Property insurance losses are often caused by strange events. These events, combined with obscure insurance contract language, lead to much of the litigation between policyholder and underwriter. In yesterday’s post, Florida and Texas Courts Have a Slightly Different View of Insurance Causation Burdens of Proof: Part I, I highlighted Florida law regarding basic causation. Today, I am going to explain significant differences under Texas insurance law and suggest what policyholders and their experts need to make certain they achieve the results in Texas that other policyholders more easily receive in most states.
When causes of loss are all covered, the causation rule in Texas is seemingly just like every other state. In Evergreen Nat’l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex. App. Austin 2003), the Court noted this general rule:
"Generally, the insured had the burden to prove its claim comes within the scope of coverage provided by the policy, and the insurer has the burden to prove a claim comes within a policy exclusion or limitation of coverage. Venture Encoding Serv. v. Atlantic Mut. Ins. Co. 107 S.W.3d 729, 733 (Tex. App. –Fort Worth 2003, pet. filed); see also Tex. Ins. Code Ann. art. 21.58 (West Supp. 2003). Employers Cas. Co. v. Block, 744 S.W.2d 940, 944, 31 Tex. Sup. Ct. J. 245 (Tex. 1988)."
Proving the loss happened during the policy period is the policyholder’s burden:
"An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy. See Royal Indemnity Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965); Bethea v. National Casualty Co., 307 S.W.2d 323, 324 (Tex. Civ. App. — Beaumont 1957, writ ref’d); Reserve Life Ins. Co. v. Crager, 421 S.W.2d 697, 698 (Tex. Civ. App. — Beaumont 1967, no writ). As pointed out in the dissenting opinion of the court of appeals, the time of the insured’s damages is a precondition to any coverage rather than an exception to general coverage. Thus, we hold that Employers Casualty’s general denial placed the burden on the Blocks to prove that their house was damaged during the policy period."
In cases where the cause of the loss is in dispute, any similarity ends. If there is a covered cause of loss and at least one uncovered cause of loss, Texas’ unconsumer friendly rule of "concurrent causation" comes into play. This rule differs from what most adjusters are taught regarding policy interpretation. A recent case, Laird v. CMI Lloyds, 261 S.W. 3d 322 (Tex. App. Texarkana 2008), states the Texas rule:
"Under the doctrine of concurrent causation, when covered and noncovered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indem. Co. v. McKillip, 469 S.W.2d 160, 162 (Tex. 1971); Wallis v. United Servs. Auto. Ass’n, 2 S.W.3d 300, 302-03 (Tex. App.–San Antonio 1999, pet. denied). The Texas Supreme Court has continued to uphold this requirement. See Mem’l Hosp., Inc. v. Murdock, 946 S.W.2d 836, 840 (Tex. 1997) (reaffirming holding in McKillip). Under the concurrent causation doctrine, it is entirely possible that some of the damage could be due solely to a covered peril, and therefore covered, and some of the damage could be due in part to an excluded peril, and therefore excluded."
Texas has a unique "concurrent causation" analysis. The minority of states that use a "concurrent causation" theory of recovery generally refer to a theory of recovery started in California, which lead to insurance companies making "anti-concurrent causation" clauses. A Florida case, Wallach v. Rosenberg, 527 So. 2d 1386, 1389 (Fla. Dist. Ct. App. 3d Dist. 1988), has a very good discussion of what most insurance coverage experts consider a traditional "concurrent causation" analysis and liberal theory of recovery:
"…the jury may find coverage where an insured risk constitutes a concurrent cause of the loss even where "the insured risk [is] not . . . the prime or efficient cause of the accident." 11 G. Couch, Couch on Insurance 2d § 44:268 (rev. ed. 1982). This view was adopted by the Supreme Court of California sitting en banc in State Farm Mutual Automobile Insurance Co. v. Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123 (1973).
In Partridge a passenger in a car was injured when the driver negligently drove off a road, hit a bump, and caused a gun to discharge a bullet into the passenger’s spine. The driver had negligently filed the gun’s trigger mechanism to give it a "hair trigger action." An issue at trial was whether coverage was available under the tortfeasor’s homeowner’s policy which specifically excluded coverage for injuries arising out of the use of a motor vehicle but provided coverage for the negligent filing of the trigger mechanism. The California supreme court held that where an insured risk and an excluded risk jointly caused the accident, coverage was available under the policy, stating: "Although there may be some question whether either of the two causes in the instant case can be properly characterized as the ‘prime,’ ‘moving’ or ‘efficient’ cause of the accident, we believe 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. That multiple causes may have effectuated the loss does not negate any single cause; that multiple acts concurred in the infliction of injury does not nullify any single contributory act."
Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d at 130 (original emphasis). The court distinguished the facts in Partridge from the facts in Sabella v. Wisler, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 (1963), on which Old Republic relies. Sabella held that where there is a concurrence of different causes, it is the efficient cause that is the cause to which the loss is attributed. The California court found the efficient cause language in Sabella to be of little assistance in cases where both causes of the harm are independent of each other (the filing of the trigger did not "cause" the negligent driving or vice versa, but the two acts combined to cause the accident). Partridge, 10 Cal.3d 94 n.10, 109 Cal.Rptr. 811 n.10, 514 P.2d at 130 n.10.
We agree with the California court that the efficient cause language set forth in Sabella and cited by Hartford Accident & Indem. Co. v. Phelps, 294 So.2d 362 (Fla. 1st DCA 1974), offers little analytical support where it can be said that but for the joinder of two independent causes the loss would not have occurred. 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. See Safeco Ins. Co. v. Guyton, 692 F.2d 551 (9th Cir. 1982)(coverage was available where a covered risk, negligent maintenance of flood control structures, combined with an excluded risk, a flood, to cause a loss). See also Mattis v. State Farm Fire & Casualty Co., 118 Ill.App.3d 612, 454 N.E.2d 1156, 1160, 73 Ill. Dec. 907 (Ill.App.Ct. 1983)("Where a policy expressly insures against loss caused by one risk but excludes loss covered by another risk, coverage is extended to a loss caused by the insured risk even though the excluded risk is a contributory cause."). n1 There is no contention here that the policy contains a provision which specifically excludes coverage where a covered and an excluded cause combine to produce a loss.
Another factor weighing in the insured’s favor is the liberal construction generally given all-risk insurance contracts. The term all-risk is given a broad and comprehensive meaning. Phoenix Ins. Co. v. Branch, 234 So.2d 396, 398 (Fla. 4th DCA 1970). An all-risk policy provides "a special type of coverage extending to risks not usually covered under other insurance" and coverage is available for all loss not resulting from the insured’s willful misconduct or fraud unless the policy contains "a specific provision expressly excluding the loss from coverage." Id. Once the insured establishes a loss that appears to be within the terms of the all-risk policy, the burden is on the insurer to prove that the loss was caused by an excluded risk. Hudson v. Prudential Property & Casualty Ins. Co., 450 So.2d 565, 568 (Fla. 2d DCA 1984).
Starting with the well-settled law in Florida that exclusionary clauses are construed more strictly than coverage clauses, Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976), the insurer’s burden is even heavier under an all-risk policy. Further, exclusionary clauses that are uncertain in meaning are construed in favor of the insured. State Farm Mut. Auto. Ins. Co. v. Pridgen, 498 So.2d 1245, 1248 (Fla. 1986), for a collection of cases construing the term earth movement to be ambiguous see Annotation, 44 A.L.R.3d 1316 (1972)).
Next Old Republic contends that the jury instruction imposing upon the insurer "the burden of proof to show by the greater weight of the evidence that the exclusion in the insurance policy was the sole, proximate cause of damage or loss to the property . . ." was incorrect. A similar instruction was given in Vormelker v. Oleksinski, 40 Mich.App. 618, 199 N.W.2d 287 (Mich. Ct. App. 1972). A key issue was whether the collapse of the plaintiffs’ house was due to improper construction (a covered event under the policy) or earth movement (an excluded event). The jury was instructed that it could find more than one proximate cause of the loss; however, the judge also directed the jury to return a verdict for the insurer if they found that earth movement was the sole proximate cause of the collapse. The defendant argued that because earth movement could never be the sole cause of a collapse, the effect of the jury charge was to direct a verdict for the plaintiff. Approving the instruction the appellate court wrote: It is our opinion that the exclusions contained in the policy apply only when it can be shown that earth movement et cetera was the sole cause of the damage. If it can be shown that the building was improperly constructed . . . and "but for" the inadequate construction the building would not have collapsed even with the earth movement, then the damage should come under the protection of the policy.
Vormelker, 199 N.W.2d at 294.
We agree with Vormelker and approve the charge. See also Fireman’s Fund Ins. Co. v. Hanley, 252 F.2d 780, 786 (6th Cir. 1958)(approving charge that if damage to property resulted from combination of causes under and outside coverage, insureds are entitled to recover under all-risk policy)."
