BURDEN OF PROOF UNDER ALL-RISK PROPERTY INSURANCE POLICY

Posted on January 22, 2018January 22, 2018 by Edward Garber

A recent Florida case, Jones v. Federated National Ins. Co., 43 Fla. L. Weekly D164a (Fla. 4^th DCA 2018) discusses the burden of proof of an insured in establishing coverage under an all-risk property insurance policy. Getting right to this critical point, the court explained the burden of proof as follows:

1. The insured has the initial burden of proof to establish that the damage at issue occurred during a period in which the damaged property had insurance coverage. If the insured fails to meet this burden, judgment shall be entered in favor of the insurer.

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2. If the insured’s initial burden is met, the burden of proof shifts to the insurer to establish that (a) there was a sole cause of the loss, or (b) in cases where there was more than one cause, there was an “efficient proximate cause” of the loss.

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3. If the insurer meets the burden of proof under either 2.(a) or 2.(b), it must then establish that this sole or efficient proximate cause was excluded from coverage by the terms of the insurance policy. If the insurer does so, then judgment shall be entered in its favor. If the insurer establishes that there was a sole or efficient proximate cause, but fails to prove that this cause was excluded by the all-risk insurance policy, then judgment shall be entered in favor of the insured.

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4. If the insurer fails to establish either a sole or efficient proximate cause, and there are no applicable anti-concurrent cause provisions, then the concurrent cause doctrine must be utilized. Applying the concurrent cause doctrine, the insurer has the initial burden of production to present evidence that an excluded risk was a contributing cause of the damage. If it fails to satisfy this burden of production, judgment shall be entered in favor of the insured.

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5. If the insurer does produce evidence that an excluded risk was a concurrent cause of the loss, then the burden of production shifts to the insured to present evidence that an allegedly covered risk was a concurrent cause of the loss at issue. If the insured fails to satisfy this burden of production, judgment shall be entered in favor of the insurer.

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6. If the insured produces evidence of a covered concurrent cause, the insurer bears the burden of proof to establish that the insured’s purported concurrent cause was either (a) not a concurrent cause (i.e., it had no (or a de minimis) causal role in the loss), or (b) excluded from coverage by the insurance policy. If the insurer fails to satisfy this burden of proof, judgment shall be entered in favor of the insured.

Jones, supra.

In this case, the insured suffered roof damage and claimed it was the result of a hailstorm, a peril covered under the policy. The property insurer denied coverage contending the roof damage was not covered under the policy due to certain exclusions including, without limitation: (i) wear and tear, (ii) faulty or defective design, and (iii) existing damage. The homeowner argued that the concurrent cause doctrine should apply to determine if there was coverage under this all-risk property insurance policy. (Check out this article for more on the concurrent cause doctrine.) This doctrine holds that insurance coverage may exist if an excluded peril and covered peril concurrently cause a loss. The trial court did not apply this doctrine; rather, it applied the doctrine known as the efficient proximate cause doctrine which holds that if there are concurrent causes for a loss, the peril that set the other peril in motion is the peril that the loss is attributable to, i.e., you are looking at the most responsible cause of the loss. Thus, if an excluded peril set a covered peril in motion, i.e., it is the most responsible cause of the loss, the loss would be attributable to the excluded peril and not covered by the policy.

The court, relying on a Florida Supreme Court decision, maintained that it was error to instruct the jury on the efficient proximate cause doctrine without the jury first determining whether an efficient proximate cause of the loss could be determined. If it could not be determined, the concurrent cause doctrine would apply and the jury would determine if one of the concurrent causes (perils) was covered under the policy. For instance, if the jury could not determine whether one peril set another peril in motion, the jury would determine whether the hailstorm concurrently caused the roof damage with another peril (e.g., defective design); and, if so, whether the hailstorm is a covered peril such that the roof damage would be covered under the policy.

Notably, the court noted that certain exclusions the insurer relied on contain anti-concurrent cause language, which negates the application of the concurrent cause doctrine. However, since some of the exclusions the insurer relied on did not specifically incorporate anti-concurrent cause language, the jury could have found that the hailstorm concurrently caused the roof damage with an exclusion that did not contain the anti-concurrent cause language meaning the concurrent cause doctrine would apply.

I know this is confusing. I agree, it very well can be confusing. Nonetheless, what this emphasizes is the importance of strategy when it comes to presenting a property insurance claim to trigger the application of the concurrent cause doctrine and preparing jury instructions, which is the law you want the jury to follow. This also emphasizes the importance of the verdict form which is the form the jury fills out to decide the outcome of the case.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PROPERTY (INCLUDING ALL-RISK) INSURANCE POLICIES AND THE EFFICIENT PROXIMATE CAUSE DOCTRINE

Posted on September 19, 2013November 8, 2024 by Edward Garber

An important new insurance coverage case came out dealing with “all risk” property insurance policies (such as homeowners or builders risk policies). The case, American Home Assurance Co. v. Sebo, 38 Fla. L. Weekly D1982a (2d DCA 2013), discusses when coverage applies when both excluded and covered perils contribute to a loss / damage. The case also discusses the application of anti-concurrent cause language in the policy. These are both important insurance coverage issues.

