Court Refines Causation Standard for All-Risk Policies in NC Church Mutual Case
In a significant ruling last week, a federal appeals court clarified the interpretation of all-risk insurance policies under North Carolina law. The decision, which could potentially increase 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 made this determination 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 articulated 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.” The appellate judges emphasized this point in their opinion.
The case centered around the damage to Wake Chapel’s metal roof in Raleigh, which the church claimed was caused by a heavy snowstorm in 2018. An engineer’s report indicated that ice and snow sliding off the roof contributed to the damage.
However, Church Mutual, a major insurer of churches based in Wisconsin, denied the claim. The insurer argued that the scratches on the roof were due to workers and a crimping machine used during the installation nearly two decades prior. They also pointed out that the installers had neglected to apply a protective coating, leading to the damage. The church’s policy specifically excluded coverage for damages resulting from decay, deterioration, latent defects, or any inherent quality of the property that causes it to damage itself.
In response, the chapel filed a lawsuit alleging breach of contract and bad faith. After a four-day trial, the jury ruled in favor of Wake Chapel, concluding that the snowstorm was indeed the cause of the damage. They awarded the church $1.1 million for the actual cash value of the roof. 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 can only be considered the predominant cause of damage, not the sole cause, for it to be excluded. The insurer argued that the chapel’s engineer failed to establish that the snowstorm was the main cause of the damage and noted that the harm 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 did not pertain to all-risk policies. In the landmark case of Avis vs. Hartford Fire Insurance, the North Carolina Supreme Court established a different standard for all-risk policies. The court clarified that insurers must provide coverage when at least one cause of an incident is covered by an all-risk policy, even if another cause is excluded.
“Avis and subsequent cases compel the conclusion that all-risk insurance policies provide coverage when a cause not subject to an exclusion at least partially contributed to the damage,” the 4th Circuit panel concluded. Since both parties acknowledged that Church Mutual issued Wake Chapel an all-risk policy, the district court correctly applied the causation standard consistent with the Avis ruling.
Attorneys involved in the case were unavailable for comment on Monday.
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North Carolina
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In a significant ruling last week, a federal appeals court clarified the interpretation of all-risk insurance policies under North Carolina law. The decision, which could potentially increase 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 made this determination 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 articulated 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.” The appellate judges emphasized this point in their opinion.
The case centered around the damage to Wake Chapel’s metal roof in Raleigh, which the church claimed was caused by a heavy snowstorm in 2018. An engineer’s report indicated that ice and snow sliding off the roof contributed to the damage.
However, Church Mutual, a major insurer of churches based in Wisconsin, denied the claim. The insurer argued that the scratches on the roof were due to workers and a crimping machine used during the installation nearly two decades prior. They also pointed out that the installers had neglected to apply a protective coating, leading to the damage. The church’s policy specifically excluded coverage for damages resulting from decay, deterioration, latent defects, or any inherent quality of the property that causes it to damage itself.
In response, the chapel filed a lawsuit alleging breach of contract and bad faith. After a four-day trial, the jury ruled in favor of Wake Chapel, concluding that the snowstorm was indeed the cause of the damage. They awarded the church $1.1 million for the actual cash value of the roof. 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 can only be considered the predominant cause of damage, not the sole cause, for it to be excluded. The insurer argued that the chapel’s engineer failed to establish that the snowstorm was the main cause of the damage and noted that the harm 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 did not pertain to all-risk policies. In the landmark case of Avis vs. Hartford Fire Insurance, the North Carolina Supreme Court established a different standard for all-risk policies. The court clarified that insurers must provide coverage when at least one cause of an incident is covered by an all-risk policy, even if another cause is excluded.
“Avis and subsequent cases compel the conclusion that all-risk insurance policies provide coverage when a cause not subject to an exclusion at least partially contributed to the damage,” the 4th Circuit panel concluded. Since both parties acknowledged that Church Mutual issued Wake Chapel an all-risk policy, the district court correctly applied the causation standard consistent with the Avis ruling.
Attorneys involved in the case were unavailable for comment on Monday.
Topics
North Carolina
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