FLORIDA SUPREME COURT DECIDES WHAT COVERAGE TEST TO APPLY WHEN MULTIPLE PERILS CAUSE A PROPERTY LOSS

Earlier this month, the Supreme Court of Florida issued its long-awaited decision regarding the applicable standard for determining the availability of insurance coverage where there are multiple, concurrent causes of a property loss. In Sebo v. American Home Assurance Company, Inc., No. SC14-897 (Fla. Dec. 1, 2016), the court, applying the so-called "concurrent cause" doctrine, held that an entire claim may be covered even though one of the causes of the loss is excluded under a first-party property policy. The court suggested, however, that coverage may not apply if it can be established that an excluded peril is the "efficient proximate cause" of the loss. 

In Sebo, the insured's $11.2 million home in Naples, Florida sustained serious water damage both before, and in the wake of, Hurricane Wilma in 2005. There was no dispute that the loss was caused by multiple perils, namely, a combination of construction defects, heavy rains and wind. The insurer denied coverage for most of the damage because the insured's "all-risk" property policy specifically excluded damage due to construction defects. The insured subsequently filed an action for declaratory relief against the insurer, and a jury found in favor of the insured in the amount of $8 million. The Second District Court of Appeal, however, reversed and remanded the case for a new trial, holding that the cause of the loss should be examined under the "efficient proximate cause" doctrine rather than the "concurrent cause" theory applied by the trial court. 

On appeal, the Supreme Court was tasked with determining the issue of whether coverage existed when multiple causes combined to create a loss, and at least one of the causes was excluded. It first undertook an analysis of the two competing approaches to causation employed by U.S. courts. The "efficient proximate cause" doctrine, the prevailing, more insurer-friendly approach, provides that the primary or proximate cause that sets the other causes in motion should be considered the sole cause for the purpose of determining the availability of coverage. The insured argued that the "concurrent cause" doctrine, a minority approach employed by some U.S. courts, including a Florida intermediate appellate court, should apply because it permits coverage as long as the loss is caused by at least one covered peril, even when it is not the prime or efficient cause. 

In this case, the Supreme Court found that there was "no reasonable way" to distinguish the proximate cause of the insured's property loss. Thus, the court found because the "rain and construction defects acted in concert to create the destruction of [the insured's] home … it would not be feasible to apply the [efficient proximate cause] doctrine…." Further, since none of the relevant provisions of the insured's policy explicitly avoided application of the concurrent cause doctrine, the court found that the plain language of the policy did not preclude recovery. 

Sebo appears to leave open the possibility that insurers may still be able to defeat coverage in instances where an excluded peril is a contributing factor if they can prove that the excluded peril was the primary or efficient cause of the loss. Insurers may also benefit from the inclusion of "anti-concurrent causation" clauses in their policies, which typically bar coverage for losses caused concurrently by both covered and excluded perils.