When there are both covered and not covered causes of loss, the Texas approach is more akin to a comparative negligence state, where the jury determines and apportions how much is covered under the policy and how much is excluded. It may not be an all or nothing proposition, so, I probably should not say it is as unfair. But, when the rule is fully stated along with the burden of proof, most find Texas different because the burden placed on the policyholder is very different than in the majority of states:
"Under the doctrine of concurrent causation, where covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indemnity Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971); Wallis v. United Servs. Auto. Ass’n, 2 S.W.3d 300, 302-03 (Tex. App.-San Antonio 1999, pet. denied). The doctrine of concurrent causation is not an affirmative defense or an avoidance issue; rather, it is a rule embodying the basic principle that insureds are not entitled to recover under their insurance policies unless they prove their damage is covered by the policy. Wallis, 2 S.W.3d at 303. The burden is on the insured to prove coverage. Id."
Most states place the burden on the insurance company to prove how much of the loss is excluded. The discussion in the All Saints case explains how the burden on the policyholder, instead of the insurer, can make a big difference in the outcome of a case if the policyholder does not fully prepare the causation issue:
"The policy covers damage caused by hail, but not damage caused by wear and tear or by latent defects in the roofing materials. All Saints contends that the doctrine of concurrent causation does not apply and that United National is bound by the policy to replace the entire roof. All Saints argues that even though the Hardi-Slate tiles were prematurely-aged, the roof functioned properly before the hailstorm. After the hailstorm, the roof no longer functioned; it no longer kept the rain out. Thus, the damage was not caused by the aged, defective Hardi-Slate tiles, but by the hailstorm alone. Because the only way to repair the roof is to replace it, All Saints argues that under the policy United National must pay the cost to replace the roof in a condition equal to when it was new.
All Saints further argues that United National is seeking a deduction from the cost of repair for betterment because the undamaged tiles must be replaced, which Texas law does not allow. In support of this contention, All Saints relies on Great Texas County Mutual Insurance Co. v. Lewis, 979 S.W.2d 72 (Tex. App.-Austin 1998, no writ). There, the insured sustained covered damage to his car engine from an accident. The engine had 110,000 miles on it, 75% of its useful life. Id. at 73-74. The insurance company paid the cost of replacement minus a charge for betterment, because the insured would get a windfall receiving a new engine to replace the old one. Id. The policy required repairs or replacement to be of like kind and quality. Id. at 73. The court held this language permitted, but did require, the engine to be the exact same age or in the exact same condition; rather, the words "repair" or "replace" mean restoration to a condition substantially the same as that existing before the damage was sustained. Id. at 74. All Saints argues that the language of its policy, to repair or replace the roof in a condition equal to when it was new, is stronger than the language in Lewis; therefore, the roof should be restored to at least a condition substantially the same as that existing before the damage was sustained, and that condition is one of a functioning roof that keeps the rain out.
We reject All Saints’ arguments. The policy obligates United National to indemnify All Saints-not for the costs of a roof-but for the cost to repair, rebuild or replace damaged property, including property damaged by hail and excluding property damaged by wear and tear and latent defects. The hailstorm damaged some of the tiles in All Saints’ roof, but not all of them. As All Saints argued below and here, the remaining tiles were "functioning properly" after the hailstorm. Under the policy, United National is obligated to indemnify All Saints for the cost of repairing, rebuilding, or replacing the tiles damaged by the hailstorm-and those tiles only. Any other tiles constituting "damaged property" under the policy were not reduced to that condition by the hailstorm, but by wear and tear and the nature of the Hardi-Slate tiles. Although the hailstorm brought their condition to the forefront, it does not change the fact that these tiles were not damaged by a covered peril. See Wallis, 2 S.W.3d at 303 (insurer not liable for damage caused by non-covered perils).
To the extent All Saints insists on treating the roof as a single, integrated unit, we conclude the doctrine of concurrent causation does apply. Part of the loss of the roof resulted from a covered peril-the hailstorm, while part of the loss resulted from non-covered perils-wear and tear and latent defects. Thus, covered and non-covered perils combined to cause the loss of the roof, and the insured is entitled to recover only that portion of the damage caused solely by the covered peril. See Wallis, 2 S.W.3d at 302-03; McKillip, 469 S.W.2d at 163 (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, snow); U.S. Fire Ins. Co. v. Matchoolian, 583 S.W.2d 692, 693-94 (Tex. Civ. App.-Houston [14th Dist.] 1979, writ ref’d n.r.e.) (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, rain). Thus All Saints is not entitled to recover the cost of replacement of the non-hail damaged tiles.
…Here, United National did not deny All Saints new tiles of the same quality to replace those damaged by the covered peril, hail; it only denied the cost of new tiles to replace those damaged by the non-covered perils of wear and tear or latent defects. Thus, United National did not seek or obtain an improper deduction for betterment….
