I recently played a few old recordings, including Dennis Miller’s “rant”
on lawyers. One quip is that the lawyers use language that is “so cryptic, so
utterly puzzling and arcane, that Moses, Hammurabi, and Judge Judy working 24
hours for 20 years could not understand it.”
When it comes to insurance policies, it occurs to me that Mr. Miller is being
too easy on the legal system. True, insurance policies are long, convoluted,
and abstruse documents. It would be refreshing to roll back 200 years to a time
when an insurance policy consisted of one page including a benediction and a
John Hancock written by a person with authority to pay covered losses. But Mr.
Miller misses a more pernicious problem—interpretation of policy provisions
in ways that are not obvious to most people engaged in transacting insurance.
Causal Concepts
The law of causation is a prime example of the information few people know
about and even fewer use when purchasing insurance. The law is comprised of
doctrines that are incompatible, vary from jurisdiction to jurisdiction, and
lend themselves to “logic chopping.” Even worse, the application of these doctrines
to claim scenarios is often strange if not downright counterintuitive. For instance,
one doctrine (a version of efficient proximate cause) raises this conundrum
regarding business interruption coverage for loss arising out of September 11:
Was Reagan National closed because of damage to the World Trade Center and the
Pentagon or because of concern about more terrorist attacks?
How important are causal concepts in insurance? Over the past 20 years there
have been fundamental changes relating to causation in both the rules of insurance
policy interpretation and the wording of insurance policies. (These subjects
are covered in Chapter 12 of my book How to Draft and Interpret
Insurance Policies.) As a result, considerable and growing resources are
devoted to claim investigation and coverage analysis focusing on causation issues.
Within the last few years, the highest courts in at least 18 states have
weighed in on the issue of causation in insurance contract interpretation. Causation
is at the heart of many of today’s major coverage disputes, including (in addition
to September 11 claims) mold claims under first- and third-party liability policies,
trade dress claims under the advertising injury provisions of commercial general
liability policies, and directors and officers liability claims against executives
and the “entity.” Litigation has proliferated.
A great deal of material is available purporting to explain causation theory,
much of it representing the respective viewpoints of attorneys who sue or defend
insurance companies. This article takes a slightly different tack on the subject.
The purpose of this article is to critique three unruly doctrines: proximate
cause, concurrent cause, and efficient proximate cause.
Proximate Cause
What causes a loss? On its face, this seems to be a simple question. Peril
A causes Loss X: a snowstorm causes a roof to collapse. But real life is rarely
that uncomplicated. In most cases, many events and circumstances combine to
produce a particular result or set of results. For example, the roof collapse
may be attributed to many causes, such as rot, insect infestation, inadequate
maintenance, or defective workmanship or materials.
In wrestling with the insurance implications of multiple cause-and-effect
relationships, courts have developed a two-part analysis. First, there must
be “causation in fact.” The causation in fact or “logical causation” requisite
is satisfied if the harm would not have taken place but for the event asserted
to be the cause of the harm. The second prerequisite, called “proximate causation,”
is a concept that is more difficult to explain.
Proximate cause imposes normative limits on scope of legal liability based
on “our more or less inadequately expressed ideas of what justice demands, or
of what is administratively possible and convenient” (W. Keeton, D. Dobbs, R.
Keeton, D. Owen, Prosser and Keeton on the Law
of Torts, § 41, at 264 (5th ed. 1984)). For example, we do not hold a
doctor responsible for the death of a victim murdered by a child conceived as
a result of the doctor’s error in failing to prescribe an effective contraceptive.
Nor are courts engaged in tracing events back to their metaphysical beginnings.
The classic case on proximate causation in insurance contract interpretation
is Bird v St. Paul Fire & Marine Ins. Co., 224
NY 47, 120 NE 86 (1918). A freight yard fire triggered explosives, igniting
another blaze, which in turn detonated dynamite stores in the yard. The second
blast damaged a canal boat that was insured against “the sounds, harbors, bays,
rivers, canals and fires.” In ruling that the loss was not covered, Benjamin
Cardozo, a giant in American jurisprudence, opined that while fire initiated
a chain of causation, parties to the insurance contract did not reasonably foresee
that fire would trigger explosives.
