Flood Exclusions And Determining Cause Of Loss After Sebo

As Florida braces for Hurricane Irma, insurers anticipate the flood of claims which will inevitably follow.  Often, flood claims are the subject of standard policy exclusions.  But the question then becomes: Will such an exclusion be applied in the event of a combined peril loss?

Insurers are also likely to see claims for contingent business interruption.  Coverage for these claims typically requires direct physical loss or damage to a dependent property caused by a covered cause of loss.  Determining the cause of loss is critical to these claims as well.

The Florida Supreme Court’s recent decision in Sebo will likely have a long-lasting impact on these issues in Florida.  Sebo v. Am. Home Ass. Co., 208 So. 3d 694 (Fla. 2016).

Historically, when confronted with combined peril losses, Florida courts have applied the “efficient proximate cause” (EPC) doctrine.  See Fire Ass’n of Phila. v. Evansville Brewing Ass’n, 73 Fla. 904 (Fla. 1917).  Under the EPC doctrine, “where there is a concurrence of different perils, the efficient cause—the one that set the other in motion—is the cause to which the loss is attributable.”  Sebo, at 697.  Thus, there is coverage where a covered peril sets into motion an uncovered peril but not vice versa.  An appellate court in Florida—the Second District Court of Appeal—applied this doctrine as recently as last year.  Citizens Prop. Ins. Corp. v. Salkey, 190 So. 3d 1092 (Fla. 2d DCA 2016).¹

But despite the EPC doctrine’s traditional role in Florida insurance coverage cases, there has been a split among Florida courts regarding the application of the doctrine.  The Third District Court of Appeal has elected in certain cases to analyze combined peril losses under a different theory—the “concurrent cause doctrine” (CCD).  See Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988).  Under the CCD, “coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.”  Sebo, at 698.  In other words, coverage may exist even when a covered cause joins with an excluded cause to produce the loss.

In Sebo, decided in December 2016, the Florida Supreme Court examined a case in the cotext of an all-risk policy where damage was caused by an excluded event (construction defects) and a covered event (wind and water damage).  It was undisputed that defective construction combined with hurricane winds to cause the damage.

The court analyzed the split in legal authority and ultimately applied the CCD.  Id. at 695, 700.  In rendering its opinion, the court found that there was no reasonable way to distinguish the proximate, or “efficient,” cause of Sebo’s loss and thus it was not feasible to apply the EPC doctrine.  The court also noted the lack of an anti-concurrent causation clause in the relevant portion of the policy – i.e. policy language specifically precluding coverage, regardless of the existence of contributing causes.  Id. at 700.  In earlier cases, Florida courts have ruled that anti-concurrent cause language in the cotext of an exclusion is valid and enforceable.  Paulucci v. Liberty Mut. Fire Ins. Co., 190 F. Supp. 2d 1312 (M.D. Fla. 2002); State Farm Fire & Casualty Co. v. Metropolitan Dade County, 639 So. 2d 63 (Fla. 3d DCA 1994).

The full effects of Sebo remain to be seen.  While there may still be a role for the EPC doctrine in Florida where the proximate cause of the loss can be determined, the court’s decision in Sebo indicates that the CCD will be favored in cases where such a cause is not readily apparent.  Thus, Sebo requires a careful application of the policy language at issue to the well-investigated facts of the particular loss.

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¹ Case reversed and remanded by the Florida Supreme Court in light of the court’s decision in Sebo, as discussed below.  Salkey v. Citizens Prop. Ins. Corp., No. SC16-784, 2017 Fla. LEXIS 1373 (Fla., June 23, 2017).