Sebo v. American Home Assurance Co., Inc.

Petitioner John Sebo bought a four year old home in Naples in April 2005, only to learn shortly thereafter that construction and design defects would lead to multiple leaks throughout the home during times of rain. Respondent American Home Assurance Company (“AHAC”) sold a manuscript “all risks” home insurance policy to Sebo with coverage limits exceeding $8 million. Following several rainstorms and Hurricane Wilma (October 2005), Sebo tendered on December 30, 2005, multiple claims to AHAC related to the leaks, defects, and resulting damage. After its investigation, AHAC determined that it was responsible for only $50,000 in mold remediation and denied coverage for most of the remaining claimed losses.

The residence proved too damaged and defective to repair, resulting in its demolition. In January 2007, Sebo sued the sellers of the property, the architect, and the general contractor responsible for construction. Almost three years later, he added AHAC as a defendant and sought declaratory relief on the issue of coverage. All but AHAC settled with Sebo, resulting in a trial and a judgment against AHAC, which then appealed to the Second District Court of Appeals. Sebo v. American Home Assurance Co., Inc., 2016 WL 7013859 (Fla. 2016), at 2.

The Second District reversed, holding that the trial court’s reliance on the concurring cause doctrine, pursuant to Wallach v. Rosenberg, 527 So.2d 1386 (Fla. 3d DCA 1988), was erroneous. Id. In its ruling, the court of appeals complained that application of the doctrine “would effectively nullify all exclusions in an all-risk policy,” whenever one covered cause of loss was found amongst many non-covered causes. Id. at 5 (citing Garvey v. State Farm Fire & Cas. Co., 770 P.2d 704, 705 (Cal. 1989)). The Second District remanded the case, ordered a new trial, and instructed the trial court to analyze the causation of Sebo’s loss pursuant to the efficient proximate cause theory. Id. at 2.

Upon review, Florida’s Supreme Court determined that the Second District’s analysis was erroneous. Also citing to California precedent, Florida’s Supreme Court compared and contrasted the efficient proximate cause doctrine with the concurring cause doctrine by way of Sabella v. Nat’l Union Fire Ins. Co., 377 P.2d 889, 892 (Cal. 1963); Fire Ass’n of Phila. v. Evansville Brewing Ass’n, 75 So. 196 (Fla. 1917); and State Farm Mut. Auto Ins. Co. v. Partridge, 514 P.2d 123, 133 (Cal. 1973). Sabella and Evansville Brewing explained that if one precipitating event was the cause of subsequent events, the latter of which causing injury, then the efficient proximate cause doctrine would apply to determine whether the precipitating event was a covered risk, since the injury could not have occurred but for the precipitating event. See Sebo, 2016 WL 7013859, at 3. If the precipitating event was a covered risk, then there would be coverage for the loss, regardless of whether the subsequent events, which were more proximate to the loss, were covered risks. Id. (citing Sabella, 377 P.2d at 895).

Florida’s Supreme Court noted that the concurring cause doctrine originated with California’s top court in the case of State Farm Mut. Auto Ins. Co. v. Partridge. Id. In Partridge, an auto passenger was paralyzed when a handgun accidentally discharged in the car in which the passenger was traveling. Id. (citing Partridge, supra, at 125). The gun’s owner, who was also owner and driver of the car, had filed the gun’s trigger mechanism “to create ‘hair trigger action.’” Id. While driving with the passenger, the gun owner spotted a rabbit and went off-road to chase it. The subsequent bump of the car caused the gun to discharge, leading to the bullet penetrating the passenger’s spinal cord. Id. A coverage dispute arose when it could not be determined whether one or both of the gun owner’s home or auto insurance policies covered the injury. State Farm, which had issued the homeowner policy, argued that its policy included a coverage exclusion for any bodily injury arising from the use of a motor vehicle. Id. Thus, because the injury was in part caused by the use of a motor vehicle, State Farm had no obligation to insure the loss. Id.

California’s Supreme Court disagreed. Initially, the Court reiterated the perfunctory context that an insurer’s exclusions are to be strictly construed, while its insuring provisions are given a broad reading. See Id. at 4. The Court also determined that, pursuant to State Farm’s policy, an insured risk (the gun negligence) and an uninsured risk (driving a vehicle) had combined to cause a loss and reasoned “that coverage under a liability insurance policy is equally available to an insured whenever an insured risk constitutes simply a concurrent proximate cause of the injuries.” Id. (citing Partridge, supra, at 130). Because the Court could not determine which cause was the primary or “efficient” cause of injury, it could not rely on the efficient proximate cause doctrine to make a coverage determination and, thus, chose to create a new doctrine by which to do so. Id. That doctrine was “concurring cause.”

Florida’s Third District was the first to apply the concurring cause doctrine for purposes of insurance coverage. Id. In Wallach, the petitioner’s failure to properly maintain his seawall, in conjunction with a storm, led to the destruction of the respondents’ own seawall. Id. (citing Wallach, 527 So.2d at 1386). Petitioner’s insurance company attempted to avoid responsibility for the loss by citing an exclusion for earth movement and water damage and arguing that if there were multiple concurrent causes of a loss and one of them happened to be excluded from the policy, there could be no coverage for the loss. Id. (citing Wallach, 527 So.2d at 1387). The Third District Court of Appeals rejected the argument, highlighting its approval of Partridge in which California’s Supreme Court noted the difficulty in applying the efficient proximate cause doctrine to independent, concurrent causes of loss. Instead, the Third District held 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.” Id. (internal citations omitted).

In the first Sebo appeal, the Second District had confirmed that there was more than one cause of damage to Sebo’s home – the design and construction defects and the weather. Id. at 5. While the defects were excluded from coverage pursuant to the AHAC policy, the weather was necessarily a covered risk. Yet, contrary to the Second District, Florida’s Supreme Court believed there was “no reasonable way to distinguish the proximate cause of Sebo’s property loss” – as between the defects and weather. Id. In other words, application of the efficient proximate cause doctrine to these independent, but concurrent, causes of injury was inappropriate for purposes of determining coverage. See Id. Instead, the Supreme Court confirmed that the concurring cause doctrine was the correct form of analysis for such situations. See Id.

There is still opportunity for insurers to avoid application of the concurring cause doctrine, however. The Court noted that AHAC had successfully drafted other provisions of the operative policy to avoid application of the concurring cause doctrine. The implication is that policy language will continue to dictate how the law applies to a covered or non-covered loss and could lead to modified policy exclusions in the future.

Finally, in a secondary part of the holding, the Supreme Court confirmed that evidence of settlements with, or dismissals of, joint tortfeasors, as well as evidence of offers of compromise, were inadmissible for purposes of proving liability at trial. Id. at 6. However, the Court noted that “nothing in our decision affects the ability of a trial court to consider the amount of settlements as a post-judgment offset.” Id.