Court Refines Causation Criteria for All-Risk Policies in NC Church Mutual Case
In a significant ruling last week, a federal appeals court clarified North Carolina law regarding all-risk insurance policies. The decision, which could lead to increased costs for insurers, stipulates that an excluded cause of damage must be the sole cause for the exclusion to apply.
The U.S. 4th Circuit Court of Appeals articulated this point in the case of Wake Chapel Church vs. Church Mutual Insurance. The court noted, “The district court’s conclusion aligns with North Carolina precedent, which has established different causation standards for all-risk insurance policies compared to other types of coverage.”
This ruling is rooted in a 1973 decision by the North Carolina Supreme Court, which established that for all-risk policies, “coverage will extend when damage results from more than one cause—even if one of those causes is specifically excluded,” as explained by the appellate judges.
The Feb. 19 decision focused on the cause of scratches and scrapes on Wake Chapel’s metal roof in Raleigh. The church filed a claim in 2018, asserting that the damage was due to a heavy snowstorm. An engineer confirmed that ice and snow sliding on the roof contributed to the damage.
However, Church Mutual, a Wisconsin-based insurer and one of the largest providers of church insurance, denied the claim. The insurer argued that the scratches were the result of workers and a crimping machine used during the roof’s installation nearly two decades prior. They also claimed that the installers had failed to apply a protective coating on the roof. The church’s policy specifically excluded coverage for damages caused by decay, deterioration, latent defects, or any quality of the property that leads to self-damage.
In response, the chapel filed a lawsuit for breach of contract and bad faith. After a four-day trial, a jury sided with Wake Chapel, concluding that the snowstorm was the cause of the damage and awarding $1.1 million for the roof’s actual cash value. Church Mutual sought a directed verdict to overturn the jury’s decision, but the district court judge declined, prompting the insurer to appeal to the 4th Circuit.
On appeal, Church Mutual contended that the lower court had applied an incorrect causation standard. According to North Carolina law and a 1957 ruling, an excluded cause may only be considered the predominant cause of damage, not the sole cause, for it to be excluded. In other words, a covered cause must be the primary reason for the damage to allow for recovery. The insurer argued that the chapel’s engineer had not established this point, and that the damage from the roof installation occurred well before the policy period.
“If property is already damaged, and a separate cause later exacerbates the damage, that does not convert existing and uncovered damage into a covered loss,” Church Mutual’s attorneys, Steven Bader and Jennifer Welch, stated in a reply brief during the appeal.
However, the appellate panel highlighted that the precedent cited by Church Mutual’s lawyers did not pertain to all-risk policies. In the 1973 case Avis vs. Hartford Fire Insurance, the state court established a distinct standard for all-risk policies. The state Supreme Court later clarified that insurers must provide coverage when at least one cause of an accident is covered by an all-risk insurance policy, even if another cause is not.
“Avis and subsequent cases compel the conclusion that all-risk insurance policies provide coverage where a cause not subject to an exclusion at least partially contributed to the damage,” the 4th Circuit panel concluded.
Since both parties agreed that Church Mutual issued Wake Chapel an all-risk policy, the district court correctly applied a causation standard consistent with the Avis ruling, the panel noted.
Attorneys involved in the case were unavailable for comment on Monday.
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In a significant ruling last week, a federal appeals court clarified North Carolina law regarding all-risk insurance policies. The decision, which could lead to increased costs for insurers, stipulates that an excluded cause of damage must be the sole cause for the exclusion to apply.
The U.S. 4th Circuit Court of Appeals articulated this point in the case of Wake Chapel Church vs. Church Mutual Insurance. The court noted, “The district court’s conclusion aligns with North Carolina precedent, which has established different causation standards for all-risk insurance policies compared to other types of coverage.”
This ruling is rooted in a 1973 decision by the North Carolina Supreme Court, which established that for all-risk policies, “coverage will extend when damage results from more than one cause—even if one of those causes is specifically excluded,” as explained by the appellate judges.
The Feb. 19 decision focused on the cause of scratches and scrapes on Wake Chapel’s metal roof in Raleigh. The church filed a claim in 2018, asserting that the damage was due to a heavy snowstorm. An engineer confirmed that ice and snow sliding on the roof contributed to the damage.
However, Church Mutual, a Wisconsin-based insurer and one of the largest providers of church insurance, denied the claim. The insurer argued that the scratches were the result of workers and a crimping machine used during the roof’s installation nearly two decades prior. They also claimed that the installers had failed to apply a protective coating on the roof. The church’s policy specifically excluded coverage for damages caused by decay, deterioration, latent defects, or any quality of the property that leads to self-damage.
In response, the chapel filed a lawsuit for breach of contract and bad faith. After a four-day trial, a jury sided with Wake Chapel, concluding that the snowstorm was the cause of the damage and awarding $1.1 million for the roof’s actual cash value. Church Mutual sought a directed verdict to overturn the jury’s decision, but the district court judge declined, prompting the insurer to appeal to the 4th Circuit.
On appeal, Church Mutual contended that the lower court had applied an incorrect causation standard. According to North Carolina law and a 1957 ruling, an excluded cause may only be considered the predominant cause of damage, not the sole cause, for it to be excluded. In other words, a covered cause must be the primary reason for the damage to allow for recovery. The insurer argued that the chapel’s engineer had not established this point, and that the damage from the roof installation occurred well before the policy period.
“If property is already damaged, and a separate cause later exacerbates the damage, that does not convert existing and uncovered damage into a covered loss,” Church Mutual’s attorneys, Steven Bader and Jennifer Welch, stated in a reply brief during the appeal.
However, the appellate panel highlighted that the precedent cited by Church Mutual’s lawyers did not pertain to all-risk policies. In the 1973 case Avis vs. Hartford Fire Insurance, the state court established a distinct standard for all-risk policies. The state Supreme Court later clarified that insurers must provide coverage when at least one cause of an accident is covered by an all-risk insurance policy, even if another cause is not.
“Avis and subsequent cases compel the conclusion that all-risk insurance policies provide coverage where a cause not subject to an exclusion at least partially contributed to the damage,” the 4th Circuit panel concluded.
Since both parties agreed that Church Mutual issued Wake Chapel an all-risk policy, the district court correctly applied a causation standard consistent with the Avis ruling, the panel noted.
Attorneys involved in the case were unavailable for comment on Monday.
Topics
North Carolina
Interested in Church?
Get automatic alerts for this topic.
