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By: Marc Shrake
Late last week the National Oceanic and Atmospheric Administration (NOAA) issued its annual mid-season update to the 2019 Atlantic hurricane outlook (https://www.noaa.gov/media-release/noaa-increases-chance-for-above-normal-hurricane-season). The NOAA upped its prediction to 5-9 hurricanes, which are expected to develop out of a projected 10-17 named storms. An average hurricane season, which runs through November 30, produces 12 named storms of which 6 become hurricanes, including 3 major hurricanes.
So far this year we have seen two named storms (one of which strengthened into Hurricane Barry), well over 1,000 tornadoes throughout the United States, major earthquakes in California, extensive flooding, and other major events that destroyed property.
Natural and man-made disasters activate the world of insurance as insurance policies are reviewed, damage is evaluated, and claims are prepared and analyzed.
Among the many issues is whether loss or damage is covered under a property insurance policy. Such claims inevitably raise the issue of “causation,” which involves first and foremost figuring out “what happened.” For example:
Whether dealing with an “all risk” property insurance policy (under which losses to covered property caused by any and all perils are covered unless the loss is caused by a peril excluded by the policy) or a “named peril” policy (under which losses to covered property are covered if caused by a peril listed as a covered peril), the coverage question focuses on what peril or perils caused the physical damage.
And so the fun begins. The question requires determining whether more than one peril was at work, what those perils were, whether those perils worked independently of or in sequence with one another, what loss or damage is present, and what damage was caused by each peril.
If an identified peril causes separately-identifiable damage or loss, then a multiple cause issue is not present. For instance, if a house is destroyed in a hurricane, and identifiable physical damage was caused by wind (not an excluded peril) and other identifiable damage by flood (an excluded peril), then it is not necessary to delve into the legal aspects of multiple cause analysis.
But if (and only if) multiple, independent perils work contemporaneously to cause the same loss, the game changes. The law in most jurisdictions requires finding the most significant, or “efficient,” cause or “the dominant and efficient cause” of direct physical loss or damage, or the “predominating cause.” If the “efficient proximate cause” of the loss is not an excluded peril, then the loss is covered. No coverage exists for a loss if the covered risk was only a remote cause of the loss, or conversely, if an excluded risk was the efficient proximate cause of the loss.
The law on “efficient proximate cause” or “predominant cause” or the “closest cause” varies by jurisdiction. Some look to the last cause in the chain of causation. Other courts look to the first cause which sets the others in motion. Others try a pragmatic-sounding approach: “the causation inquiry stops at efficient physical cause of the loss; it does not trace events back to their metaphysical beginnings.” At least one jurisdiction determines proximate cause by looking to the reasonable expectations of the contracting parties, noting that “proximity and remoteness are relative and changing concepts.”
The minority of states that have not adopted the “efficient proximate cause” standard apply other rules. Some have adopted the “concurrent cause” rule, which is that if any one of several non-remote causes of the same loss is a non-excluded peril (or a specified peril under a named peril policy), then the loss is covered. Coverage is found to exist simply if the loss would not have occurred but for the operation of a covered cause. It is not necessary, to determine the “predominant cause,” the initial cause, or the cause that set the others in motion.
Also to be considered are “anti-concurrent causation” provisions. An example: “We do not cover loss to any property resulting directly or indirectly from any of the following perils . . . . Such a loss is excluded even if a covered peril or event contributed concurrently or in any sequence to cause the loss.” These clauses override the “efficient proximate cause” doctrine and exclude coverage if even just one of the causes of loss is an excluded peril, even if a covered peril contributed to the loss. Many states enforce such language, but some states have overridden “anti-concurrent causation” provisions and imposed by statute the “efficient proximate cause” rule in all policies, and other courts have declined to apply anti-concurrent causation provisions.
Additionally, “ensuing loss,” or “resulting loss,” provisions come into play if two different losses come out of a sequence of perils. This provision is typically an exception to an exclusion: “This ‘policy’ does not cover the following, but if physical loss or damage not otherwise excluded by this ‘policy’ to Insured Property at Insured Location(s) results, then only such resulting physical loss or damage is covered by this ‘policy.’” It applies when damage caused by an excluded peril is part of a chain of events that enables a covered peril to damage other property: excluded peril causes excluded damage, which enables a covered peril, which causes ensuing damage that, under the exception, is not excluded.
A property insurance claim raises many questions, such as “what does the policy say” to “what is the law of the jurisdiction.” But when a property insurance claim is presented following a series or confluence of events, to determine physically what actually happened is of paramount importance. Working through the facts can take an insurance professional through the worlds of science and history and industry and turn out to be some of the most interesting work in the business.
If you have any questions or would like more information, please contact Marc Shrake at [email protected].