On December 1, the Florida Supreme Court held that in the first party context where concurrent perils result in a loss, the concurrent cause doctrine applies to determine coverage.
Background: The case in front of the Florida Supreme Court involved two parties: homeowner John Sebo, who purchased his Naples home in 2005, and his insurer, American Home Assurance Co., or AHAC. The applicable insurance policy insured against “all risks” and provided additional coverage for the loss of use of Sebo’s home.
Flooding commenced shortly after Sebo bought the lavish residence, leading to problems such as leaks in the main house foyer, the living room, dining room, piano room, exercise room, and multiple bathrooms. When Sebo reported the flood and other damages to AHAC for coverage, AHAC denied it because construction defects were the primary cause of the resulting damage and the policy explicitly excluded damage due to faulty, inadequate, or defective planning. Sebo sued AHAC, among other defendants, seeking a declaration that the homeowner’s policy provided coverage for his damages. The issue for the Court was whether coverage exists under Sebo’s policy where multiple perils, including the non-covered defective construction and other covered perils, created the resulting damage to his home.
The doctrines: “All risk” property insurance policies cover all causes of loss, unless explicitly excluded. In cases involving multiple perils—one peril which is not excluded by the policy and one which is excluded—resulting in loss, courts must determine whether recovery is permissible using a causal test. The two most common tests are the efficient proximate cause rule and the concurrent cause rule. These two rules were analyzed by the justices in Sebo v. American House Assurance Company Inc.:
- Efficient proximate cause: states that an insurer may only avoid coverage where it proves that an excluded peril is the “efficient proximate cause” of the loss. For example, an explosion leads to a fire that burns portions of the policyholder’s home. If the policy excludes loss caused by explosion and does not exclude loss caused by fire, and the insurer fails to prove that the efficient proximate cause of the resulting loss was an excluded peril (here, explosion), the entire loss will be covered.
- Concurrent cause doctrine: states that a policyholder may recover where two or more perils contribute to the loss and at least one of the causes is not excluded under the terms of the policy. For example, wind and rain from a hurricane both cause loss to a policyholder’s home. If wind is not an excluded cause under the policy and loss caused by flooding is excluded, pursuant to the concurrent cause test, the loss will be covered.
The Florida Supreme Court determined that the concurrent cause doctrine applies to Sebo’s case, rejecting the Second District’s concern that “a covered peril can usually be found somewhere in the chain of causation, and to apply the concurrent causation analysis would effectively nullify all exclusions in an all-risk policy.”
Why the Florida Supreme Court got it right: While the Court’s decision is not binding outside of Florida, other courts nationwide may consider adopting the justices’ reasoning:
- Contract interpretation: Typically, ambiguities in insurance contracts of adhesion are interpreted against the insurer. Thus when a loss is caused, even partially, by a non-excluded peril, any exclusion that the insurer advances should be interpreted against the insurer to allow for coverage. The notion of contra proferentem, or interpretation against the drafter, is more aligned with the concurrent cause doctrine. And insurers can still offer policies with clear anti-concurrent cause language to contract around this assumption.
- Judicial economy: In most situations, the efficient proximate cause of a loss will need to be litigated. Where an insurer asserts that an excluded peril caused a loss that involves both excluded and non-excluded contributing causes, the insurer bears the burden to prove that the insured’s loss was caused by an excluded cause. This is an issue of fact and may result in a battle of the experts during litigation in order to instruct and convince a finder of fact. Using the concurrent cause doctrine takes out this burdensome, and costly, step.
- Public policy: Because it is consistent with the rules of contract interpretation, conserves judicial resources by reducing the likelihood and scope of coverage litigation, and makes default a standard that both reduces insurers’ ability to deny coverage and eases the burden on policyholders to establish it, the concurrent cause doctrine is good public policy.
 American Home Assurance Co. v. Sebo., 141 So. 3d 195, 203 (Fla. 2d DCA 2013).