All Saints is entitled only to the amount necessary to repair the hail-damaged tiles. See Wallis, 2 S.W.3d at 303; McKillip, 469 S.W.2d at 163. It has already received this from United National…"
In Wallis v. United Servs. Auto. Ass’n, 2 S.W.3d 300, 303-304 (Tex. App. San Antonio 1999), the expert’s inability to state a basis for allocating the covered versus uncovered damage was catastrophic for the policyholder:
"Texas recognizes the doctrine of concurrent causes. This doctrine provides that when, as in the instant case, covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril(s)…To this end, the insured must present some evidence upon which the jury can allocate the damage attributable to the covered peril…
The Wallises contend that the insured’s burden to segregate damages has been legislatively overruled by article 21.58 of the Texas Insurance Code. Pursuant to article 21.58, USAA had the burden to establish what part of the Wallises’ damage was caused by an excluded peril. The Wallises contend that USAA failed to satisfy its statutorily-mandated burden of proof, and that the trial court thus erred in disregarding the jury’s answer to question two. Alternatively, the Wallises argue that the issue of allocation is immaterial because the evidence introduced at trial was that the entire house needed to be repaired. We reject these contentions.
Article 21.58 (b) of the Insurance Code provides that:
In any suit to recover under an insurance contract, the insurer has the burden of proof as to any avoidance or affirmative defense that must be affirmatively pleaded under the Texas Rules of Civil Procedure. Any language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense.
…The Wallises’ argument regarding article 21.58 fails because the doctrine of concurrent causation is not an affirmative defense or an avoidance issue. Rather, it is a rule which embodies the basic principle that insureds are entitled to recover only that which is covered under their policy; that for which they paid premiums. It is well established that insureds are not entitled to recover under an insurance policy unless they prove their damage is covered by the policy. Employers Casualty Co. v. Block, 744 S.W.2d 940, 945 (Tex. 1988) overruled in part on other ground, 925 S.W.2d 696 (Tex. 1996) . The doctrine of concurrent causes limits an insured’s recovery to the amount of damage caused solely by the covered peril. Because an insured can recover only for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof. Cf. Telepak v. United Services Auto. Assoc., 887 S.W.2d 506, 507-08 (Tex. App.–San Antonio 1994, writ denied) (determining that insured carries burden to establish exception to exclusion because exception to exclusion creates coverage). Moreover, it follows that an insured’s failure to carry the burden of proof on allocation could not be immaterial because it is central to the claim for coverage.
…USAA lodged a legal sufficiency challenge to the jury’s finding that plumbing leaks, a covered peril, caused thirty-five percent of the Wallises’ damage…The record contains evidence from which the jury could conclude that plumbing leaks had contributed to the Wallises’ loss. Indeed, three engineers so testified. The testimony varied, but the jury heard that the plumbing leaks did contribute to the damage, or that the plumbing leaks could have contributed to the damage, or that the plumbing leaks could not be excluded as a contributing factor to the damage. From this testimony, the jury could believe that plumbing leaks caused part of the complained-of damage. However, the engineers could not indicate the extent to which this peril damaged the Wallises’ home. This is fatal to their claim. Although a plaintiff is not required to establish the amount of his damages with mathematical precision, there must be some reasonable basis upon which the jury’s finding rests… Here, we have neither mathematical precision, nor a basis from which the jury could reasonably infer that thirty-five percent of the Wallises’ damage was caused by the plumbing leaks. The jury heard no testimony regarding how much of the Wallises’ damage was caused by the plumbing leaks. It learned only that plumbing leaks were found. Because there is no evidence upon which the jury could determine that thirty-five percent of the damage was caused by plumbing leaks, the trial court properly granted a take-nothing judgment in favor of USAA…"
Ouch! I was amazed that the appellate judges dismissed the statutory change which made exclusions the insurance company’s burden to prove. This statutory rule is how the vast majority of states place the burden on all-risk insurers to prove how much of a loss is excluded under the policy. If Texas courts continue to follow this analysis, policyholders may effectively have to disprove exclusions.
I suggest policyholders have their experts specifically determine how much of the damage is caused by an alleged excluded peril. This is a bit trickier than it may first appear. For example, if the expert thinks that the excluded peril played no role in the loss, but is wrong, the policyholder could effectively have no recovery. Imagine how unfair that would be if the covered peril caused virtually all the loss except for a very small amount, but the policyholder expert or estimator thought that it was 100%. Following the Wallis reasoning, the policyholder gets nothing? Under most jurisdictions and under the Texas statute, which was obviously made to correct this unfair rule of common law, the insurer must bear the burden to prove the amount excluded. Under this view– not shared by the Texas courts– the policyholder merely shows a physical loss within the all-risk policy or a loss caused by a peril insured with an alleged amount of damage.
Texans rightly take a lot of pride in being different than other states. Different is neither wrong nor right, it just is different. However, I bet most Texas policyholders would not like Texas to be so different on this issue of law.