The particular solution in Bird v St. Paul Fire & Marine Ins. Co.—selection
from the chain (or net) of causation of the event closest (most proximate) in
time (or distance) to the injury or damage—is the genesis of proximate cause
in tort and insurance contract law. However, proximate cause is an anachronism
because in modern contract analysis proximate cause means something different
from the opinion espoused by Justice Cardozo. Rejection of the closest in time/distance
test may have been one of the ideas the author or authors of California Insurance
Code had in mind when they drafted these sections:
530. An insurer is liable for a loss of which a peril insured against
was the proximate cause; although a peril not contemplated by the contract
may have been a remote cause of the loss; but he is not liable for a loss
of which the peril insured against was only a remote cause.
532. If a peril is specially excepted in a contract of insurance and
there is a loss which would not have occurred but for such peril, such loss
is thereby excepted even though the immediate cause of the loss was a peril
which was not excepted.
This provision was enacted in 1935, the year when Eric Arthur Blair, the
secular saint of clean writing and clear thinking, first published under the
pseudonym “George Orwell.” Why bring George Orwell into this? Because this is
the kind of doublespeak Orwell decried in such works as Animal Farm and 1984.
George Orwell argued that bad thinking and bad language are mutually reinforcing.
In his essay “Politics and the English Language,” Mr. Orwell observed that communication
“becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness
of our language makes it easier for us to have foolish thoughts.” When Mr. Orwell
wrote these words, he was mainly concerned with political euphemisms such as
“Collectivism.” However, his general point is germane to a discussion of any
jargon that obscures rather than enlightens. “Proximate cause” serves only to
screen the fact that the law on causation is indeterminate.
Concurrent Causation
“Concurrent causation” is another archaic term derived from tort law. In
an insurance context, it refers to loss caused by one covered event and at least
another event or circumstance that is not covered. Under a popular version of
the concurrent causation doctrine, if a covered cause was a substantial factor
in producing the injury or damage, the loss is covered, even though an excluded
cause also may have been a substantial factor. In Derksen
v 539938 Ontario Ltd., the Supreme Court of Canada explained the rationale:
There is no compelling reason to favour exclusion of coverage where there
are two concurrent causes, one of which is excluded. A presumption that
coverage is excluded is inconsistent with the well-established principle
in Canadian jurisprudence that exclusion clauses in insurance policies are
to be interpreted narrowly and generally in favour of the insured in case
of ambiguity in the wording.
A practical difficulty with the concurrent causation doctrine is that there
is no general basis for distinguishing causes. This is problematic in interpreting
broad form insurance policies because the determination of coverage depends
on finding at least one covered cause.
In State Farm Mutual Automobile Insurance Company
v Partridge, 109 Cal Rptr 811, 514 P2d 123 (Cal 1973), the California
Supreme Court signaled a tendency to stretch the concurrent causation doctrine
beyond common sense. The insured fabricated a hair trigger on a gun and placed
the gun on the steering wheel of his car. A passenger in the car was paralyzed
when the gun discharged while the car was driven over rough terrain in pursuit
of jackrabbits. The insurance company argued since the cause of the injury was
negligent driving with a gun in hand, there was no coverage by virtue of the
automobile exclusion in the homeowner’s policy. The court disagreed, finding
that there were two causes: filing of the gun to produce a hair trigger (a covered
cause) and use of the car (an excluded cause). The court did not pin blame on
the wily jackrabbit.
Efficient Proximate Cause
It did not take the legal community much time to figure out that bifurcation
of causation into a covered cause and a not covered cause had the effect of
avoiding application of policy exclusions. Doing so did not take much imagination
as illustrated by a “comprehensive general” liability policy case and an “all
risk” property insurance policy case. In Braxton v United
States Fire Insurance Co., 651 SW2d 616 (Mo App 1983), a customer of
the insured gas station sued for injuries sustained when the customer was shot
by an intoxicated employee of the gas station. The commercial general liability
(CGL) insurance policy excluded coverage for “bodily injury or property damage
arising out of the ownership or use of any firearm.” The court found that coverage
was not excluded because the suit alleged negligent supervision of the employee
by the insured (a covered cause).
