Hurricane Michael has wrought widespread devastation on the Florida panhandle as a Category Four hurricane with 155 mile per hour winds and storm surges of several feet or more. Now the process of assessing the losses and repairing and replacing damaged property must begin. Total losses for damage to property and interruption of business are likely to be measured in the billions of dollars, and the struggle to repair and rebuild could take months or, in some cases, years.
Due to Hurricane Michael’s combination of high winds and floods, many properties will have suffered damage from both wind and water. Many property insurance policies cover losses caused by wind (and wind-driven water), but exclude losses caused by “flood” (now often defined to include “storm surge”). In cases of property damage caused by hurricanes, a common coverage question is whether policies insure property damage concurrently or sequentially caused by a covered event (wind) and an uncovered event (flood).
Concurrent causes are ones that arise independently of each other, but act together to cause the same damage: the damage would not have occurred in the way that it did but for the combination of the two forces. For example, a garage weakened by rot is blown down by a windstorm. The rot and the windstorm worked together to cause the loss. Sequential causes are those that are dependent on one another, with one following from the other, with one single incident of damage or loss. For example, a frozen pipe bursts and causes water damage in a building.
There are two primary different tests to determine whether property damage caused by covered and uncovered events is insured. The “efficient proximate cause” test looks at the “dominant,” “prime,” “efficient” or “moving” cause of loss. If that cause is covered, the entire loss is covered, even if other excluded causes contributed to it. The “concurrent causation” test, by contrast, provides that if any covered event caused or contributed to the loss, the entire loss is covered, even if it was not the “prime” or “efficient” cause.
In 2016, the Florida Supreme Court held that, at least where it is impossible to determine the sequence of perils leading to a property loss, the “concurrent cause” test applied to first-party property losses. Sebo v. Am. Home Assur. Co., Inc., 208 So.3d 694 (Fla. 2016). As a result of the Sebo decision, Florida policyholders whose property is damaged by hurricane wind and water must only show that at least one of the perils causing the loss is covered.
An important caveat to the Sebo decision is that it did not address the impact of “anti-concurrent causation” (ACC) provisions in property policies, because the policy in that case did not have one that applied to the loss at issue. Insurance companies began inserting these provisions in their policies in order to avoid the “efficient proximate cause” and “concurrent causation” tests. A typical ACC provision states:
The Policy excludes loss or damage caused directly or indirectly by any of the following [named perils, e.g., flood]. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
Courts in most states have upheld ACC provisions as valid and unambiguous. Exceptions are states such as California and North Dakota that have statutorily codified the efficient proximate cause test. Courts in those states have held that insurers cannot contract around the statutes through ACC provisions. The Florida Supreme Court has not yet ruled on whether such provisions are valid.
In jurisdictions where ACC provisions are valid, they can exclude coverage for a loss in which an uncovered event is a direct or indirect cause of the loss, even if a covered event is the primary or efficient proximate cause. However, insurance companies often apply ACC provisions incorrectly, particularly in cases of property damage caused by hurricanes. The key concept that is often misunderstood is that the forces must cause the same loss – different types of loss do not fall within an ACC provision.
Damage from hurricane wind is one type of loss, and damage from storm surge waters is a different type of loss. If a building’s roof is removed by hurricane winds, that loss is covered even if the building is subsequently inundated by the storm surge. It does not matter if the wind and water strike the building at the same time or in sequence. They cause different types of losses, and therefore an ACC provision should not exclude coverage for the damage to the building’s roof.
In examining coverage for property losses caused by Hurricane Katrina, the Mississippi Supreme Court recognized and applied this distinction in holding that an ACC provision did not exclude coverage for property damage that the insured could show was caused by covered wind rather than excluded water. Corban v. United Serv. Auto Ass’n, 20 So.3d 601 (Miss. 2009). The court noted that a proper reading of the ACC provision was:
We do not insure for loss caused directly or indirectly by [water damage]. Such loss [from water damage] is excluded regardless of any other cause or event [wind damage] contributing concurrently or in any sequence to the loss [from water damage].
When submitting claims for property damage caused by hurricanes, or any other damage where insured and uninsured perils may be involved, policyholders should be alert to attempts by insurance companies to apply ACC provisions in circumstances where different types of losses exist (e.g., wind damage and water damage) and be prepared to push back against such attempts. This means that a policyholder should carefully analyze the forces that acted on a building and determine what damage each force caused, not just when they occurred. That way, the policyholder may be able to preserve coverage for damage caused by insured events, even though other damage may be excluded.
Client Alert 2018-200
