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A typical policy of insurance contains a general description of the coverage provided by the policy followed by a list of “exclusions” specifically reducing the scope of coverage.  The Oklahoma Supreme Court has defined the role of an exclusion as a contract term that eliminates coverage where, were it not for the exclusion, coverage would have existed.  Often, an insured will suffer a loss that is attributable to multiple causes, some of which are covered and some of which are excluded.  In this scenario, the question arises whether the insurer has an obligation to pay for the loss.

To deal with this situation, the Oklahoma Supreme Court recognized in 1954 what is known as the “efficient proximate cause doctrine.”  This doctrine allows an insured to recover if the loss can be attributed to a cause, which is covered and not excluded, even if the loss may have been incidentally and indirectly contributed to by other causes that are excluded.  However, in recognition that an insurance policy is a contract between the insured and the insurer, Oklahoma courts have held that the parties to that contract may agree to negate the application of the efficient proximate cause doctrine.

Recently, in National American Ins. Co. v. Gerlicher Co., LLC, et al., 2011 OK CIV APP 94, the Oklahoma Court of Civil Appeals addressed the efficient proximate cause doctrine in a modern context.  The National American Court was presented with a case in which it was asked to decide whether damage from water intrusion and mold could be recovered by an insured despite an apparently applicable policy exclusion.  

The case involved water intrusion, high humidity and mold in a building.  The owner retained an environmental testing company to evaluate the problem and it determined the problems were caused by three different issues working in tandem:  (1) the use of a vinyl wall covering on the interior side of the exterior wall, (2) the sloping of the brick row ledges toward the building instead of away from it and (3) the presence of holes and cracks in the EIFS (Exterior Insulation and Finish System), which allowed water into the building.  The owner of the building sued the general contractor, which then asked its insurer to indemnify the general contractor against any loss and to provide a defense.  The insurer brought a separate suit asking the Tulsa County District Court to declare that the EIFS exclusion in the applicable insurance policy precluded coverage for the claimed loss.  The general contractor resisted that declaration arguing that the efficient proximate cause doctrine should allow coverage because EIFS was only one of the three causes identified in the testing company’s report.

The trial court agreed with the insurer and granted the declaration.  On appeal, the Court of Civil Appeals (“CCA”) first briefly discussed whether the efficient proximate cause doctrine was still viable in Oklahoma and concluded it is.  The CCA then reviewed the language of the policy to determine (a) whether damage caused by faulty EIFS was excluded and (b) whether the language of the insurance policy negated application of the efficient proximate cause doctrine.  The CCA determined that EIFS damage was clearly and unambiguously excluded in the applicable policy:

            The EIFS Exclusion begins with a provision that clearly states the policy ‘does not apply to ‘property damage’…that arises out of, is caused by, or is attributable to [EIFS] whether in whole or in part.’  The EIFS exclusion is neither masked by technical or obscure language nor hidden in the policy.  Indeed it is prominently displayed by a separate ‘Policyholder Notice’ regarding the EIFS exclusion….

National American Ins. Co., at ¶20.  The CCA addressed the second question and concluded the parties had also agreed to negate the efficient proximate cause doctrine:

            The only reasonable construction of the exclusion is that when more than one cause is involved in a loss that includes EIFS, whether directly or indirectly, there is no coverage regardless of whether the causes acted concurrently or in any combination with EIFS.  When loss is caused by both covered perils and EIFS, the NAICO policy contains language that expressly precludes coverage and avoids application of the efficient proximate cause doctrine.

Id.  The CCA did not specify which words in the policy negated the efficient proximate cause doctrine.  However, the presence of common policy phrases like “in whole or in part” and “directly or indirectly” was apparently sufficient evidence of the parties’ agreement to negate the doctrine.  Consequently, although the efficient proximate cause doctrine lives on in Oklahoma, it is likely that typical policy exclusion language will sufficiently evidence agreement to negate its application.