Diamond Post

Insurance Coverage Newsletter

Consistency in the Carolinas on Anti-Concurrent Causation Clauses
(Bet You Can't Say It Five Times Fast)

As a native West Virginian, I'm used to a higher level of rivalry between states than what exists between North Carolina and South Carolina.  I mean, if it doesn't involve a stolen pig and a character named "Devil Anse," it ain't a real feud!* Sure, South Carolina and North Carolina differ on style of barbecue (North Carolinians being split between the tomato-loving West and the vinegar-loving East, while South Carolina's claim to fame is a nasty mustard-based concoction), and there is that lawsuit pending in the Supreme Court over which state gets to hog the waters of the Catawba River, but mostly the Carolinas get along pretty well.  

On matters of insurance coverage, however, there have been notable differences between the states.  North Carolina allows an insured to bring a statutory bad faith action; South Carolina doesn't.  South Carolina allows extrinsic facts to be considered in determining an insurer's duty to defend; North Carolina doesn't.  South Carolina recognizes the validity of anti-concurrent causation clauses; until last month, North Carolina didn't.

However, North Carolina joined the fold of jurisdictions upholding anti-concurrent causation clauses in Builders Mutual Insurance Company v. Glascarr Properties, Inc., No. COA09-486, slip op. (N.C.Ct.App. February 2, 2010) (2010 WL 348346).  Glascarr involved a claim for water damage to a "spec house" built by a developer after vandals broke in and left the water taps turned on.  The developer's insurer promptly paid a water damage claim in excess of $100,000.  However, the developer later discovered mold in the house, caused by the water damage which was caused by the vandals, and submitted a $39,000 claim for mold remediation.  This time, the insurer denied the claim based on an exclusion for losses caused by mold.

In the subsequent declaratory judgment action, the insurer argued that the mold exclusion was within a set of exclusions to which an anti-concurrent causation clause applied.  That clause stated that the insurer will not pay for a loss caused "directly or indirectly" by the excluded causes, "regardless of any other cause or event that contributes concurrently or in any sequence to" the loss.  The developer countered with several arguments, most of which appear to have derived from the Mississippi Supreme Court's decision in Corban v. United Services Automobile Association, 20 So.3d 601 (Miss. 2009), including its contention that the mold was not the "cause" of the loss, rather vandalism, a covered cause of loss, was the true "cause."  The North Carolina Court of Appeals didn't buy that argument or any other made by the developer.

The court held that the policy unambiguously excluded payment of a claim for mold remediation.  When the developer pointed out that North Carolina had repeatedly held in the past that a loss may be covered if it is caused in part by a covered cause of loss, the Glascarr Court pointed out that none of the policies interpreted in those cases included an anti-concurrent causation clause.  Assuming the North Carolina Supreme Court doesn't reverse the opinion, it looks like the concurrent causation doctrine reign of terror in North Carolina is over (at least for the vast majority of property insurers employing anti-concurrent causation clauses).  Now, if we could just get North and South Carolina to see eye to eye on barbecue...

*   For non-hillbillies, the Hatfield and McCoy feud took place in Mingo County, West Virginia and Pike County, Kentucky, over the state line created by the Tug Fork River, between 1865 and 1891 and resulted in the deaths of over a dozen people.  An official peace treaty was signed in 2003.

Click here for a copy of the case.

Submitted by:  Jennifer D. Eubanks

SOUTH CAROLINA - Number of Occurrences

In Johnson v. Hunter, Op. No. 4644 (S.C.Ct.App. filed January 11, 2010) (Shearouse Adv.Sh. No. 2 at 39), the plaintiff was struck by an oncoming vehicle which crossed the center lane and turned his truck sideways.  Shortly thereafter, the defendant, who had been traveling behind the plaintiff, also struck the plaintiff.  After settling with the liability carriers, the plaintiff made a underinsured motorist (UIM) coverage claim in which he alleged that he was involved in two accidents and, thus, was entitled to up to two times the "per accident" limit of his UIM coverage.  The trial court disagreed, finding that only one accident occurred and that the plaintiff was entitled to coverage only up to the single per accident limit.

On appeal, both the plaintiff and his UIM carrier agreed that whether the event was one accident or two should be decided by the "causation theory."  Because the parties did not dispute the applicability of the causation theory and the trial court had used it, thus making it the law of the case, the South Carolina Court of Appeals adopted it for purposes of the appeal.  According to the causation theory, an insured's single act of negligence is considered the occurrence from which all claims flow.  Moreover, the causation theory views an accident or occurrence from the standpoint of cause and not effect.  As such, when the court considered the facts of the accident involving the plaintiff, it determined that all of the plaintiff's damages resulted from the negligence of the driver whose car crossed the center line and struck the plaintiff.  The very brief passage of time between the first collision and the second collision was not enough to separate the effects of both accidents from the single cause of the first collision.

