PF&M at a Glance

Proximate cause, concurrent causation and anti-concurrent causation

All-risk insurance is a misnomer. Earthquake and flood are two of the primary exclusions under an all-risk policy due to the unpredictable and catastrophic nature of such events—and the risk of adverse selection. Insurance professionals understand that all-risk insurance is subject to conditions and exclusions. The courts often have creative ways of interpreting those conditions and exclusions.

Two California court cases in the early 1980s illustrate this point. In the first case, Safeco Insurance Co. v. Guyton, 692 F.2d 551 (1982), Safeco was found liable for flood damage under an all-risk homeowners policy even though it had a clear flood exclusion. Interestingly, the courts agreed that flood was excluded. However, the court stated that the proximate cause of the loss was actually the negligent maintenance of the flood control structures and since such third-party action was not excluded, the resulting damage from the failure of the flood controls was covered even though flood was specifically excluded.

The other important case was Premier Insurance Co. v. Welch, 140 Cal. App. 3d 720 (1983). In this case, the all-risk homeowners policy which included a clear earth movement exclusion was found to cover landslide damage to the insured’s home because the faulty installation of a drain by a third party was the proximate cause of the loss. Since the faulty installation was not excluded, there was coverage for the earth movement loss even though earth movement was specifically excluded.

These two decisions sent shockwaves through the industry and choices had to be made. Premiums could be significantly increased in light of these decisions or coverage language changes could be made. The decision was to revise the wording of all policies so the consumer could continue to choose when to insure for flood and/or earthquake. The revised wording is often called the anti-concurrent causation (ACC) clause.

There are two parts to the ACC clause. The most commonly discussed and derided language is found in the introduction language to one specific set of exclusions. There are three parts to this particular clause:

1. The insurance company does not insure for direct or indirect loss caused by the listed causes.

2. The loss is excluded regardless of other causes or events that contribute concurrently or in a sequence to the loss.

3. Even if the loss event is widespread or impacts a large area, the exclusions still apply.

ISO provides standardized wording for this introductory language but not all companies use it. Some clauses are more stringent and some are less but all have these elements.

To illustrate: Mike lights a match and intentionally starts a fire at his home. The intentional action is excluded but fire is a covered peril. Even though fire is a covered peril, there is no coverage because it was concurrent with an excluded intentional action that is not covered.

The second part of the ACC clause is a listing of specific events that are not covered. However, losses caused by them are excluded only if the losses are excluded elsewhere in the policy. These events are:

1. Weather conditions

2. Acts or decisions made by individuals or groups

3. Faulty, defective or inadequate construction, maintenance, materials, and more.

To illustrate: A hailstorm causes roof damage to a house. Since a hailstorm is a weather condition, it is excluded but because hail is not excluded elsewhere in the policy, the loss is covered.

Consumer advocates want the ACC clause to be eliminated because they believe it is unfair to insureds and violates the consumer’s expectations of insurance coverage. The insurance industry believes the ACC language is necessary to prevent clearly excluded losses, such as flood and earthquake, from being covered by judicial decree. The debate that started in the mid-1980s is revived with every major catastrophe and is continuing with no end in sight.

Please note that this is only an overview of this topic. A more thorough discussion may be found in the PF&M Analysis from The Rough Notes Company.

Producer OnLine subscribers, please refer to PF&M Section 130.6-7-Concurrent Causation-A Discussion for additional information. *