Determining Coverage in Cases Involving Multiple Concurrent Causes

Determining Coverage in Cases Involving Multiple Concurrent Causes

Introduction

Insurance policies commonly contain clauses which stipulate which losses are covered and which are excluded under the policy. However, determining whether coverage applies can be complicated when a loss can be attributed to two concurrent causes, one of which is excluded from coverage. An example if where an explosion causes a fire on the insured’s property. Damage or loss from the explosion is covered but the fire is excluded from coverage.

Serial concurrent causes vs. Independent Concurrent Causes

Courts have distinguished between two different types of concurrent causes: Serial and independent.

Serial causes are those where each is a consequence of the one preceding it; where, in other words, there is a causal connection not only between each cause and the loss, but also among the various causes. This is usually described as a “chain of causation”.1

Independent causes, on the other hand, are unrelated. The fact that they operate simultaneously to produce the loss is a mere coincidence of time and situation. There is no causal connection between independent concurrent causes; the causal connection exists only between each of those causes and the loss.

Independent Concurrent Causes

The leading case in Canada on the issue of independent concurrent causes and exclusion clauses is the Supreme Court of Canada case of Derksen v. 539938 Ontario Ltd.2

In Derksen, the insured had two policies: an automobile liability policy which was restricted to non-pecuniary damages, and a commercial general liability policy (the “CGL”) which contained a typical exclusion for bodily injury or property damage arising out of the use or operation of a vehicle.

While cleaning up a work site, the insured negligently stored a steel plate on the truck. While driving the truck, the steel plate went through the window of an oncoming school bus, killing one child and injuring others.

In this case, the independent concurrent causes are: 1) the negligent clean up of the work site, and 2) the negligent use and operation of the truck.

Both the Ontario Supreme Court and the Court of Appeal agreed that under the CGL policy, coverage should apply as the injuries arose from both auto-related and non-auto-related causes. As the non-auto-related cause is covered by the CGL policy, the insurer is obligated to cover the insured for damages arising from that loss.

In the Supreme Court of Canada the court reaffirmed that the issue of exclusion is a matter of contractual interpretation. The interpretation must be in accordance with the general principles of interpretation of insurance policies, which include: 1) the contra proferentem rule, 2) the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and 3) the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties.

A presumption that coverage is excluded is inconsistent with the well-established principle that exclusion clauses in insurance policies are to be interpreted narrowly and generally in favour of the insured in case of ambiguity in the wording (contra proferentem). The court further mentions that there have been examples from case law indicating that insurers have in fact successfully used enforceable exculpatory language. These exclusion clauses use language such as “caused directly or indirectly”, or “caused by, resulting from, contributed to or aggravated by” to exclude coverage for a loss with several independent concurrent causes.3

As there is no exculpatory language in the CGL’s auto exclusion, the Court affirmed the lower court decisions that the CGL had to respond to the pecuniary loss and that portion of the loss attributable to non-auto negligence.

For our purposes here, the decision in Derksen is instructive. Policies need to have clear exculpatory language in order to deny coverage in a situation involving multiple independent concurrent causes, one of which is excluded under the policy.

Serial Concurrent Causes

The second type of concurrent cause scenario is when a chain of events causes a loss or damage.

In a situation involving serial causes, there is in reality only a single cause involving one chain of causation. The causes are not genuinely concurrent as in Derksen which involved two chains of causation. In the case of serial causes, there is the single dominant cause and mere derivative causes in a single chain of causation. And if that single dominant cause is excluded from coverage, then there is no coverage for the loss even in the presence of covered, derivative causes.

A simple example, as mentioned earlier, is an explosion which causes a fire where explosion is a covered peril while fire is excluded. That part of the loss that occurred before the fire as a result of the explosion would be covered. In the same situation, if fire were the covered peril and explosion the excluded peril, the entire loss would be excluded, unless the fire was not caused by the explosion.

That said, though the issue of serial concurrent causation has not been addressed by the Supreme Court of Canada, the matter has been dealt with by lower courts.

In Pavlovic v. Economical Mutual Insurance Co.4, the water service line ruptured at the insured’s residence. After an indeterminable period of time, the insured’s brick and concrete work at the front of the residence and driveway showed signs of water damage. The policy excluded coverage for seepage and leakage of water below the surface of the ground.

