An anti-concurrent cause clause is a provision in an insurance policy that excludes coverage for a loss if the loss is caused by one or more reasons; one of which is covered under the insurance policy and the other of which is not. The impact of an anti-concurrent cause clause was the issue in the recent case discussed below.
Whether a loss is covered under an insurance policy depends upon the language of the policy. And, the meaning of policy language is a matter of state law.
That was the dilemma that confronted the United States Court of Appeals for the Ninth Circuit in the case, Ward v Safeco Insurance Company of America, in an Order filed February 3, 2023.
The plaintiff-appellant in that case, Virginia Ward, owned rental property in Montana. She purchased a Landlord Protection Policy from the defendant-appellee, Safeco Insurance Company of America. During the policy term, a water main line leading into the house broke saturating the area around and under the house with water.
A few months later, soft spots developed on the floor of the house. It was determined that the foundation of the house had been compromised. Ward filed a claim under her Landlord Protection Policy with Safeco.
Safeco denied the claim based upon Earth Movement and Water Damage exclusions in the policy. Ward filed suit in federal district court in Montana. While the business of insurance coverage is generally subject to state law, coverage disputes are often heard in federal court because a policyholder and an insurance company are likely to be citizens of different states. However, federal courts are required to apply the law of the state in which the court sits.
The Montana District Court, applying its understanding of Montana law, entered summary judgment for Safeco. The court based its decision on the policy’s anti-concurrent cause clause, which provided as follows:
We do not insure for loss caused by any of the following [listed excluded perils]. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
The policy’s Earth Movement and Water Damage exclusions were among the excluded perils listed in the anti-concurrent cause clause. The District Court entered summary judgment for Safeco finding that the anti-concurrent cause clause barred coverage because the damage was caused, in part, by Earth Movement and Water Damage, even if there were other covered causes of the loss. Ward appealed to the Ninth Circuit.
This would seem to be an open-and-shut case based on the policy’s anti-concurrent cause clause. As discussed above, an anti-concurrent cause clause generally means that coverage is denied when a cause of the loss is excluded from coverage under the policy; even if there were other causes of the loss that are covered under the policy.
However, the Ninth Circuit noted that there is a competing doctrine in some states called the efficient proximate cause or legal cause doctrine, which overrides the anti-concurrent cause clause where a covered cause of the loss is the primary cause. The Court noted that Montana does recognize the efficient proximate cause doctrine.
. . . where covered and noncovered perils contribute to a loss, the peril that set in motion the chain of events leading to the loss or the predominating cause is deemed the efficient proximate cause or legal cause of loss.
[i]n determining the cause of a loss for the purpose of fixing the insurance liability, when concurring causes of the damage appear, the proximate cause to which the loss is to be attributed is the dominant, the efficient one that sets the other causes in operation; and causes which are incidental are not proximate, though they may be nearer in time and place to the loss.
So, the Ninth Circuit was faced with deciding whether to apply the policy’s anti-concurrent cause clause or the efficient proximate cause doctrine. The problem for the Court was that Montana law was unclear on whether the anti-concurrent cause clause or the efficient proximate cause doctrine should prevail. While other states had addressed this issue, Montana had not.
For example, some states have held that parties to an insurance contract may agree to override the efficient proximate cause doctrine.
See, e.g., TNT Speed & Sport Ctr., Inc. v. Am. States Ins. Co., 114 F.3d 731, 733 (8th Cir. 1997) (affirming district court’s decision based on conclusion that “the most analogous and more persuasive cases from other states recognize that parties may contract out of application of the efficient proximate cause doctrine”).
In contrast, other states have held that, as a matter of public policy, parties to an insurance contract may not agree to override the efficient proximate cause doctrine.
See, e.g., Safeco Ins. Co. of Am. v. Hirschmann, 773 P.2d 413, 416 (Wash. 1989) explaining that Washington’s efficient proximate cause rule “may not be circumvented” by exclusionary clause language.
However, this was an issue of first impression in Montana. That means that there was no statutory prohibition on overriding the efficient proximate cause doctrine. Neither had the Montana Supreme Court ruled on the issue. The Ninth Circuit was stuck. It was required to apply Montana law, but there was no Montana law. So, what did it do?
The Court did what any federal court would do in this situation. It certified questions to the Montana Supreme Court and asked that court to determine the law in Montana. It was able to punt the issue to the Montana Supreme Court because that Court’s answers to the questions would be determinative of the legal issues in the case.
Resolution of the certified questions will be determinative of a key issue in the pending appeal. If parties are not allowed to contract around the EPC doctrine, or if the ACC language in the Policy does not effectively do so, the central basis for the district court’s reasoning in granting summary judgment in Safeco’s favor would be eliminated. On the other hand, if parties are allowed to contract around the EPC doctrine using the language in the Policy, the only issues remaining in the case would be whether the relevant parts of the Policy are ambiguous or illusory, and whether Safeco violated the Unfair Trade Practices Act when it denied Ms. Ward coverage. In sum, the certified questions could determine the outcome of this appeal, and implicate significant public policy questions that have not been addressed by the Montana courts.
So, what questions did the Ninth Circuit ask the Montana Supreme Court?
1. Whether an anti-concurrent cause (“ACC”) clause in an insurance policy applies to defeat insurance coverage despite Montana’s recognition of the efficient proximate cause (“EPC”) doctrine; and
2. Whether the relevant language in the general exclusions section on page 8 of the insurance policy in this case is an ACC clause that circumvents the application of the EPC doctrine.
As the Ninth Circuit stated, some states allow parties to contract away the efficient proximate cause doctrine through an anti-concurrent cause clause, and some states do not. It will be interesting to watch this case to see how the Montana Supreme Court answers the Ninth Circuit’s questions.
Whatever side the Montana Supreme Court comes down on, the lesson to be learned from this case is that buying insurance can be a complicated matter. Not only does a policyholder have to read and understand the language of a policy, but it also has to understand the laws of its state. Provisions that are enforceable in one state may be void as a matter of public policy in another.
This is simply another reason why it is imperative that a person or a business have the help of an experienced, insurance professional to guide them through the process of buying insurance.