While Puerto Rico was spared a direct hit from Hurricane Irma, it was lashed by Irma’s wind and experienced significant amounts of rain that will likely lead to flooding. There may also be damages arising from storm surge along the Northern Coast. Reportedly, more than 1 million people are without power. Many policies may exclude flood and limit or exclude losses arising from power interruption. Combined with the significant wind damage that is expected, it is inevitable that disputes over the extent of covered versus non-covered loss will arise.
Unlike most U.S. jurisdictions, Puerto Rico has a bilingual, mixed legal system. Due to Puerto Rico’s colonial history with Spain, its legal system was modeled under the Spanish civil code. The civil code is the primary legal source in this jurisdiction and is applied to areas such as contractual and property law.
It should also be noted that the local legal system and courts operate in Spanish. It is only at the Federal level that English is used. Even in those cases, federal courts often rely on local legal opinions issued in Spanish.
In considering damage caused by covered and excluded losses, Puerto Rico has adopted the efficient proximate cause doctrine. In Fajardo Shopping Ctr., S.E. v. Sun All. Ins. Co. of Puerto Rico, 167 F.3d 1, 7 (1st Cir. 1999), the First Circuit, applying Puerto Rican law, applied the efficient proximate cause test to determine if damage to a roof was proximately caused by winds from Hurricane Hugo, a covered loss, or faulty design or construction, an excluded loss. Id. The court ultimately concluded that the insured had proven that the winds from Hugo were the efficient proximate cause of the loss and therefore coverage applied. Id. at 11. The court concluded that the insured need not prove that the wind was the sole cause of damage to prevail, only that the damage would not have occurred in the absence of the wind. Id. Fajardo relied on several local Spanish language opinions.
While many policies may include typical Anti-Concurrent Causation (“ACC”) clauses, it does not appear that Puerto Rican courts have been asked to evaluate the enforceability of these clauses, or how these clauses would impact the application of the efficient proximate cause analysis. These clauses will typically state:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
In jurisdictions that enforce these clauses, they will act to exclude loss that was concurrently caused by both a covered loss and an excluded loss. See JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 609 (Tex. 2015).
An ACC provision overrides the efficient proximate cause doctrine in applicable circumstances. Generally (with some exceptions in particular jurisdictions) these clauses are enforceable in the US. At this time, nothing suggests that that the clause is unenforceable in Puerto Rico or that insurers cannot adjust losses pursuant to the plain meaning of the policy wording. Because it is an issue of first impression, however, it will be important to monitor any legal challenges to it and the development of the case law on this issue.