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Florida Supreme Court ruling addresses insurance payment clause debate

Carrie Salls Dec. 16, 2016, 12:32pm

TALLAHASSEE – The Florida Supreme Court has sided with a homeowner who sued American Home Assurance Co. Inc. after the insurer denied his claim related to water damage in his Naples home.  

John Sebo filed the claim after water damage at the multimillion-dollar home, allegedly resulting from poor workmanship, was exacerbated by further damage caused by Hurricane Wilma in 2005.

American Home Assurance argued that the water damage resulted from shoddy workmanship, which was expressly listed as being not covered under Sebo’s policy. However, Sebo’s lawyers argued that the wind and rain caused by the hurricane constituted “concurrent causes,” which were not excluded from the policy.

In response to the claim, American Home Assurance only agreed to pay Sebo $50,000 to cover mold damage resulting from the water infiltration.

“The policy had a very specific exclusion,” William W. Large, president of the Florida Justice Reform Institute, told the Florida Record.

Specifically, Large said the policy did not cover damage arising from faulty planning and construction defects.

“The loss was water coming in but it was also shoddy workmanship,” Large said.

A Florida circuit court judge originally ordered American Home Assurance to pay Sebo $8.07 million. However, the Second District Court of Appeal reversed that ruling. The Florida Supreme Court agreed with the circuit court, although one justice dissented and said the case should have been sent back to the appeals court.

Large agreed with the dissenting opinion.

“The issue whether to apply the efficient proximate cause (EPC) doctrine instead of the concurring cause doctrine (CCD), was not raised by the parties before the trial court or the Second District,” Large said. “The case should have been remanded back to the Second District to consider the issues.”

Large said cases like Sebo’s are not at all uncommon, adding “Coverage under an ‘all-risk policy’ when multiple perils combine often raises issues associated with EPC or the CCD.”

In the majority opinion authored by Florida Supreme Court Justice James E.C. Perry, the court said “there is no reasonable way to distinguish the proximate cause of Sebo’s property loss – the rain and construction defects acted in concert to create the destruction of Sebo’s home.”

Justice Ricky Polston wrote the dissenting opinion, saying he thought the appeals court should consider the matter in lieu of the high court’s broader interpretation.

The Florida Supreme Court, however, has provided some clarity on how the issue related to the two doctrines will be decided in the state.

“The CCD will be applied in a loss associated with an all-risk policy,” Large said.

The Florida Insurance Council, the Property Casualty Insurers Association of America, the National Association of Mutual Insurance Companies and the American Insurance Association submitted friend-of-the-court briefs in support of American Home Assurance, while the Florida Association of Public Insurance Adjusters and United Policyholders supported Sebo’s case.

In addition to the insurance company, Sebo sued the previous homeowners, an architect and a construction company. Those defendants reached settlements with Sebo. The plaintiff's home eventually was demolished as a result of the significant water damage.

American Home Assurance did not respond to requests for comment.