Florida insurance companies writing homeowners’ policies often face challenges in determining whether a claim is covered or excluded under that policy. This is especially true when multiple perils or causes act together to create a loss and one cause is covered and the other is not.
In Sebo v. American Home Assurance Co., 2016 Fla LEXIS 2596 (Fla. 2016), the Florida Supreme Court considered two competing theories regarding how carriers should handle multiple causes/perils that result in a loss under a policy. In Sebo, the homeowners purchased a four (4) year old home and insured it with an $8,000,000.00 all-risk policy from American Home Assurance Company, created specifically for the residence. In May 2005, the homeowners noticed water intrusion following several rainstorms. The leaks continued and it was “clear” there were significant design and construction defects. In October 2005, Hurricane Wilma struck and damaged the property even further. Sebo 2016 Fla. LEXIS at 2-3.
The homeowners filed a claim with their insurer who denied the claim, except for $50,000.00 worth of mold damage, which was not excluded under the policy. The home could not be repaired and the homeowners demolished the home. In 2007, the homeowners filed suit against the original sellers of the home, the architect, and the contractor. The homeowners asserted a claim against their insurer for denying coverage under the policy. The homeowners settled all claims, except for the one against the insurer. The case proceeded to a jury trial on the issue of whether there was coverage under the policy when a covered storm event was a covered peril, but the construction and design defects were not. The jury returned a verdict for the homeowners and a judgment was entered against the insurer.
The Second District Court of Appeal disagreed with the trial court’s use of the “Concurrent Cause Doctrine” (“CCD”) in interpreting the interpretation of multiple perils under the policy. The CCD “provides coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.” Id. at 8. The Second District Court of Appeal instead held the “Efficient Proximate Cause Doctrine” (“EPC”) applied and remanded for a new trial. The EPC doctrine is in stark contrast to the CCD and provides “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.” Id. at 7. This contemplates “a chain of events where one peril directly led to a subsequent peril.” Id.
The Florida Supreme Court accepted jurisdiction due to a conflict between the districts undertook an evaluation of “whether coverage exists under Sebo’s [homeowner’s] all-risk policy when multiple perils combine to create a loss and at least one of the perils is excluded by the terms of the policy.” Id. at 4-5. The Florida Supreme Court ruled the “Concurrent Cause Doctrine” applied to the interpretation of multiple perils under a policy. More specifically, it relied upon reasoning from the lower courts, which held “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.” Id. at 11-12.
In coming to its conclusion, the Florida Supreme Court noted there was “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.” Id. at 14. The Court found it would not be proper to apply the Efficient Proximate Cause Doctrine as there is no way to determine an “efficient cause.” Finally, and more importantly for future cases, the Court also noted the carrier’s policy did not preclude the application of the Concurrent Cause Doctrine given the plain language of the homeowner’s policy.
The Court has set an important precedent in applying the Concurrent Cause Doctrine for situations with multiple perils. However, the Court’s decision did not preclude an Efficient Proximate Cause Doctrine analysis if the terms of the policy preclude a Concurrent Cause Doctrine analysis. If the Concurrent Cause Doctrine analysis is not precluded by the policy, insurers must be mindful the Concurrent Cause Doctrine may provide coverage for multiple perils, even if one peril is excluded under the policy and the other is not.