The Causation Question in Property Insurance – New Appleman on Insurance Law Library Edition, Chapter 44

The Causation Question in Property Insurance – New Appleman on Insurance Law Library Edition, Chapter 44

By Marc J. Shrake, Attorney

Section 44.01 provides a framework for analyzing causation questions in property insurance policies.  It acknowledges the brain-twisting nature of "causation" throughout history, encompassing not only philosophy and insurance law, but also the most common human dialogue.  Section 44.01 narrows the causation issue for purposes of this chapter to property insurance policies as distinct from other types of insurance policies, tort law, and philosophy.  "Causation" in the property insurance content is based on the insurance contract itself and looks to answer a basic question:  What happened to the property?  More specifically, was there direct physical damage or loss to the property and what peril was at work to cause it?

Section 44.02 discusses the vocabulary used in analyzing property insurance coverage questions.  In addition to discussing "perils," "causes," or "risks," insured against, Section 44.02 notes that certain causation words in a policy have defined meanings by virtue of underwriting intent or common usage in the insurance industry, or through the case law.  Section 44.02 also distinguishes between direct and indirect causes and describes the treatment of remote causes.  Section 44.02 lays the groundwork for Section 44.03, "Multiple Causes."

Section 44.03 covers damage and loss where multiple causes are at work.  These loss situations generate most of the case law.  If there is only one cause of a loss, the only question is whether that cause is or is not an excluded peril under the policy.  If there are multiple causes, the insured will attempt to establish that the "efficient proximate cause,"  "proximate cause," "predominant cause," or "dominant cause," was a non-excluded peril.  And for every covered peril, the insurer will attempt to meet its burden to prove that an excluded peril was the real cause of the damage or loss.  The "efficient proximate cause" rule, in one form or another, is a common approach taken by the courts when a loss follows from a sequential chain of events.  This approach involves first determining the single "efficient proximate cause" of the loss, however that term is defined under the applicable law (e.g., the peril closest to the loss, the peril that set all others in motion, the dominant or prevailing cause) and then reviewing the policy to see whether that peril is excluded.  .  Other cases involve "concurrent causes" that occur or operate simultaneously. The choice of perspective may depend on the nature of the causal events (or the way in which a court chooses to describe those events).

Regardless of the applicable perspective, the practitioner must check the policy for "anti-concurrent causation" language, discussed in Section 44.04.  Such provisions purport to bar coverage if any non-remote peril acting to cause the loss is an excluded peril.  The insurance industry introduced anti-concurrent cause language in the 1980s to counter a perceived judicial trend of expanding coverage to loss and damage it never intended to cover.  However, even if a policy contains such language, statutes or common law rules in some jurisdictions override it and preserve the "efficient proximate cause" or "concurrent cause" rule.

Section 44.04 discusses "anti-concurrent causation" language in multiple cause losses.  This language purports to bar coverage if any non-remote peril acting to cause the loss is an excluded peril.  In fact, some anti-concurrent causation language purports to bar coverage if even a remote cause of the loss is an excluded peril.  Anti-concurrent cause language was introduced by the insurance industry in the 1980s in response to a perceived trend by the courts to expand coverage to loss and damage caused by perils that were never contemplated to be covered.  Courts liberally applied the "efficient proximate cause" doctrine such that the court strained to deem any of the working non-excluded perils the "efficient proximate cause."  Put another way, courts were applying the "efficient proximate cause" rule as though it were the "concurrent cause" rule.  California and North Dakota have statutes that override anti-concurrent causation language and impose the "efficient proximate cause" rule; the parties are not allowed to contract around it.  Courts, insurers, and insureds should take care not to apply the anti-concurrent cause provisions except in concurrent cause situations: multiple causes acting independently or sequentially to cause the same loss.  To the extent different perils cause separately identifiable damage, the perils are not concurrent causes, and the anti-concurrent causation language does not apply.

Section 44.05 provides illustrations of "ensuing loss" clauses in policies.  Here it is particularly important carefully to read and understand the precise words of the policy.  Ensuing loss provisions can bring within coverage damage or loss which might otherwise be excluded under a typical causation analysis.  For example, ordinary wear and tear is typically an excluded risk under a property insurance policy.  But property insurance policies often include an exception to the "wear and tear" exclusion covering non-excluded damage that "ensues" from the wear and tear.  The ensuing loss provision stops the causation analysis where the "wear and tear" ends.  Any following damage is subject to its own separate causation analysis.  This section will introduce examples of policy language and a suggested framework for analysis.

Section 44.06 discusses how a court's rules of procedure and evidence play a role in insurance coverage litigation.  This section highlights the importance of building the case around rules relating to burdens of proof, factual and legal questions, admissibility of evidence, and sources of public, possibly self-authenticating evidence to support or defend against a coverage claim.  For instance, in a battle over whether a particular loss was caused by a covered or excluded peril, the parties would do well to remember that, at least in an all risk policy, all risks are covered unless the insurer proves that an exclusion applies.  However, a policy provision may expressly shift this burden to the insured, in which case the practitioner must learn whether the applicable law of the jurisdiction enforces such provisions.

Section 44.07 touches on specific examples of the causation analysis for some selected perils.  The analysis for any given set of circumstances takes on a basic form that is repeated from loss to loss.  What is the specific policy language?  Is the peril at issue in a coverage provision or an exclusion?  Are other perils at work?  Is there separate loss?  Is there an anti-concurrent cause provision?  Is there an ensuing loss provision?

Cross Reference: See NEW APPLEMAN PREMIUM ONLINE CHECKLISTS § 31.03: CHECKLIST: Evaluating Commercial Property Insurance Policy to Determine Whether Policy Covers Cause of Loss.

Marc J. Shrake focuses his practice on complex business litigation. Representing clients in state and federal courts across the country, Mr. Shrake has achieved successful trial court and appellate results in disputes involving property and casualty insurance coverage, large commercial property losses, civil Racketeer Influenced and Corrupt Organizations (RICO) matters, franchisor/franchisee issues, products liability, trade secrets, banking, state and federal government investigations, intellectual property and health care. Mr. Shrake is the author of "Hurricane Storm Surges and Property Insurance: What's the Coverage Climate?", published in the ABA Insurance Coverage Litigation Committee's Hot Topic Articles in January 2009 and "The Racketeer Influenced and Corrupt Organizations Act: Standing to Bring a Civil Action," published in The Briefcase, May 1994. Mr. Shrake is co-chair of the American Bar Association's Property Insurance Subcommittee of the Section of Litigation Insurance Coverage Litigation Committee and past vice chair of the General Practice Section's Litigation Committee.

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