Is there Coverage Under My Property Insurance Policy if a Covered Risk and Excluded Risk Contribute to My Loss / Damage?

Builders risk insurance or homeowner’s insurance is a form of property insurance. Oftentimes, the policy is an all risk policy; this is a slight misnomer since the policy covers all risks except those that are specifically excluded (and there are numerous exclusions in insurance policies).

What if an insured (such as an owner) experiences a property loss / damage and that loss / damage is attributable to both a risk covered by the insurance policy and a risk excluded by the insurance policy?

For instance, an owner has a property insurance policy. Rainwater starts to intrude in numerous locations causing water damage. Then, a windstorm hits (such as a hurricane) causing further water damage. There is the argument that the reason rainwater intruded into the house and caused damage was due to faulty (construction) workmanship and faulty workmanship is an excluded risk under the policy. But, windstorm and rainstorm damage is covered under the policy. How is this resolved?

In this situation, an owner will want a doctrine known as the concurrent cause doctrine to apply. Under this doctrine, when multiple risks (or perils) contribute to a loss and one of those risks is covered and a concurrent cause of the loss, there is coverage under the policy. Applying this concurrent cause doctrine to the example above, even though the risk of faulty workmanship is excluded under the policy, there would still be coverage because wind and rain (covered risks) concurrently caused the loss.

Conversely, an insurer will want that the efficient proximate cause doctrine to apply. Under this doctrine, the finder of fact (jury or judge in a bench trial) must determine which risk was the most substantial factor in the loss and if that risk is covered under the policy, there will be insurance coverage for the loss. If that risk is not covered, then there will not be coverage. Applying the efficient proximate cause doctrine to the example above, if faulty workmanship is deemed by the trier of fact to be the substantial factor in the loss, there will not be coverage because faulty workmanship is an excluded risk.

Notably, in a related example, a court found that the efficient proximate cause doctrine applied to determine whether an owner’s loss was covered under a property insurance policy.   This is important because if weather-related risks (such as wind or rain) cause a loss, it is not uncommon that faulty workmanship may have also contributed to that loss. Under the efficient proximate cause doctrine, an insurer could focus on the faulty workmanship hoping that the finder of fact deems this as the substantial factor contributing to the owner’s loss.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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