Loss Misery Loves Company

One might think that insurance should be simple. One party wants protection and another party, if paid the right amount of money, is willing to provide protection. An insurance policy (a contract) controls what situations are covered. A very important part to consider is exclusions.

Many situations that can create a loss are routinely covered, such as fire, wind, and explosions. There are other sources that can (and do) cause losses which are barred from coverage such as losses caused by flooding, war or nuclear activity. Of course, whether a situation qualifies for coverage is, often, simple to determine. When an eligible source creates a loss, insurance applies; when an excluded source creates a loss, there’s no insurance. However, what happens when more than one sources contributes to a loss? Things can quickly get complicated!

When a loss is caused by more than one source and one of the sources is ineligible; there’s a great chance that a coverage dispute will end up in a lawsuit. Over the years, insurance companies and policyholders have sued to determine coverage. A key issue has often been that, if both a covered and an excluded source of loss occurs at the same time (or in close proximity), the argument can be made for either outcome. Insurance companies have responded by making changes in policy language to help make such issues clearer. One response has been to add concurrent causation language.

When more than one cause of loss happens and they have opposing eligibility; concurrent causation wording generally states the following:

If an eligible cause of loss occurs either before, at the same time or after an excluded source of loss; the applicable loss is still excluded.

Such wording is called anti-concurrent causation clauses. For example, a homeowner files a claim for the loss to his house. Although the claim includes a request to recover from loss caused by a storm, however, the storm occurred at the same time that the home was damaged by an earthquake. Storm damage is normally covered; while earthquake coverage is usually excluded. The homeowner threatens to sue until the policy’s anti-concurrent clause is explained to her.

Anti-concurrent causation clauses prevent attempts to short-circuit exclusions. In many instances, various courts have accepted such clauses and have reduced the number of lawsuits. In the end, both insurance companies and their customers benefit from policies that clearly express what is covered.


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