In Safeco Insurance Company v Motte (Fresno
County, Cal Super, July 1984), the “all risk” property policy did not apply
to the peril of “earthquake.” However, the court ruled that the cause of earthquake
(tectonic plate slippage) was not excluded. (One response to Motte has been
the substitution of the term “earth movement” for “earthquake” in property insurance
policy wording.) Furthermore, the court stated, even if tectonic plate slippage
falls within the exclusion, the damage would still be covered because negligent
design of the structure was a concurrent cause of loss.
In Garvey v State Farm Fire & Cas. Ins. Co.,
48 Cal 3d 395, 257 Cal Rptr 292 (1989), the California Supreme Court reviewed
its decisions in Partridge and a counterpart liability insurance case, Sabella v Wisler, 59 Cal 2d 21, 27 Cal Rptr 689,
377 P2d 889 (1963). According to the majority opinion, lower courts had “misinterpreted
and misapplied” these decisions. What we meant, the majority opinion continued,
is that the concurrent causation approach only applies to liability insurance.
For property insurance, there is coverage if the “efficient proximate cause”
is a covered cause of loss. It is instructive to note that both the judicial
and academic literature on efficient proximate cause provide conflicting explanations
of the doctrine.
What is the efficient proximate cause? The majority opinion in Garvey failed to provide a coherent definition.
In his Garvey dissent, Stanley Mosk warned that
the majority opinion would produce endless waves of future litigation. Justice
Mosk was correct. Since Garvey, substantial financial and intellectual resources
have been spent on manipulating efficient proximate cause to fit the respective
coverage positions of insurance companies and policyholders.
One iteration is efficient causation refers to a cause in fact that sets
in motion a chain (or train or net) of events that, unbroken by any intervening
independent cause, produces that damage or injury and without which the damage
or injury would not have occurred. An alternative test turns on whether a particular
event is a “substantial factor” or a “predominant cause.” A few commentators
reject this position, arguing that coverage should be available even when the
covered cause is a minor factor in producing the injury or damage. Others take
the opposite extreme: the covered cause must be the most important factor. Some
courts have alluded to the distinction between an “active agency” as juxtaposed
to a passive condition or a preexisting latent infirmity. The fact that the
same article or court opinion frequently adopts two or three of these alternative
explanations attests to the state of confusion.
Justice Mosk also pointed out that the selection of the cause that sets others
into motion could give rise to bizarre results. He provided an example. An insurance
policy covers loss caused by fire, but coverage does not apply to loss caused
by a falling tree. If fire originating in a house is the efficient proximate
cause of the falling tree, the insurance company is obligated to pay for damage
or destruction of the tree. But if the falling tree is the efficient proximate
cause of the house fire, damage to the house is not covered.
One response to court decisions in California and elsewhere has been to add
so called anti-concurrent causation clauses. (These clauses may be found in
the lead-in to one or more exclusions, but such language may also appear in
different places within an insurance policy.) Over-drafting to avoid any possibility
of misinterpretation has reached the point of the absurd. For example, it has
been noted in court decisions and other publications that under a hyper-literal
reading of the “absolute pollution exclusion,” a grocery store may not be covered
for liability if a customer slips and falls on a container of Drano.
There is an old joke about a woman who needs auto insurance. The price list
provided by an insurance agent shows $200 for fire, $150 for theft, and $50
for fire & theft. Why is the premium for fire & theft coverage so low, she asks?
The insurance agent replies: “We don’t get many claims for theft of a burned
out automobile.” If we continue the course of over-drafting exclusions and other
coverage limitations, this anecdote may become a parable for the modern insurance
policy.
Conclusion
The rules of insurance policy interpretation should comport with common sense
and the understanding of the parties to the contract. That way, insurers and
policyholders are in a much better position to make sound insurance transaction
decisions. In the case of causation theory, we would be well served by getting
rid of “proximate cause,” “concurrent cause,” “efficient proximate cause,” and
other jargon as a prologue to the development of a set of simple and cogent
doctrines.
‘Course, that’s just my opinion. I could be wrong.