This article explores a brief background of how the insurers sought to insulate
themselves from water damage liability, insurers' attempts to deal with problems
of causality, and how their policy language torpedoed their alleged concurrent
causation exclusion.
Background of Concurrent Cause Exclusions
When courts began to construe losses involving both covered and excluded
causes of loss in favor of coverage for insureds, insurance companies responded
by seeking exclusionary language to overcome judicial threats. The Insurance
Services Office, Inc. (ISO), for example, adopted the following wording in 1991:
We do not insure for loss caused directly or indirectly by any of the following.
Such loss is excluded regardless of any other cause or event contributing
concurrently or in any sequence to the loss.
Many observers believed this or similar terminology addressed insurer fears.
Of course, there is no definition of concurrent causation in the insurance policies;
however, this has not prevented industry sources from offering an industry view
of what it means. One text defines it as "A single loss caused by two or more
perils, acting either simultaneously or in succession." The text continues,
asserting that the industry's position is that "a loss is excluded if caused
by an excluded cause, whether or not that cause is the predominant one" (Popow,
p. 134). Over time, this industry understanding became Conventional Wisdom.
As is so often the case, Conventional Wisdom can be and has been wrong.
Causal Thinking Among Insurers
Insurers have what psychologists might term an approach-avoidance attitude
toward causation. In underwriting and rating of policies, insurers do not feel
compelled to demonstrate causation; instead, correlation, a statistical relationship
in which two variables merely appear together, is sufficient. Thus, if an insurer
posits a correlation between one's credit score and auto claims, Shazam! Underwriters
use credit scores to underwrite policies. The same is true for age, gender,
type of vehicle, territory, and other popular underwriting factors.
Causation takes center stage, however, when claims are under review. At this
stage, claimants often have the burden of proving a causal link between their
loss and a covered cause of loss. Policy requirements for proof of loss, examination
under oath, and cooperation may be applied to establish causation. (In this
regard, open perils policies are more consumer friendly because they shift the
burden of proving exclusions to the insurer.)
Despite the fact that causation is an ancient philosophical, medical, and
scientific issue provoking extensive debate, insurers show little evidence of
having given serious thought to the concept. (See Blalock for an extended discussion.)
Their ill-fated attempts to rely on concurrent causation in Hurricane Katrina
cases illustrate the deleterious consequences.
Concurrent causation, it turns out, has enjoyed a long and easily recognizable
presence in social and medical sciences. Concurrent causation occurs when two
independent, unrelated causal variables (perils) contribute to the same effect
(loss). This definition is also recognized in case law, as indicated by a Florida
court's distinction between proximate cause and concurrent causation in Jeno F. Paulucci v. Liberty Mut. Fire Ins., 190
F. Supp. 1312 (2002).
The concurrent cause doctrine and efficient proximate cause doctrine are
not mutually exclusive. Rather, they apply to distinct factual situations. The
concurrent cause doctrine applies when multiple causes are independent. The
efficient proximate cause doctrine applies when the perils are dependent. Causes
are independent when they are unrelated, such as an earthquake and a lightning
strike, or a windstorm and wood rot. Causes are dependent when one peril instigates
or sets in motion the other, such as an earthquake that breaks a gas main that
starts a fire.
In a hurricane, there are multiple perils: varieties of wind, rain, wind-blown
objects, water-borne objects, and storm surge. These perils are not independent;
hence, the appropriate causal language for describing a hurricane's perils are
reciprocal causation and multiple causation. Logically, given custom and practice
in the social, medical, legal, and scientific disciplines, concurrent cause
terminology is inapplicable to hurricanes because the causes involved are not
independent.
State Farm, Allstate, Nationwide, and Concurrent Cause
Below is the language from State Farm's homeowners policy.
2. We do not insure under any coverage for any loss which would not have occurred in the absence
of one or more of the following excluded events. We do not insure
for such loss regardless of: (a) the cause of the excluded event; or
(b) other causes of the loss; or (c) whether other causes acted concurrently
or in any sequence with the excluded event to produce the loss; or (d)
whether the event occurs suddenly or gradually, involves isolated or
widespread damage, arises from natural or external forces, or occurs
as a result of any combination of these: … c. Water damage, meaning: flood, surface water, waves, tidal water,
tsunami, seiche, overflow of a body of water, or spray from any of these,
all whether driven by wind or not. (Emphasis added. Use of the modal auxiliary verb "would" with "not"
renders the sentence rather awkward.) |
To restate the language, State Farm says, "We do not insure under any coverage
for any loss which would not have occurred in the absence of flood, surface
water, waves, tidal water, tsunami, seiche, overflow of a body of water, or
spray from any of these, all whether driven by wind or not."
