Court Will Never Rewrite a Policy to Provide Coverage Not Purchased
The City of West Liberty owns and operates an electrical power plant. Employer’s Mutual Casualty Company (EMC) insured West Liberty’s power plant with coverage effective from April 1, 2014, through April 1, 2015. The squirrel came into contact with a bare cable clamp that was energized with 7200 volts of electricity. This contact created a conductive path between the high voltage clamp and the grounded frame. Once this path was established, the air between the energized and grounded surfaces became ionized and arcing resulted. The squirrel was killed, but more significantly the arcing caused $213,524.76 worth of damage to West Liberty’s transformer and other electrical equipment.
The case found its way to the Supreme Court of Iowa where the insured claimed it was entitled to coverage because the arcing was caused by the electrocution of an unfortunate squirrel who wandered into an electric facility and died as a result of electrocution. The electrical arcing that facilitated the sad death of the squirrel resulted in serious damage to the facility.
In City of West Liberty, Iowa v. Employers Mutual Casualty Company, No. 16-1972, Supreme Court Of Iowa (February 1, 2019) the city sued its insurer claiming an exclusion for damage caused by electrical arcing did not apply because the damage was really caused by the squirrel.
A squirrel found its way onto an electrical transformer owned by a municipality, triggering an electrical arc that killed the squirrel and caused substantial damage to the municipality’s property. The municipality sought coverage under its “all-risks” insurance policy. The insurer denied coverage based on the policy’s electrical-currents exclusion, which excludes “loss caused by arcing or by electrical currents other than lightning.” Disagreeing with this reading of the insurance policy, the municipality filed suit. The district court granted summary judgment to the insurer and the court of appeals affirmed.
West Liberty provided timely notice of a claim to EMC for the loss. EMC, however, denied coverage based on an “Electrical Currents” exclusion in the policy. The policy excluded:
“We” do not pay for loss or damage caused directly or indirectly by one or more of the following excluded causes or events. Such loss or damage is excluded regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.
“We” do not pay for loss or damage that is caused by or results from one or more of the following excluded causes or events:
Electrical Currents — “We” do not pay for loss caused by arcing or by electrical currents other than lightning. But if arcing or electrical currents other than lightning result in fire, “we” cover the loss or damage caused by that fire.
In its summary judgment memorandum, West Liberty argued a theory of concurrent causation and landed on efficient proximate cause as its theory of choice.
The trial court granted EMC’s motion for summary judgment and denied West Liberty’s motion. The district court found that the only event that caused damages was the electrical arc, noting the squirrel did no damage to West Liberty’s property. The court held “The Court cannot conclude that the ‘squirrel’s actions’ were a cause of the damages because the squirrel did not actually do anything to cause damages; it merely touched some things it should not have touched. The arc caused all of the damages. ”
Policy interpretation is always an issue for the court unless it is required to rely upon extrinsic evidence or choose between reasonable inferences from extrinsic evidence. The plain meaning of the insurance contract generally prevails. The court will not strain the words or phrases of the policy in order to find liability that the policy did not intend and the insured did not purchase
The “Electrical Currents” exclusion language is straightforward. If arcing caused the loss, the loss is excluded, unless the arcing led to fire. Because arcing caused the loss and the arcing didn’t lead to a fire, West Liberty’s claim appears to be foreclosed by the express terms of the policy.
West Liberty maintains that the squirrel was an efficient proximate cause of its loss. The efficient proximate cause doctrine can apply when two or more causes, at least one covered by an insurance policy and at least one excluded, contribute to a loss. In insurance law it is generally understood that where the peril insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produces the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss.
The Supreme Court concluded that this is not a case of two independent causes, one of which was covered and one excluded. The efficient proximate cause doctrine is only applicable where the causes are independent. When the evidence shows the loss was in fact caused by only a single cause, even if susceptible to various characterizations, the efficient proximate cause analysis does not apply.
The squirrel did not independently contribute to the $213,524.76 loss, i.e., other than through the arcing. As the district court put it, “The squirrel by itself did not cause any damage.”
Electrical arcing is always going to have some cause. Policy language excluding an event would be meaningless if an insured could avoid the exclusion simply by pointing out that the event itself had a cause.
An insured may not avoid a contractual exclusion merely by affixing an additional label or separate characterization to the act or event causing the loss.
The efficient-proximate-cause doctrine applies only where two or more distinct actions, events, or forces combined to create the loss. In this case there are not two independent causes of the plaintiffs’ damages at play.
The electrical-currents exclusion has an express carve-out where “lightning” is the source of the electrical currents or arcing. In that event, the exclusion does not apply. But if an insured could always avoid the electrical-currents exclusion by arguing that something else was the efficient proximate cause of the electrical current or arcing, the lightning exception would seem unnecessary.
The decision of the court of appeals and the judgment of the district court was affirmed.
Although the arcing would not have happened without the intercession of the suicidal squirrel the damage was caused solely by the arcing. Since the exclusion was clear and unambiguous the exclusion must be enforced and the city recovers nothing. The argument that there were two concurrent causes was imaginative, however, the city was unable to turn the squirrel into a cause of the damage because it could have been electrocuted, died, and but for the arcing there would be no damage to the city’s facility.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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