In our capacity of Risk Managers, we are providing diversified services to clients who are presented with unusual claim situations. A number of these situations may include denial of coverage issues on losses reported by our clients and others. Unusual situations, both in the workplace and in general, have become common day occurrences and it pays to stay informed, especially when cost reductions are the primary driving force in consulting with a risk manager.
One of these unusual situations is “concurrent causation” and how it affects both, first and third party claims and losses.
Concurrent causation issues usually arise where a loss results from more than one cause or peril, one or more of which is excluded under the policy at issue. The insurance company will adapt the interpretation most favorable to them and will deny coverage. The insured will now commit time, money and effort in their attempt to discover other avenues of coverage and force the insurance company to comply with the terms of their policy. This could take years, unless the insured had the forethought of retaining the services of a risk manager to assist them, from day one. Let us take a look at a number of these situations.
In reviewing a concurrent causation issue involving a first party damage, the Jones family had a brand new home built and on possession, insured the property with Ajax Insurance Company. Four years later, an underground sewer pipe broke at a point beyond the foundation, causing softening of the ground and settlement and subsequent property damage which was followed by a claim. This property damage could have been caused by any number of perils, however, one of them, subsidence, the motion of the ground as it settles, was an excluded peril under the issued policy and therefore Ajax decided to raise the exclusion and deny coverage. When the dust finally settled (no pun intended), some expensive time later, the trial Court found that “…the cause of said sewer pipe so breaking and leaking was either the settling and consolidation of the inadequately compacted fill material upon which it (the sewer pipe) was placed, or the improper closure of certain joints therein, or a combination of both these causes…”. While subsidence and earth movement were excluded perils under the Ajax policy, negligence of the builder resulting in leaking pipe joints was not excluded. The Court held that Ajax was liable for the damage to the house because the rupture of the sewer line attributable to the negligence of the third-party contractor (rather than subsidence or earth movement), was the “efficient proximate cause” of the loss. The Court based its holding, in part, on a 1930 principle that “where there is a concurrence of different causes, the efficient cause, is the one that sets others in motion, and therefore is the cause to which the loss should be attributed, even though the other causes may follow it and operate more immediately in producing the disaster”.
Ajax, supported by certain section of that state’s Insurance Code, propositioned that the loss would not have occurred but for the excluded peril of subsidence. The Court, in reviewing other sections of the same state Insurance Code decided, by relying heavily on the above presumptive definition of “efficient cause”, that if the proximate cause or efficient cause or the first cause that set the ball rolling started it all, then the claim is covered. (in simple language).
The rules are different in third party (liability) claims. Where injury or damage results from the concurrence of truly independent causes, one of which is an insured risk in another issued policy of insurance, then coverage exists if the insured risk was a concurrent proximate cause of the current injury or damage. It is immaterial that an excluded cause was also involved or even if it was the “prime” or “moving” cause.
To better illustrate an example, let us review a situation that created case law back in 1973. A passenger in an automobile used by the insured was injured by a bullet when the insured’s pistol accidentally discharged while the insured was driving his insured truck on unpaved terrain. The injury resulted in part from the insured having filed down the pistol’s trigger mechanism to make it a “hair trigger”. Even though there may have been concurrent causes, the auto insurer took the position that the efficient cause or proximate cause of this incident did not have anything to do with the use of the automobile and denied coverage under the insured’s auto policy. Passenger’s luck would have it that the insured was a homeowner and had a valid homeowners’ policy. “Filing down your pistol’s trigger mechanism” was not an excluded peril in the homeowners’ policy, but injuries “arising out of use of an automobile” was. So the Court in this case decided that the insured’s homeowners’ policy covered his liability for negligent acts, including the modification of the trigger mechanism, as an independent contributing negligence, but excluded injuries “arising out of the use of an automobile”, therefore there was coverage for the peril. The injuries that “arose out of the use of the automobile” that were excluded from the homeowners’ policy, were picked up by the auto carrier as another independent contributing negligence.
Where the “concurring causes” are not “truly independent”, but ultimately joining together to produce injury, the above landmark case does not apply in quite those terms. After failing to take medication for epilepsy, the insured had a seizure while driving and caused a collision. Only the auto coverage, and not the homeowners’ policy, was triggered because the failure to take the medication was not a divisible, independent cause of the collision. In other words, even though the failure to take the medication may have been the cause that set the other in motion, it was not an independent cause of the loss and therefore not negligence covered by the homeowners’ policy.
Compcheck, as your Risk Manager, will review claims as they occur, will identify possible unusual issues involving coverage and has been advising our clients as to the most favorable course to take in reporting the claim and to whom. In addition, we will review and audit all claims in an effort to provide guidance leading to cost reductions, both in premium and all other associated expenditures.
Tony Damoulis, in addition to being our Director of Operations, also directs our liability division that deals exclusively with our clients’ risk and claims management needs.