Texas Supreme Court Interprets Concurrent-Causation-Clause in Insurance Policy
By: Julie Shehane
The Texas Supreme Court recently rendered a decision interpreting a concurrent-causation-clause in an insurance policy that contradicts Texas’ common law rule on concurrent causation. In JAW The Pointe, L.L.C. v. Lexington Ins. Co., No. 13-0711, 2015 WL 1870054, __ S.W.3d __ (Tex. Jan. 13, 2015) (not yet reported), the Pointe Apartments, owned by JAW The Pointe, L.L.C., sustained damage caused by wind, as well as damage caused by flooding, in Hurricane Ike. Id. at *2. The City of Galveston had enacted a city ordinance requiring that all apartment complexes that sustained “substantial damage,” meaning damage equal to 50% of its market value, had to meet current code requirements, including a requirement to raise structures to a base flood elevation. Id. at *1. JAW sought coverage for the costs to comply with the ordinance. Id. at *8. Lexington refused to cover the loss, asserting that the damages were caused by flooding and JAW’s policy expressly excluded coverage for damage caused by flooding. Id. at *3.
There was also an anti-concurrent-causation clause in the policy stating that Lexington would not pay for damage caused directly or indirectly by an excluded loss, “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” Id. at *5. JAW argued that the anti-concurrent-causation clause did not apply because the damage caused by wind, which was a covered peril, was a “separate and independent” cause of the loss. Id. at *6. Lexington argued that, because the city determined that the apartments were “substantially damaged” from both wind and flood damage, the policy’s anti-concurrent-causation clause excluded coverage for both. Id.
In determining the issue, the Court noted that the City of Galveston found the damage to the apartments included both wind and flood damage, and based its decision that the damage comprised of “substantial damage” on a combination of the two. Id. at *8. Specifically, the Court found that the city relied on information provided by JAW with the permit application, which did not distinguish between the amount of wind and amount of flood damage. Id. at * 9. As JAW was seeking coverage for losses caused by the city’s enforcement of ordinances, and the enforcement was based on a permit application submitted by JAW that did not differentiate between damages caused by wind and damages caused by flooding, the anti-concurrent-causation clause excluded coverage for the losses incurred in complying with the ordinances. Id.
Although JAW was decided based upon an anti-concurrent-causation clause, JAW argued that the clause conflicted with Texas common law pertaining to concurrent causation and separate and independent causation. Id. at *8. Specifically, it argued that either the wind or the flooding damage could have caused the loss independently, and as such, the Court should not apply the relevant exclusion. Id. The Court rejected JAW’s argument because the anti-concurrent-causation clause applied by the terms of the insurance policy, irrespective of whether it conflicted with the common law doctrine pertaining to concurrent causation and separate and independent causation. Id. In doing so, the Court reiterated the rule under the common law that when ‘“excluded and covered events combine to cause’ a loss and ‘the two causes cannot be separated,’ concurrent causation exists and ‘the exclusion is triggered’ such that the insurer has no duty to provide the requested coverage.” Id. citing Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 2045 (Tex. 2004). Where excluded and covered causes could have independently each caused the loss, then the causes are deemed separate and independent, and the exclusion will not apply to negate coverage. Id.
Ultimately, the Texas Supreme Court applied the plain language of the policy, even though the anti-concurrent-causation clause conflicted with the common law. This decision illustrates the Court’s adherence to contract construction principles and provides a framework for how anti-concurrent-causation clauses are interpreted by courts.