The trial judge held that there was no coverage. The Court of Appeal overturned the decision by ruling that many events conspired to cause the damage, one of which was leakage of underground water, but the chain of events was set in motion by the rupture of the water service line. Therefore, it would be unfair to say that the loss was “caused by” the leakage of water below the ground. In order to succeed, the Court of Appeal stated, the insurer must prove that the events causing the loss or damage are clearly within the language of the exclusion.

Implicit in the Court of Appeal decision is the finding that the dominant or true cause of the damage must be excluded from the policy in order for an insurer to deny coverage in a serial concurrent cause incident.

In another BC Court of Appeal case of Catalano v. Canadian Northern Shield Insurance Co.5, the local government diverted a flooding creek down the insured’s street causing damage. The insured’s policy excluded coverage for damage caused by floods, natural or man-made. Both the Supreme Court and Court of Appeal agreed that the cause of the insured’s loss was not the diversion but the flood that necessitated the diversion.

The Court found reinforcement in the language of the exclusion that included the words “directly or indirectly”, noting at paragraph 16, “Those words typically are intended to broaden the ambit of causation between the peril and the loss and avoid a rigid and narrow proximate cause analysis.”

Serial but not Concurrent Causes

There may be situations where a court may interpret a loss caused by a series of events as a loss that was caused by only one event, thereby dismissing any concurrent cause claim. In Algonquin Power (Long Sault) Partnership v Chubb Insurance Co. of Canada6, a dam had failed. There were concurrent causes – a faulty design, which was excluded from coverage, and other causes including a sink hole collapse. The court held at paragraph 205:

This is not a case where there was more than one cause for the dam’s failure. The only cause was faulty design. What we have is a chain of events leading to the compromise of the dam. Faulty design caused hydraulic piping. This led to voids that caused surface sinkholes, cracks and slumps that compromised the dam. The Partnership simply has not established any other concurrent cause for the event.

The result in Algonquin appears to be the same as when a court attempts to find the underlying cause of the loss. However, the court in Algonquin stated that the series of events and resulting loss was contributed solely by the underlying cause and no additional factors contributed to them.

Another way a serial concurrent cause claim may be rejected is if there had been an intervening act or event to break the chain of causation between a cause and the loss. In essence, an act or event will be considered intervening and break the chain of causation between a cause and the loss if the act or event is not created by the earlier cause and is not likely to have arisen in the “ordinary course of things”.7

As an example, the 2013 Alberta flood caused sewer back up in some areas. Many insurance policies did not cover damage caused by the flood but did allow for damage caused by sewer back up. In order for the sewer back up to be considered an intervening event, the insured would have to prove that the sewer back up was not created by the flood and would not have arisen in the ordinary course of a flood.

Apportionment

In the above cases, coverage for the insured’s loss was considered an all or nothing approach. Some academic commentators believe that in situations where there are concurrent causes, the apportionment approach should be adopted. Basically, the court would be invited to divide the damage proportionally between covered and non-covered losses. While no jurisdiction has adopted this approach yet, it may be considered by a court in the future.

Conclusion

With respect to independent concurrent causes, the Supreme Court of Canada has ruled that without clear exculpatory language, a loss will be covered if it was concurrently caused by an event not excluded under the policy. The Canadian approach to serial concurrent causes appears to involve determining the primary or dominant cause of the loss. If the dominant cause is excluded under the policy, the insured may not obtain coverage. The exclusion serial concurrent cases may be further aided by exculpatory language to avoid any ambiguity in the policy.

1 Hillel David and Gary Caplan in “Serial and Independent Concurrent Causes in Insurance Law” (2009) 36 The Advocates’ Quarterly 57 [David and Caplan].

2 Derksen v. 539938 Ontario Ltd., 2001 SCC 72 [Derksen].

3 See Pavlovic v. Economical Mutual Insurance Co. (1994), 28 C.C.L.I. (2d) 314, at p. 320 (BCCA).

4 See Note 3, Supra.

5 Catalano v. Canadian Northern Shield Insurance Co., [2000] B.C.J. No. 380 (CA) [Catalano].

6 Algonquin Power (Long Sault) Partnership v Chubb Insurance Co. of Canada, 2003 OJ 2019 (Ont. Sup. Ct. Just.) [Algonquin].

7 David and Caplan, Supra note 1 at page 80.