In this case, an owner purchased a four-year old home in 2005 and obtained an “all risk” homeowner’s property insurance policy. The policy was not a standard form policy but a manuscript policy specifically created for purposes of the house. Almost immediately after the purchase, rainwater started to intrude in numerous locations throughout the house. Then, Hurricane Wilma struck causing further damage to the house. The damage to the house was so extensive that it could not be repaired and the house had to be demolished.

The owner submitted an insurance claim to its carrier, but the carrier denied coverage except for tendering $50,000 based on language in the policy that provided for $50,000 worth of coverage for ensuing (resulting) damages caused by fungi, wet or dry rot, or bacteria. (This is often referred to as the mold exclusion and some policies allow for ensuing damages caused by mold up to a specified amount.)

The owner sued the sellers, the contractor, and the architect (arguing defective construction) and settled with each of them. The owner also sued its property insurance carrier in a declaratory action for insurance coverage.

An all risk policy, such as the policy in this case, starts out covering all risks except the numerous risks or perils that are excluded. As the Court explained:

“Property insurance is a contract between the insured and the insurer to cover property losses that are either caused by certain perils that are specifically named in the policy or are caused by “all perils” except for those specifically excluded from coverage. These perils are usually physical forces such as fire, rain, and wind.” Sebo, supra.

In this policy (like most property insurance policies), there was a faulty workmanship / design exclusion where the policy did not cover loss caused by faulty, inadequate, or defective planning, design, specifications, workmanship, repair, construction, etc.

The coverage issue in the case centered on the undisputed fact that more than one cause (excluded and covered) contributed to the owner’s loss or damage, such as faulty construction, rain, and wind. When this occurs, what legal doctrine applies to determine whether the loss is covered?

The owners wanted the legal doctrine known as the concurrent cause doctrine to apply. Under this doctrine, insurance coverage applies “when multiple perils act in concert to cause a loss, and at least one of the perils is insured and is a concurrent cause of the loss, even if not the prime or the efficient cause.” Sebo, supra. In other words, if faulty workmanship (not covered) and rain (likely covered) concurrently contribute to a loss, the loss would be covered under the concurred cause doctrine.

The insurance carrier wanted the legal doctrine known as the efficient proximate cause doctrine to apply. Under this doctrine, “the finder of fact, usually the jury, determines which peril was the most substantial or responsible factor in the loss. If the policy insures against that peril, coverage is provided. If the policy excludes that peril, there is no coverage.” Sebo, supra. In other words, if faulty workmanship (not covered) is the most substantial factor in the loss, the loss would not be covered.

The trial court applied the concurrent cause doctrine. However, on appeal, the Second District reversed finding that the efficient proximate cause doctrine should apply to determine whether coverage exists. (For more on the application of the efficient proximate cause doctrine to all-risk property insurance policies, check out this article and this article.)

The Court additionally discussed what is known as anti-concurrent cause language that exists in many insurance policies. An example of this language in the policy would be under the pollution exclusion which provided that the policy did not “cover any loss, directly or indirectly, and regardless of any cause or event contributing concurrently or in any sequence to the loss” caused by pollutants / contamination. Sebo, supra. Thus, based on this language, the concurrent cause and efficient proximate cause doctrines would be moot based on this anti-concurrent cause language. The Court dismissed this argument because the anti-concurrent cause language was not specifically incorporated into the faulty workmanship exclusion whereas it was specifically incorporated in other exclusions such as the pollution exclusion. (Importantly, other states have found this language to be unenforceable so there may be an argument as to the enforceability down the road that the Court did not delve into but noted.)

All-risk property insurance policies and named-peril policies are complicated. When a loss occurs, it is important to understand your property insurance policies in order to present claims and arguments for coverage. The Sebo case’s application of the efficient proximate cause doctrine is an important case because it is not uncommon that both weather-related issues and defective workmanship / design related issues contribute to the loss. This raises the “what came first, the chicken or the egg argument” because when this issue is tried by a jury, the insurer will likely argue that the weather-events would not have contributed to the loss if not for the defective workmanship / design so the defective workmanship / design must have been the substantial factor. Conversely, the owner will likely argue that he purchased a four-year old home and the defect issues did not surface until severe weather-related events, so the weather-related events must have been the substantial factor.