Insurance defense attorneys argue the exclusionary language of the anti-concurrent causation clause should be broadly interpreted because they have to get their insurance company clients “off the hook” for making wrong coverage interpretations. It is important for those attorneys representing policyholders to have a full library to combat these arguments. One such source is the FC&S publications. Those clever defense counsel are sometimes out of luck, despite their ingenious arguments, when insurance industry sources indicate that they are wrong.
One section I routinely read from the FC&S Bulletins are the Question and Answers posed to the editors from subscribers regarding loss situations with coverage questions. Two recent discussion regarding the “acts or decisions” and “governmental authority” exclusionary clauses help show how the anti-concurrent language should not be so broadly read in conjunction with other exclusions to prevent coverage.
The first question involved:
…the commercial property policy’s exclusion 3.b., wherein losses "caused by or resulting from acts or decisions, including the failure to act or decide" are not covered.
The insurer is denying coverage for damage caused to an insured’s apartment building when police forced entry into the building to apprehend a suspected criminal, causing some $5,000 damage to the structure.
We referred the insurer to the Q&A regarding seizure of property by governmental authority (see Coverage Applies to Property Damaged by Police Chasing Fugitive), at which time the company responded that exclusion 3.b. applies and no coverage would be afforded.
It occurs to us that this exclusion is being misused to reject coverage in this case, notwithstanding the "concurrent causation" issues.
The answer was quite to the point and demonstrated how important the lead in language is to a proper reading of most anti-concurrent clause situations:
…exclusion 3.b. is one of the concurrent causation exclusions. These exclusions are meant to avoid coverage when a previously unexcluded cause of loss (a bad decision) joins with an excluded cause of loss (flood) and the claimant is able to make the argument that it was the unexcluded (and therefore covered) cause of loss that led to the damage. Claimants did successfully make the argument in court that it was actually the negligence (a then unexcluded cause of loss) of the water authority in not opening a dam early enough that caused damage to insured property, and not the resulting flood (an excluded cause of loss). It was results such as this that prompted additions of the "concurrent causation" language.
The above would be an example of the acts or decisions exclusion at work. However, as is plainly clear from the lead-in language to the concurrent causation exclusions, if an excluded cause of loss (such as an act or decision) results in a covered cause of loss (which your insured’s damage otherwise would be under the special causes of loss form) then coverage applies. Since there is no exclusion otherwise applicable, coverage is available in this situation. (emphasis added)
The governmental authority clause referred to in the question posed the following:
The insured is a health clinic covered under the commercial property open perils form. Recently, a man who was trying to evade capture by the police ran into the clinic and proceeded to take hostages. Eventually, he was forced to surrender by the police who used tear gas and gunfire. In the process of capturing the fugitive, damage was done to both the building and personal property of the health clinic.
The insurance company is denying coverage under exclusion B.1.c. of the CP 10 30 04 02 form. This exclusion avoids coverage for loss or damage caused directly or indirectly by "seizure or destruction of property by order of governmental authority….
The answer by the editors again indicated that exclusionary language should not be so over-broadly interpreted to avoid indemnity for the loss:
The exclusion of loss caused by order of governmental authority is not so broad as to exclude this type of loss. The aim is to exclude coverage for the intentional destruction of property by governmental authority because of some hazard that the property presents, such as when the government orders the destruction of vegetables that are infected with the Mediterranean fruit fly.
In the case you present, the destruction done by the police was incidental to the capture of the fugitive. Bullets that damaged equipment were intended to control the fugitive—they were not fired because the equipment posed any danger to people or property. One would not expect the police officer in charge to state that he or she ordered the destruction of property. For these reasons, the insured has coverage under the policy. A New Jersey court has held, however, that damage done to an apartment by the police in conducting a search warrant was properly excluded under the governmental authority exclusion.
Perhaps, if the New Jersey policyholder had done some homework and selected a policyholder counsel that invested in such resources as those published by the FC&S, the case might have been won.