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Insurance Coverage Notes and Developments

A Word to the Wise About Concurrent Causation

A Word to the Wise About Concurrent Causation

Hurricane Season 2019 is upon us as of June 1. NOAA’s crystal ball predicts an “average” hurricane season this year; to NOAA, “average” means “a likely range of 9 to 15 named storms (winds of 39 mph or higher), of which four to eight could become hurricanes (winds of 74 mph or higher), including two to four major hurricanes (category 3, 4 or 5; with winds of 111 mph or higher).”[1] By comparison, NOAA predicted that 2018, which produced Hurricane Michael, the first Cat 5 hurricane to come ashore in the continental U.S. since 1992, would be “near or above-normal.”[2] And 2017 produced Harvey, Irma, Maria and Nate. 

Every hurricane season produces litigation over property coverage, often focusing on “anti-concurrent causation clauses” in homeowner and commercial property coverage forms. The language is familiar—as set forth in the ISO CP 10 30 commercial property policy “Special Causes of Loss” form, it appears at the beginning of the exclusions: “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.” Concurrent causation provisions like this one often are followed by “ensuing loss” exceptions that restore coverage if something happens later. Example: “But if [the Excluded Event] results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.”

Few concepts have generated so much litigation, and in anticipation of the storms to come it is appropriate to take a look at some cases from the Class of 2018-19 to see what the state of the law is.

Consider first Dinardo v. Pacific Indemnity Co., 2019 Conn. Super. LEXIS 1076 (April 30, 2019), involving concrete failure due to the presence of iron sulfide in the concrete in the homeowner’s basement. Mr. Dinardo had all-risk coverage with exclusions for cracking of walls and defective construction but an exception for “ensuing covered loss.” [Emphasis added.] Applying Connecticut law, the court stated, that for purposes of applying ensuing loss clauses, “[A] loss with multiple causes qualifies as an ensuing loss when the efficient, or proximate, cause of the loss is a covered peril.” For Mr. Dinardo, all of his loss flowed from the excluded defective concrete so there was no coverage. 

Compare Dinardo with Nay Co. v. Navigators Specialty Insurance Co., 2018 U.S. Dist. LEXIS 144750 (N.D. Tex. 2018). Nay was responsible for erecting a grain elevator, which was anchored to the ground and stabilized by guy wires. A subcontractor detached or slackened the guy wires in order to move a crane to install a grain chute. A gust of wind caused the elevator to topple over. Nay tendered this claim to its builders risk insurer, which denied coverage. The applicable language in the policy read, “But if an act, error, or omission as described above results in a covered peril, ‘we’ do cover the loss or damage caused by that covered peril.” [Emphasis added.]

What a difference a word makes. The Court found that the removal of the guy wires was excluded but that it resulted in loss via wind, which was a covered peril. Although the Court did not say so explicitly, it was apparent from the opinion that the Court felt that removal of the guy wires did not itself cause the grain elevator to fall. Therefore, the insurer’s motion for summary judgment was denied

The difference between “ensue,” which means “to happen or occur afterwards or as a result,” and “result,” which means “a consequence, effect or outcome of something,” is substantial and important to the coverage analysis. Something can ensue without resulting from a prior event. The implication is that something “ensues” when it is independent of the prior cause, and “results” when it is set in motion by the excluded cause. Think dominoes falling.

Insurers also need to remember that plaintiffs will argue that the only efficient cause of their loss was one that was not excluded. This happened in Kodrin v. State Farm Fire & Casualty Co., 314 Fed. Appx. 671 (5th Cir. 2009). There, State Farm asserted that excluded storm surge from Hurricane Katrina caused the loss. Plaintiffs argued that wind, a covered peril, was the efficient cause of their loss. The Fifth Circuit, generally not a favorable forum for insureds, relied on its prior Katrina jurisprudence to hold that an anti-concurrent causation does not apply when the exclusive cause of a loss is a covered peril. It also held that courts must allow insureds to put evidence forward to support such claims. Insurers must recall that they bear the burden of proof to show applicability of an exclusion and be prepared to meet arguments of this ilk.

It is to be hoped that Hurricane Season 2019 will turn out to be a non-performer. What will ensue... or result... remains to be seen.

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[1]    https://www.noaa.gov/media-release/noaa-predicts-near-normal-2019-atlantic-hurricane-season (accessed May 23, 2019).

[2]    https://www.noaa.gov/media-release/forecasters-predict-near-or-above-normal-2018-atlantic-hurricane-season (accessed May 23, 2019).