Full Coverage Exists When No Reasonable Way to Distinguish Whether Hurricane or Construction Defect Cause of Loss

The Florida Supreme Court, applying Florida law, resolved a split among the state’s appellate courts and held that the concurrent cause doctrine is the proper standard for evaluating insurance coverage when “independent perils converge and no single cause can be considered the sole or proximate cause.”

John Sebo purchased a home in Naples, Florida in 2005.  American Home Assurance Company (“AHAC”) sold Sebo a homeowner’s insurance policy insuring against “all risks.”  The policy was not a form policy, but rather was drafted specifically for the Sebo residence.  Sebo’s all-risk policy included an exclusion for any loss caused by faulty, inadequate, or defective planning or construction.    Shortly after Sebo bought the residence, water began to leak inside during rain and then Hurricane Wilma further damaged the residence.  Sebo reported the damage to AHAC.  AHAC agreed to cover mold damages, but stated that “the balance of the damages to the house, including any window, door, and other repairs, is not covered.”  Ultimately, the residence could not be repaired and was demolished.

Sebo filed suit against a number of defendants alleging that the home had been negligently designed and constructed and that the sellers had fraudulently failed to disclose the defects.  Sebo amended his complaint to add AHAC as a defendant and sought a declaration that the policy provided coverage for his damages.  The dispute between Sebo and AHAC went to the jury, and the jury found in favor of Sebo.  On appeal, the Second District remanded for a new trial “in which the causation of Sebo’s loss is examined under the efficient proximate cause theory.”   Sebo sought review of the Second District decision on the grounds that it directly conflicted with the Third District in Wallach v. Rosenberg.  The Florida Supreme Court granted review, quashed the Second District decision, and approved the rationale of the Third District in Wallach.

According the Florida Supreme Court, there are two competing theories on how to determine coverage when there are multiple causes of loss:  the efficient proximate cause and concurring cause doctrines.   The efficient proximate cause doctrine provides that “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.”  According to the Florida Supreme Court, there is coverage when a covered peril sets into motion an uncovered peril, but not when an uncovered peril sets into motion a covered peril.  On the other hand, the concurrent cause doctrine provides that “coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.”  Prior to the Second District decision in this case, Florida courts had applied the Third District decision of Wallach when faced with concurrent and not successive causes of loss.  Wallach held that “where 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.”

The parties in Sebo did not dispute that the rainwater and hurricane winds combined with the defective construction caused the damage to Sebo’s property.  The Florida Supreme Court ruled that it could not apply the efficient proximate clause doctrine to determine whether there was coverage because “there was no reasonable way to distinguish the proximate cause of Sebo’s property loss – the rain and construction defects acted in concert to create the destruction of Sebo’s home.”  The Florida Supreme Court disagreed with the Second District that the concurrent cause doctrine invalidates all exclusionary language.  The court also noted that AHAC wrote other sections of Sebo’s policy with specific language to avoid applying the doctrine.  The court held: “Because AHAC did not explicitly avoid applying the [concurrent cause doctrine], we find the plain langue of the policy does not preclude recovery in this case.”  Sebo v. American Home Assurance Co., No. sc14-897 (Fla. Dec. 1, 2016).