts have traditionally applied one of two separate doctrines to determine the existence of coverage for multiple cause losses: the efficient proximate cause doctrine or the concurrent cause doctrine.   Under the efficient proximate cause doctrine, when there are multiple causes of a loss, the cause that set the other causes in motion is deemed the cause of the loss for purposes of determining the availability of coverage.  In other words, under the efficient proximate cause doctrine, a loss is generally covered if it is caused by a covered peril that sets an uncovered peril in motion; but a loss is not covered if it is caused by an uncovered peril that sets a covered peril in motion.  Conversely, under the concurrent cause doctrine, coverage may be available when a covered peril is a cause of the loss even though it is not the primary or efficient cause of the loss.

The concurrent cause doctrine is the more insured-friendly of the two doctrines.  To avoid coverage where the concurrent cause doctrine is applicable, an insurer may be required to show that none of the multiple causes of the loss is a covered peril, whereas to avoid coverage where the efficient proximate cause doctrine is applicable, the insurer is only required to show that the primary or efficient cause of the loss is excluded.  Because the concurrent cause doctrine increases an insurer’s burden of proof, it likely also will increase the costs to adjust the loss in the form of testing and experts.

A December 2016 Florida Supreme Court decision added clarity to the Florida insurance market with respect to multiple-cause losses.  In Sebo v. Am. Home Assurance Co., 208 So. 3d 694 (Fla. 2016), the Florida Supreme Court adopted the concurrent cause doctrine in a case involving an “all risk” homeowners’ policy.  The insured property was an $8 million home, and was eventually demolished as a result of extensive water and wind damage.  It was undisputed that defective construction combined with rainwater and hurricane winds caused the damage.  The policy excluded losses caused by defective construction, but it covered losses caused by weather.   Ultimately, the court applied the concurrent cause doctrine and found that the entire loss was covered, reasoning 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.”  Sebo reversed a prior Florida Court of Appeals decision that applied the efficient proximate cause doctrine.

The application of the concurrent cause doctrine in Sebo will likely have a significant impact on the Florida insurance market.  But, perhaps as importantly, Sebo also highlights the significance of careful drafting of policy language.  The court in Sebo applied the concurrent cause doctrine because the policy “did not explicitly avoid applying [the concurrent cause doctrine].”  In other words, had the policy excluded coverage for losses when any excluded peril contributes directly or indirectly to a loss – sometimes referred to as an “anti-concurrent causation clause” – the Sebo court likely would have found no coverage.  Now more than ever, the inclusion of such clauses in policies issued to Florida insureds will be of utmost importance to insurers doing business in Florida.

Published by Nick Dolejsi

Staying Afloat in a Sea of AOBs

What is an AOB?

The Office of the Insurance Consumer Advocate provides the following definition for AOBs:

An assignment of benefits (AOB) is a legal tool that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim. AOB is commonly used when a homeowner experiences a water loss – such as a leaky pipe, an overflow from a sink, or a damaged appliance – and contacts a contractor or water remediation company for assistance. Most AOB agreements presented to the insured allow the contractor to stand in the shoes of the insured for insurance collection purposes.

How are AOBs trending?

Newly formed at the beginning of 2016, the Consumer Protection Coalition was created to raise awareness of AOB abuse.  The Consumer Protection Coalition reports Florida AOB lawsuits have increased 90,000 percent since 2000, with the predominance of claims in South Florida.  The increase of AOB claims and litigation became further highlighted when the state-run insurer, Citizens Property Insurance Corp., filed for a rate increase this year citing AOB abuse as the driving force.

Citizens data reveal a 46% rise in water loss claims in a 5-year period.  Additionally, the Citizen’s data shows those claims are more expensive and far more likely to lead to litigation, thereby increasing the overall cost of the claim. Citizens data also reveals geographic trends.  It shows that nearly 1 in 4 South Florida insureds are more likely to assign benefits to a third party (i.e. a contractor, water mitigation company, or public adjuster) prior to submitting a claim to their carrier.

What about judicial enforcement of contract provisions, such as an anti-assignment clause?

For almost a century, there has been a body of Florida case law that supports the position that policyholders have the right to assign post-loss claims without insurer consent.  A more recent example of this area of law was illustrated in 2015, when the Fourth District Court of Appeals entertained argument by an insured’s assignee who brought a breach of contract action against a homeowner’s insurer for failing to adequately compensate the assignee for emergency water removal services it performed in the aftermath of an August 2012 water event. Specifically, the water remediation company argued that the trial court erred as a matter of law in dismissing its complaint based on the anti-assignment and loss payment provisions of the policy and maintained that: (1) post-loss assignments of insurance are valid under Florida law even if the policy contains an anti-assignment clause; (2) the right of payment accrues on the date of the loss; and (3) the loss payment provision does not preclude an assignment of benefits and has never been construed to have any bearing on the issue of assignments.  In making its determination, the court explained:

“we are not unmindful of the concerns that [the insurer] expressed in support of its policy change, providing evidence that inflated or fraudulent post-loss claims filed by remediation companies exceeded by thirty percent comparable services; that policy holders may sign away their rights without understanding the implications; and that a ‘cottage industry’ of ‘vendors, contractors and attorneys’ exists that use the ‘assignment of benefits and the threat of litigation’ to ‘extract higher  payment form insurers.’  These concerns, however are matter of policy that we are ill-suited to address…[which] are more properly addressed to the Legislature.”

Now what?

Insurers, consumer protection groups, state agencies and - with the additional lightening of wallets resulting from the approved rate hikes - insureds are all affected by the AOB crisis in Florida.  Legislative efforts to address the AOB problem have failed.  Senate Bill 596, filed October 21, 2015, died in judiciary on March 11, 2016.  That same day House Bill 1097, filed January 4, 2016, died in the Regulatory Affairs Committee.

With the recent change of the guard from Kevin McCarty (retired May 2, 2016) to David Altmaier, as Insurance Commissioner, a watch for change begins.  The Commissioner acts as both a regulator and consumer watchdog, and takes the heat if insurance rates go up.  As the new Insurance Commissioner, Altmaier will have his hands full with this growing problem right out of the gate as he steps into a state of emergency caused by AOB abuse.

By Anaysa Gallardo Stutzman and Christine Renella