Click here for a copy of this case.
 

UNITED STATES DISTRICT COURT FOR SOUTH CAROLINA - Allocation Between Occurrence Policies and Claims-Made Policies

In Medical Protective Company v. South Carolina Medical Malpractice Liability Insurance Joint Underwriting Association, 648 F.Supp.2d 753 (D.S.C. 2009), Judge Currie provided some much needed guidance on analyzing the duties of insurers under claims-made and occurrence policies for the same insured and same claim.  Both insurers provided medical malpractice insurance to an orthopedic surgeon and his practice, and both insurers' policies were triggered by the medical malpractice claim of a single patient.  The claim was eventually settled for $475,000, with MedPro, the insurer with a claims-made policy, contributing $200,000, and JUA, the insurer with an occurrence policy, also contributing $200,000.  The parties agreed that an additional $75,000 would be paid at the conclusion of the action on allocation, based on the decision of the court.

JUA's policies provided coverage for occurrences during the period August 14, 2002, through October 1, 2003.  MedPro's policies provided coverage for claims made during the time the patient's claim was made and included a retroactive date which precluded coverage for acts or omissions prior to October 1, 2003.  The patient claimed that she received negligent medical treatment from December 19, 2002, through March 10, 2004.  Her expert witness testified that 80% of her treatment occurred prior to October 1, 2003, and 20% occurred between October 1, 2003 and March 10, 2004.

The court held that the retroactive date in MedPro's policies relieved it of liability for any act or omission prior to October 1, 2003.  In light of this determination, the court held that JUA was solely liable for the 80% of negligent treatment occurring prior to October 1, 2003.  As to the remaining 20% of negligent treatment, the court held that both JUA's and MedPro's policies were applicable.  To determine the percentage of liability of each insurer for the time period between October 1, 2003 and March 10, 2004, the court used a pro-rata formula, ultimately determining that JUA's contribution to the settlement should have been $407,141.50 and MedPro's contribution to the settlement should have been $67,858.50.  Thus, MedPro was entitled to a reimbursement from JUA in the amount of $132,141.50.

Click here for a copy of the case.

UNITED STATES DISTRICT COURT FOR SOUTH CAROLINA - Pollution Exclusion

The "absolute pollution exclusion" is getting a lot of attention in those states dealing with Chinese drywall claims.  South Carolina, fortunately, did not receive large quantities of Chinese drywall, but our District Court recently dealt with a similar application of a commercial general liability policy's "absolute pollution exclusion."  In NGM Insurance Company v. Carolina's Power Wash & Painting, LLC, No. 2:08-cv-3378, slip op. (D.S.C. Jan. 12, 2010) (2010 WL 146482), the insured painting contractor was hired to paint the interior and exterior of a United States Post Office building.  While doing so, two postal employees were exposed to dust, solvents, primer and paint fumes and subsequently alleged personal injuries.  The insured's commercial general liability policy contained an "absolute pollution exclusion" for damages "arising from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants," and defined pollutants to include gaseous irritants such as vapors, fumes and waste.  The insurer filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify its insured for the postal workers' claims.

The District Court recognized that while South Carolina had never construed the language of the absolute pollution exclusion, the Fourth Circuit Court of Appeals had found it unambiguous and applied it to bar coverage to claims outside the traditional environmental pollution context, even to claims of indoor pollution.  Id. at 2.  However, the District Court distinguished the Fourth Circuit decisions on the grounds that the language in the policy before it was not identical to the pollution exclusions construed by the Fourth Circuit.  Ultimately, the District Court rejected the insured's argument that the pollution exclusion created an internal inconsistency in the policy, but also rejected the insurer's argument that the pollution exclusion unambiguously applied to the release of paint and solvent fumes.  Relying on a New York opinion construing an absolute pollution exclusion similar to the one at issue, the court held that even if the paint and solvent were "pollutants," the policy was ambiguous as to whether "ordinary paint or solvent fumes that drifted a short distance from the area of the insured's intended use and allegedly caused inhalation injuries to a bystander" met the policy's requirement of "discharge, dispersal, seepage, migration, release or escape."  Id. at 6.  Therefore, the court construed the policy in favor of the insured and found coverage.