Plaintiff John Sebo bought a house in Florida in April 2005. Defendant American Home Assurance Company (AHAC) provided homeowners insurance from the time of purchase. The AHAC policy (the 'Policy') provided over US$8 million in coverage for damage to the home and other permanent structures on the premises. It also provided coverage for loss of use of the home. The Policy excluded losses caused by defective construction.
Extensive roof leaks were reported as early as May 2005, and Hurricane Wilma exacerbated the damage in October 2005. Sebo reported water intrusion to AHAC in December 2005. AHAC investigated but denied coverage for most of the claimed losses in April 2006. AHAC tendered its US$50,000 limit for mold damage, but took the position that 'damages to the house, including any window, door, and other repairs, is not covered' as defective construction contributed to the loss.
The residence could not be repaired and was demolished. In January 2007, Sebo filed suit against the home's previous owners, architect, and builder. In November 2009, Sebo amended his complaint, adding AHAC as a defendant and seeking coverage under the Policy. A jury eventually found in Sebo's favour, and the trial court entered judgment against AHAC.
On appeal, Florida's Second District Court of Appeals noted the lack of any dispute 'that there was more than one cause of loss, including defective construction, rain, and wind.' The Second District then disagreed with the trial court's application of Florida's concurrent causation doctrine in a 'case involving multiple perils and a first-party insurance policy.' The Second District therefore reversed and remanded for a new trial 'in which the causation of Sebo's loss is examined under the efficient proximate cause theory.'
Efficient proximate cause or concurrent cause?
As the Florida Supreme Court put it, "[w]e are confronted with 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." The Court described the competing theories as follows:
[Efficient Proximate Cause or EPC theory] provides that where there is a concurrence of different perils, the efficient cause—the one that set the other in motion—is the cause to which the loss is attributable.
[Concurrent Cause Doctrine or] CCD provides that coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.
The Court illustrated its understanding of efficient proximate cause doctrine with a prior case deciding coverage under an all-loss fire policy that excluded loss caused by an explosion. The Court there distinguished between a fire causing an explosion which causes a loss—a covered loss—and an explosion causing a fire which causes a loss—a non-covered loss.
In contrast, the Court illustrated its understanding of concurrent cause doctrine with the case followed by the trial court, Wallach v. Rosenberg, 527 So.2d 1386 (Flo. 3d DCA 1988) . There, the Rosenbergs' sea wall partially crumbled due to a combination of the neighbour's sea-wall collapsing and a storm. The Rosenbergs sought coverage under their homeowner's policy. Their insurer denied the claim on the basis of an exclusion for loss caused by earth movement or water damage (i.e. the storm), even though it was undisputed that the neighbour failed to properly maintain his sea wall, and that the neighbour's failure contributed to the Rosenbergs' loss. Florida's Third District Court of Appeals there held that "[w]here 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."
The Sebo holding: concurrent cause doctrine applies in favour of coverage when no efficient proximate cause can be determined
The Florida Supreme Court granted review based on the conflict between Wallach and the Second District's decision, which explicitly rejected Wallach. Before handing down its decision, the Court noted the parties' agreement "that the rainwater and hurricane winds combined with the defective construction to cause the damage to Sebo's property." The Court noted further that "there is no reasonable way to distinguish the proximate cause of Sebo's property loss—the rain and construction defects acted in concert to create the destruction of Sebo's home."
The Court then held that "it would not be feasible to apply [efficient proximate cause] doctrine because no efficient cause can be determined." The Court then opined that because nothing in the Policy undermined application of concurrent cause doctrine and no efficient proximate cause could be determined, concurrent cause doctrine applied in favour of coverage for the loss. Thus, under Florida law, a loss is generally covered under a first-party policy if: (1) no efficient proximate cause can be determined; (2) covered and excluded causes jointly cause a loss; and (3) the policy does not contain an applicable anti-concurrent cause provision.
This approach stands in contrast to some other states, like Texas. Texas follows its own, more insurer-friendly, variation of concurrent cause doctrine: "when covered and non-covered perils combine to cause a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril." See, e.g., Travelers Indemnity Co. v McKillip, 469 S.W.2d 160, 162 (Tex. 1971). In other words, the insured bears the burden of segregating covered damage (i.e. damage due to a covered cause) and non-covered damage (i.e. damage due to a non-covered or excluded cause).
What's next?—and how insurers can protect themselves
Sebo is in some ways unsurprising. The loss fell within the Policy's insuring agreement, and "it w[as] not feasible to apply [efficient proximate cause] doctrine because no efficient cause c[ould] be determined." Accordingly, AHAC could not prove that an excluded cause was the proximate cause of the loss, and the insuring agreement's broad grant of coverage therefore governed.
What Sebo leaves open, however, is the issue of what happens when an excluded cause precedes and gives rise to a covered cause, and both later cause a loss. If a case with those facts reaches the Court, the Court may well carve out an exception from concurrent cause doctrine in favour of efficient proximate cause doctrine such that the loss would be excluded from coverage.
We also note in closing the Court's implicit approval of insurance policies' use of anti-concurrent cause language to avoid application of concurrent cause doctrine and thereby narrow the scope of coverage. In "disagree[ing] with the Second District's statement that [concurrent cause doctrine] nullifies all exclusionary language," the Court "not[ed] that AHAC explicitly wrote other sections of [the] [P]olicy to avoid applying [concurrent cause doctrine]." Thus, the Court held, "[b] ecause AHAC did not explicitly avoid applying [concurrent cause doctrine], we find that the plain language of the [P]olicy does not preclude recovery in this case." Accordingly, an insurer seeking to avoid AHAC's fate in Sebo would do well to include anti-concurrent cause provisions in its first-party policies.