Your board of directors has diligently met with the association’s insurance agent. After many meetings and protracted negotiations, the association purchases an “all-risk” insurance policy. Not too long after, the association’s clubhouse is damaged by hurricane force winds, water intrusion, and possibly some faulty construction, too. Will the damage be covered by the association’s insurer? This is what was recently addressed on December 1, 2016 by the Supreme Court of Florida in Sebo v. American Home Assurance Company, Inc.
Sebo purchased a home in Naples, Florida in April, 2005, when it was four years old. He insured it for over $8,000,000.00 with an “all-risk” insurance policy which was specifically created for his residence. Shortly after he bought the home, major water leaks caused by rainstorms occurred and were reported to the property manager. Soon it was apparent that the house suffered from major design and construction defects. In fact, after one rainstorm “paint along the windows just fell off the wall.” The residence could not be repaired and was eventually torn down. On two separate occasions, Sebo filed claims which were denied, except for coverage in the amount of $50,000.00 for mold damage.
After a jury trial, the jurors found in favor of Sebo, and the trial court entered a judgment against American Home Assurance Company, Inc. However, the appellate court disagreed with the trial court and reversed and remanded for a new trial. The appellate court’s disagreement with the trial court had to do with how the court should examine the causation of loss. Due to a difference in rulings from different appellate courts, the matter was decided by the Supreme Court of Florida.
The main issue examined is when there are multiple perils combined to create a loss and where at least one of the perils is excluded by the terms of the policy, must the insurer provide coverage under an “all-risk” policy? Should the court have applied the “Efficient Proximate Cause” theory, which provides that where there is a concurrence of different causes, the one that set the others in motion (the “efficient cause”) is the cause to which the loss is to be attributed, or should the court have applied the “Concurrent Cause Doctrine,” which provides that coverage may exist where an insured risk constitutes a concurrent cause of the loss even when the non-excluded cause is not the prime or efficient cause of the peril?
In this case, Sebo argued that his insurer was required to cover all losses under the “Concurrent Cause Doctrine.” In making its determination, the Court noted that both rainwater and hurricane winds combined with the defective construction which caused the damage to Sebo’s property. Ultimately, in reliance on and quoting an earlier case, the Court found that “[w]here weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage.” Ultimately, the Court found that because the insurer did not explicitly avoid applying the “Concurrent Cause Doctrine,” the Court found that the plain language of the insurance policy did not preclude Sebo’s coverage under his “all-risk” policy.
The ever important “take away” from this case is that if your association has a policy that excludes the “Concurrent Cause Doctrine,” then in the event there are multiple perils that caused the casualty and one of the perils is excluded from coverage, then the association’s insurance company may, in fact, be able to deny coverage based on the singular exclusion, notwithstanding the coverage which may have been available for the other perils had the excluded peril not been part of the casualty causing event.