Causation Issues to Consider as You Prepare Your Hurricane Ian Insurance Claim

The destruction caused by Hurricane Ian in Florida has renewed focus on coverage for such catastrophes under commercial property insurance policies. Given the damage in Southwest Florida, we anticipate that one major source of coverage disputes will be causation: whether the damage was caused by a covered cause of loss (such as wind) or an uncovered cause of loss (such as flood). This alert examines causation issues that arise when your property has sustained physical damage.

Concurrent or Proximate Cause?

Once again, the oft-contested question of wind v. water will be center-stage as insurers adjust the catastrophic damage in the wake of Hurricane Ian. Remarkably, only 20% of Florida property owners are insured for loss caused by flood. Hurricane Ian brought intense storm surges and high winds, both of which caused catastrophic damage. For the 80% of policyholders not insured for flood, or insured for flood under low sublimits or outright flood exclusions, this will inevitably lead to disputes over causation. A significant and potentially determinative factor in resolving those disputes is whether the loss is subject to adjustment under the concurrent causation doctrine or the efficient proximate cause doctrine—this is largely a jurisdiction specific inquiry.

Florida applies the concurrent causation doctrine when two causes independently combine to damage property, but neither loss causes the other. Under this doctrine, there is generally coverage under a first-party policy when a covered peril contributes, in any way, to cause property damage—even if an excluded peril is the predominant cause. The leading case on this issue is the Florida Supreme Court’s 2016 decision in Sebo v. Am. Home Assurance Co., 208. 3d 694, 700 (Fla. 2016). That decision holds that in the absence of an anti-concurrent causation provision (discussed below), the loss is covered as long as a covered (non-excluded) cause contributes to the damage. In Sebo, defective construction, rain and wind contributed to cause damage to the insured property with no reasonable way to determine which of the contributing causes proximately caused the damage. The Supreme Court of Florida held that the concurrent causation doctrine applied and the loss would be covered. Id. at 697, 699-700.¹

Most standard property policies, however, now include anti-concurrent causation (“ACC”) provisions that, counter to the holding in Sebo, remove coverage for “loss or damage caused directly or indirectly” by an excluded peril, regardless of whether “any other cause or event contributes concurrently or in any sequence to the loss.” See, e.g., ISO Form CP 10 30 10 12. Florida courts have enforced these provisions. Indeed, courts have stated explicitly that there is no bar under Florida law to parties contracting around the concurrent clause doctrine through an ACC provision. See, e.g., Paulucci v. Liberty Mut. Fire Ins. Co., 190 F. Supp. 2d 1312, 1320 (M.D. Fla. 2002) (parties may avoid the concurrent cause doctrine through an express anti-concurrent cause provision).

Practically, this affects the burden of proving causation in a coverage dispute. Under Florida law, a policyholder claiming under an all-risks policy must show that insured property suffered a loss while the policy was in effect. Jones v. Federated Nat’l Ins. Co., 235 So. 3d 936, 941 (Fla. Dist. Ct. App. 2018). The burden then shifts to the insurer to prove that the damage or loss is excluded from coverage. Id. Where the concurrent causation standard applies, the burden is on the insurer to prove that the loss was caused by an excluded peril such as flood. The insurer may also try to establish that the loss was caused by a combination of wind and flood damage sufficient to trigger the anti-concurrent causation provision. If neither the policyholder nor the insurer establishes the cause of the damage, the insurer may be unable to meet its burden of proving that a policy exclusion applies to bar coverage, either in total or by virtue of an ACC provision. Policyholders and insurers will typically use causation experts to opine on which peril caused the loss.

Under the efficient proximate cause doctrine, in contrast to the Sebo rule, courts focus on whether the policy insures against the event that precipitates the loss. In other words, if a covered peril and an excluded peril combine to cause a loss, the policy generally only provides coverage if the covered peril was the predominant cause of the loss. Under this approach, the “efficient” or “proximate” cause is the one that sets the other(s) in motion. States such as Georgia and Louisiana apply the efficient proximate cause doctrine. Dunbar v. Davis, 122 S.E. 895, 895 (1924) (“The proximate cause is the efficient cause, the one that necessarily sets the other causes in operation. The causes that are merely incidental . . . are not the proximate causes and the responsible ones, though they may be nearer in time to the result”); Travelers Indem. Co. v. Wilkes Cnty., 116 S.E.2d 314 (Ga. App. 1960); Lorio v. Aetna Ins. Co., 255 La. 721, 232 So. 2d 490, 493 (La. 1970); Cameron Parish Sch. Bd. v. RSUI Indem. Co., 620 F. Supp. 2d 772, 780 (W.D. La. 2008). It is the policyholder’s burden to prove that the “efficient” or “proximate” cause is a covered cause and the insurer’s burden to prove that it is an excluded cause.

Another important legal doctrine for Florida insureds, where Hurricane Ian caused catastrophic damage, is Florida’s Valued Policy Law. Under Fla. Stat. §627.702, for any building or structure that sustains a total loss as a result of a covered peril, the liability for that loss shall be the amount of money for which the property was insured. This means that an insured that has suffered a total loss does not have to prove the value of their building or structure. The law does not, however, mandate that an insurer pay for the total insured value if an uncovered peril caused the loss (or part of the loss). Fla. Farm Bureau Cas. Ins. Co. v. Cox, 967 So. 2d 815, 820 (Fla. 2007). A policyholder must still demonstrate that the loss was caused by a covered peril and an insurer may still argue that the loss was caused in whole or in part by an excluded peril.

Conclusion

The issues surrounding causation are only a few of the many important considerations for policyholders as they prepare their Hurricane Ian claim. Insurance companies will be ready to offer expert opinions on causation—on theories that benefit the insurers. Policyholders should, therefore, be prepared to respond to the potential issues and arguments raised by insurers as they prepare their claims. For policyholders, this underscores the importance of assembling a qualified team, including knowledgeable coverage counsel, early in the claim preparation and adjustment process. Even before the next storm strikes, the causation issues discussed above are a reminder of the importance of reviewing insurance policies to understand how they compare against the rules of causation, including understanding the applicable timing limitations, if any, so that your team is prepared to properly document the loss. Taking precautionary steps now before the next storm makes landfall can help mitigate the physical devastation and financial loss that often follows.

¹ There have been a small number of Florida district courts that have suggested the holding of Sebo is limited to situations where no efficient proximate cause can be determined. See, e.g., Jones v. Federated Nat’l Ins. Co., 235 So. 3d 936 (Fla. 4th DCA 2018).