Truckload of Trouble

Oh, the ironies of insurance and disposable-diaper material. An FC&S Online subscriber recently contacted us about a claim in which a truckload of the absorbent material used to make disposable diapers was ruined by, of all things, “wetness.” The very thing the material was meant to absorb became its demise in this situation, and the insurance carrier denied the claim.

The reason for the denial? The Motor Truck Cargo Legal Liability coverage form excluded loss arising from  a series of causes—such as spoilage, changes in texture, extremes in temperature, “wetness, dampness, dryness, corrosion or rust”—unless the loss resulted from specific causes. The causes that would trigger coverage for such things as wetness included fire, lightning, wind or hale, etc. Water damage was not listed.

Read More FC&S Blog Posts at the Coverage Cafe!

The advocate for coverage reasoned that the cause of loss was water damage and not wetness. After all, the roof of the truck leaked, letting water in, and that was what ruined the material. Water damage was not excluded; in fact, it was not mentioned at all.

Since water damage was not mentioned and wetness was not defined on the policy, we turned to Merriam-Webster Online. It defines wet as, among other things, “consisting of, containing, covered with or soaked with liquid (as water).” On the surface this definition appears to encompass water damage—but does it in the context of insurance coverage?

Among the most complicated of issues in P&C insurance coverage are the theories of concurrent causation and efficient proximate cause. Concurrent causation finds coverage for a loss that is caused by two or more events, at least one of which is covered on the policy. An example is when excluded earth movement causes damage to an insured structure, but the insured claims that the cause of loss actually was a neighbor's negligence in bulldozing a slope above the dwelling, which is not excluded under a Special Perils form.

As a result of litigation in the 1980s, most insurance companies added anti-concurrent causation language to their policies. This language states that the loss causes that follow the language are not covered regardless of whether any covered cause or event contributed concurrently or in any sequence to the loss.

The Motor Truck Cargo form in question did not preface its exclusion for damage caused by wetness with such anti-concurrent causation language.

The efficient proximate cause rule allows for insurance recovery for a loss that is caused by a combination of a covered risk (arguably in this case, water damage) and an excluded risk (wetness) only if the covered risk was the efficient proximate cause of the loss. This means that the covered risk set a series of events in motion which, in an unbroken sequence, caused the loss (Reference: Couch on Insurance).

Jurisdictions vary as to whether they follow the efficient proximate cause rule or not. But since this form does not preface the exclusionary language for wetness with anti-concurrent causation language, I'm inclined to back the advocate for coverage. I think the efficient proximate cause theory applies: Water damage (covered) led to wetness (excluded) in an unbroken sequence.

What do you think?

About the Author
Diana B. Reitz, CPCU

Diana B. Reitz, CPCU

Diana Reitz, CPCU, is editorial director for the professional publishing division of The National Underwriter Company, which includes FC&S Online. She may be reached at dreitz@sbmedia.com

Comments

Resource Center

View All »

Contractors General Liability Coverage 102

What is a prior work exclusion? Which option is right for my client? Why do...

Sign up today to get a 50% matching credit -...

Insurance marketing sometimes seems like it's a game of swings and misses, but we're here...

Guide: 5 Steps to Selling Cyber

Cyber risk and data security is on the agenda of every business owner and executive....

Citation Correlation

Do rigger and signalperson qualifications correlate with the cause of crane and rigging accidents? ...

Complete Guide to Electronic Signatures in Property & Casualty Insurance...

In property and casualty insurance, closing new business quickly is key. Learn how to leverage...

INSTANT ACCESS: Complimentary Sales Closer Questionnaires

Help property owners or managers compare your commercial residential property insurance coverage vs. the competition....

Determining Vacant Property Perils and Valuations

Are your clients fully covered for Vacant Properties? In this economic climate, your insureds may...

Risk Management for Law Firms

This package of 3 concise risk management articles offers straightforward content and practical suggestions law...

Guide: Top 15 E&O Risks-And How To Avoid Them

Accidents happen. But when it's an errors and omissions oversight, that accident can open your...

We'll Show You How to Reach Your Sales Goals

Whether you work alone or have a team of agents working for you, we can...

Agent & Broker Insider eNewsletter

Proven success tips and essential information to help agents and brokers grow their practice – FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.