Post by Knutsen on Jan 14, 2009 22:09:04 GMT 4
Default Rules for Concurrent Causation in Insurance Contracts
Erik S. Knutsen
Queen's University Faculty of Law
January 3, 2009
Abstract:
What causes an accident? It is rarely a simple answer. Answering whether or not one has insurance for the loss is often even more complex a question. It is all the more so when multiple causes combine together to produce a loss. This is concurrent causation. When hurricane Katrina struck and thousands lost their homes, was the loss caused by rain, winds, a storm surge, ineffective water barriers, or flooding? What happens when causes come together concurrently to produce an ultimate end result? If some causes are covered by insurance and others excluded, does the insurance policy pay? Does the insured get nothing? Complexity heightens when one speaks of coverage under liability insurance or of overlapping insurance policies which may cover the same losses.
These questions of concurrent causation are not only difficult to answer. They are expensive to answer. Different common law jurisdictions have different doctrinal rules for solving these insurance disputes. The problem is that the current rules produce unpredictable results. Insureds and insurers cannot predict whether or not a concurrently caused loss will be covered by a certain insurance policy.
This article takes account of the varying approaches to concurrent causation in insurance and proposes two default rules for efficiently solving these disputes. Concurrent causation situations can be grouped into two distinct factual matrices which necessarily require two different default rules as modification to the current positive law. In solving this puzzle, the article takes a comparative approach. Concurrent causation issues in insurance law are not unique to the United States. They appear in other common law jurisdictions as well, with some regularity. Therefore, where helpful, the article draws from comparisons to British and Canadian approaches to concurrent causation. All three common law jurisdictions have taken differing approaches to the same issues. In the end, a portable methodology workable in all three jurisdictions is the goal.
Parts I and II of this article define concurrent causation in insurance law. These Parts expose two pervasive types of disputes regarding concurrent causation which result in disputes in common law jurisdictions. The first type of dispute involves coverage triggers. How does an insurance policy respond when a loss is caused by two or more possible causes and one cause is covered by the policy and one not covered? This is an expensive, time-consuming type of dispute that creates a great deal of litigation.
The second type of dispute involves loss distribution among insurers. How does an insurance policy respond if two or more overlapping insurance policies may be potentially called upon to pay a loss, but one policy excludes coverage for a particular cause in a concurrently caused loss, and the other policy grants coverage for that excluded cause but may, in turn, exclude a different concurrent cause? If a loss is caused by more than one causal factor, and if payout is conditional upon a covered factor being the cause, what if it is only "a" cause in a panoply of possible causes? This Part concludes by proposing that some predictable, efficient default rules are the best solution to cleaning up this remarkably messy and unpredictable area of insurance law.
Part III of this article discusses the important differences between causation in tort and causation in insurance law. It examines how those differences drive the problems with the current approaches to concurrent causation. It also sets an important baseline for constructing workable default rule solutions for assessing concurrently caused insurance losses.
Part IV classifies causal events into two workable categories: serial and parallel causation scenarios. Cases about insurance coverage and concurrent causation generally fall into one of the two categories. Yet, the categories are unique enough that each requires a distinctive approach when creating default rules for efficiently assessing insurance coverage questions.
Part V of this article identifies and explores four possible models for crafting an efficient default rule for concurrent causation in insurance contracts: the dominant cause approach, the conservative approach, the liberal approach, and the apportionment approach. The benefits and problems of each approach are discussed in an attempt to unveil the inherent inefficiencies of each, and the resulting need for predictable, simple default rules. As will be noted, each model produces different results for both serial and parallel causation cases. Each also creates differing sets of concerns depending upon the underlying type of insurance dispute: coverage or loss distribution. Coverage disputes call into question different efficiency issues than loss distribution disputes.