This provision essentially requires State Farm adjusters to ask the following
question before invoking the water damage exclusion: "If we control for the
effects of water, would wind have been sufficient to cause the loss?" If State
Farm cannot muster a preponderance of evidence to show that wind would not have
caused the damage, it cannot deny coverage based on the water exclusion. Unambiguously,
the language does not say the company will not pay if water and wind combine
in a loss.
Allstate's Policy: Back to Predominant Cause
Allstate's policy language states as follows.
We do not cover loss to covered property described in COVERAGE A—DWELLING
or COVERAGE B—OTHER STRUCTURES PROTECTION when: a) there are two or more causes of loss to the covered property; and b) the predominant cause(s) of loss is (are) excluded under LOSSES WE DO NOT
COVER, items 1 through 22 above. |
Note that this section of the policy is in the conjunctive. Allstate's policy
directly addresses the question of multiple causation, i.e., the possible conjunction
of more than one cause of a loss. Instead of adopting a concurrent cause position
though, the Allstate policy actually incorporates proximate cause as reflected
in Garvey v. State Farm Fire & Cas., 770
P.2d 704 (Cal. 1989). Invoking its flood exclusion dictates that its claims
procedure demonstrate that "the predominant cause of loss is flood, including,
but not limited to surface water, waves, tidal water or overflow of any body
of water, or spray from any of these, whether or not driven by wind."
"Predominant" means "having ascendancy, authority, or dominating influence
over others; superior." (Webster's New World
College Dictionary, 4th Edition.)
Stating the exclusion differently, if inquiry demonstrates that the predominant
cause of loss is a covered peril, Allstate must pay the entire claim.
Nationwide's Policy: No Ambiguity Here Either
The Nationwide policy exclusion states as follows.
1. We do not cover loss to any property resulting directly or indirectly
from any of the following. Such a loss is excluded even if another peril
or event contributed concurrently or in any sequence to cause the loss. ... b) Water or damage caused by water-borne material.
Loss resulting from water or water-borne material damage described below
is not covered even if other perils contributed, directly or indirectly
to cause the loss. Water and water-borne material damage means: (1) flood, surface water, waves, tidal waves, overflow
of a body of water, spray from these, whether or not driven by wind. |
Nationwide's policy is the only one of the three purporting to exclude "water-borne
material." Apparently, this is an attempt to circumvent Sterling v. City of West Palm Beach et al., 595
So. 2d 295 (Fla. App. 1992), which held that since the policy at issue did not
mention raw sewage in its definition of water damage, sewage backup was a covered
peril.
Nationwide, like State Farm, incorporates a concurrent cause exclusion, albeit
one different from State Farm's policy. Nationwide states that "Such a loss
is excluded even if another peril or event contributed concurrently or in any
sequence to cause the loss." The court in Leonard v.
Nationwide (Memorandum Opinion, U.S. District Court, Southern District
of Mississippi, No. 1:05CV475 LTS-RHW, 08/15/2006) explained why this provision
failed to limit coverage to the insurance industry's most restrictive interpretation
of concurrent causation (if water damage is present, there is no coverage) as
follows:
The "loss," "such a loss," and "the loss" referred to in this paragraph, is,
in this instance, damage caused by rising water during Hurricane Katrina.
These three terms refer to this particular excluded loss, i.e., damage caused
by rising water, but this paragraph does not affect the coverage for other
losses (covered losses), i.e., damage caused by wind, that occur at or near
the same time. Thus, this language does not exclude coverage for different
damage, the damage caused by wind, a covered peril, even if the wind damage
occurred concurrently or in sequence with the excluded water damage. The
wind damage is covered; the water damage is not.
I agree. The language unambiguously supports the court's interpretation.
Conclusion
As demonstrated above, there is no such thing as THE concurrent cause provision
of three major insurers. Accordingly, commentators must be careful to avoid
oversimplification in discussions of alleged policy exclusions. Oversimplification
may serve media interests in reporting about complex subject matter, but greater
parsimony is essential for fair resolution of coverage disputes. Moreover, industry
spokespersons could benefit from better understanding of statistical argot,
which, in turn, could lead to insurers adopting policy terminology more closely
mirroring a company's intent.
The fact that none of the policies discussed in this commentary included
a genuine concurrent cause provision reinforces this notion. At the claims stage,
this means that the claims procedure for each company, done properly, mandates
different approaches to claims investigations.
Sources Blalock, Hubert M. Statistical Inferences
in Nonexperimental Research. Chapel Hill: University of North Carolina
Press, 1961.
Popow, Donna J. Property Law Adjusting,
3rd Edition. Malvern, PA: American Institute of Chartered Property Casualty
Underwriters/Insurance Institute of America, 2003.