Multiple Causes of Loss: An “Efficient” Standard for First-Party Coverage

What happens when a loss results from two or more perils, only one of which is covered under a first-party insurance policy? In American Home Assurance Company, Inc. v. Sebo, 38 Fla. L. Weekly D1982a (Fla. 2d DCA Sept. 18, 2013), the Second District Court of Appeal recently answered this question by adopting the “efficient proximate causation” doctrine to evaluate coverage in such circumstances.

The efficient proximate causation doctrine calls for a factual finding as to which peril was the most substantial or responsible factor in bringing about the loss. If coverage for that peril is provided under the policy, the loss will be covered. If coverage for that peril is not provided under the policy, there will be no coverage for the loss. The efficient proximate causation doctrine helps insurers enforce coverage exclusions where an excluded peril is primarily responsible for the loss, even where a covered peril may have played a minor role.

The competing “concurrent causation” doctrine allows for coverage where one of multiple perils responsible for causing the loss, even if it is not the prime cause, is covered under the policy. In the first-party context, the Sebo court noted that the concurrent causation doctrine effectively nullifies the policy’s exclusions. This is because under a concurrent causation analysis, a loss could still be covered even though the policy expressly excludes the most substantial cause of the loss so long as a covered peril played a role, however minor.

Sebo distinguishes the application of these doctrines in the first-party and third-party contexts. Specifically, the court explains that policies providing first-party coverage expressly contemplate coverage for only specific named perils, while excluding other perils for which coverage is not intended. This is in contrast to third-party liability coverage, which is intended to insure a broad spectrum of risks, subject to only specific exclusions.

Sebo is consistent with the majority of states, which apply the efficient proximate causation doctrine in the first-party context. However, Florida law remains unsettled. While the court distinguished precedent from its sister courts that have applied the concurrent causation doctrine in either the third-party context or in the first-party context without an analysis as to why it may warrant a different rule, the result is a split of authority. Because of the split of authority among the states, and even within Florida’s appellate courts, litigants should be aware of the law that applies in their jurisdiction.

Sebo should be monitored for further proceedings, including rehearing and possible review by the Florida Supreme Court. Unless and until the Florida Supreme Court weighs in on the matter, in Sebo or a future case, the debate can be expected to continue. The debate will likely extend to the application of anti-concurrent cause exclusions in policies to avoid coverage for losses caused, in part, by excluded perils. While the Sebo court did not reach this issue, it noted that such exclusions are strictly construed under Florida law and that some states have rejected their application.