Finally, Part VI proposes two separate default rules that any court in the United States, Britain, or Canada could use to resolve these insurance cases. The distinct nature of losses caused by serial causation versus those caused by parallel causation necessitates a default rule for each type of causal scenario in order to maximize efficiency of results and, ultimately, fairness to insured and insurer alike.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1322862_code568504.pdf?abstractid=1322862&mirid=1
Erik S. Knutsen
Queen's University Faculty of Law
January 3, 2009
Abstract:
What causes an accident? It is rarely a simple answer. Answering whether or not one has insurance for the loss is often even more complex a question. It is all the more so when multiple causes combine together to produce a loss. This is concurrent causation. When hurricane Katrina struck and thousands lost their homes, was the loss caused by rain, winds, a storm surge, ineffective water barriers, or flooding? What happens when causes come together concurrently to produce an ultimate end result? If some causes are covered by insurance and others excluded, does the insurance policy pay? Does the insured get nothing? Complexity heightens when one speaks of coverage under liability insurance or of overlapping insurance policies which may cover the same losses.
These questions of concurrent causation are not only difficult to answer. They are expensive to answer. Different common law jurisdictions have different doctrinal rules for solving these insurance disputes. The problem is that the current rules produce unpredictable results. Insureds and insurers cannot predict whether or not a concurrently caused loss will be covered by a certain insurance policy.
This article takes account of the varying approaches to concurrent causation in insurance and proposes two default rules for efficiently solving these disputes. Concurrent causation situations can be grouped into two distinct factual matrices which necessarily require two different default rules as modification to the current positive law. In solving this puzzle, the article takes a comparative approach. Concurrent causation issues in insurance law are not unique to the United States. They appear in other common law jurisdictions as well, with some regularity. Therefore, where helpful, the article draws from comparisons to British and Canadian approaches to concurrent causation. All three common law jurisdictions have taken differing approaches to the same issues. In the end, a portable methodology workable in all three jurisdictions is the goal.
Parts I and II of this article define concurrent causation in insurance law. These Parts expose two pervasive types of disputes regarding concurrent causation which result in disputes in common law jurisdictions. The first type of dispute involves coverage triggers. How does an insurance policy respond when a loss is caused by two or more possible causes and one cause is covered by the policy and one not covered? This is an expensive, time-consuming type of dispute that creates a great deal of litigation.
The second type of dispute involves loss distribution among insurers. How does an insurance policy respond if two or more overlapping insurance policies may be potentially called upon to pay a loss, but one policy excludes coverage for a particular cause in a concurrently caused loss, and the other policy grants coverage for that excluded cause but may, in turn, exclude a different concurrent cause? If a loss is caused by more than one causal factor, and if payout is conditional upon a covered factor being the cause, what if it is only "a" cause in a panoply of possible causes? This Part concludes by proposing that some predictable, efficient default rules are the best solution to cleaning up this remarkably messy and unpredictable area of insurance law.
Part III of this article discusses the important differences between causation in tort and causation in insurance law. It examines how those differences drive the problems with the current approaches to concurrent causation. It also sets an important baseline for constructing workable default rule solutions for assessing concurrently caused insurance losses.
Part IV classifies causal events into two workable categories: serial and parallel causation scenarios. Cases about insurance coverage and concurrent causation generally fall into one of the two categories. Yet, the categories are unique enough that each requires a distinctive approach when creating default rules for efficiently assessing insurance coverage questions.
Part V of this article identifies and explores four possible models for crafting an efficient default rule for concurrent causation in insurance contracts: the dominant cause approach, the conservative approach, the liberal approach, and the apportionment approach. The benefits and problems of each approach are discussed in an attempt to unveil the inherent inefficiencies of each, and the resulting need for predictable, simple default rules. As will be noted, each model produces different results for both serial and parallel causation cases. Each also creates differing sets of concerns depending upon the underlying type of insurance dispute: coverage or loss distribution. Coverage disputes call into question different efficiency issues than loss distribution disputes.
Finally, Part VI proposes two separate default rules that any court in the United States, Britain, or Canada could use to resolve these insurance cases. The distinct nature of losses caused by serial causation versus those caused by parallel causation necessitates a default rule for each type of causal scenario in order to maximize efficiency of results and, ultimately, fairness to insured and insurer alike.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1322862_code568504.pdf?abstractid=1322862&mirid=1