Fifth Circuit Got it WRONG!!
In their rationale for upholding Judge Senter's verdict, the 5th Circuit provides a less than stellar (okay really absurd) example of non-coverage that virtually all insurance companies issuing an all-risk policy would heretofore pay. After finding that the anti-concurrent causation language was not ambiguous, Judge Edith Jones went too far and provided the following (see full decision here):
"If, for example, a policyholder's roof is blown off in a storm, and rain enters through the opening, the damage is covered. Only if storm-surge flooding - an excluded peril - then inundates the same area that the rain damaged is the ensuing loss excluded because the loss was caused concurrently or in sequence by the action of a covered and an excluded peril. The district court's unsupported conclusions that the ACC clause is ambiguous and that the policyholder can parse out the portion of the concurrently caused damage that is attributable to wind contradict the policy language."
Where did that come from? Virtually every adjuster and claims manager I have ever deposed with that similar hypothetical situation in a Katrina loss has said coverage would be granted under the all-risk policy for the full amount of the loss. Maybe Judge Jones and her colleagues know more about how to deny insurance claims than the people that could profit from doing so.
From a practical standpoint, where is there going to be any coverage if the flood policy has the typical exclusions regarding pre-existing loss or "roof leaks or wind-driven rain" as found in the National Flood Policy? Policyholders with all-risk and flood coverage under separate policies are left with the absurd result of having no coverage at all under this wrongly reasoned opinion. This has been the point of Representative Gene Taylor's criticism of just such an interpretation and the reason why he so strongly believes that wind and flood need to be in the same policy and has so vehemently advocates the passage of H.R. 920, the Multiperil Insurance Act of 2007. People will have no coverage whatsoever and that would be unconscionable when you buy insurance coverage that is supposed to cover a hurricane.
In finding that the anti-concurrent causation language is not ambiguous, the Court completely missed a proper causation analysis. I partially agree with David Rossmiller when he indicated in a recent blog posting that the "the Fifth Circuit reached the result I agree with, but the court said too much. Its reading of the contract language was right, but its causation analysis was not entirely correct." Later on he further criticized the opinion stating "so we can see the court is dead wrong when it analyzes storm surge as being the product of concurrent causes."
I do not agree that they read the anti-concurrent clause "right' when it is accompanied by such a poorly reasoned analysis of causation and fails to consider the practical effect of what that reasoning does. I also find the affirmation of the verdict to be correct and have stated so despite grumblings from other consumer advocates that argue that the flood caused by wind pushing the water, i.e. storm surge--was not excluded. But this opinion is simply wrong because it overstates how even the insurance industry contemplated the use of its anti-concurrent causation clause.
At an American Bar Association National Institute on Coverage, I delivered a paper entitled "Does this Insurance Policy Cover Anything? An Insured's Perspective of the Late Twentieth Century All-Risk Policy", American Bar Association, National Institute On Insurance Coverage, Orlando, FL, 1994. I suggested that the anti-concurrent causation language rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the anti-concurrent causation language adopted by many insurance companies invited creative findings of excluded causes "directly, indirectly, in any sequence, or as part of or a result of a loss" so that a loss would be denied or threatened to be denied. This is exactly the type of decision and practical result I feared and predicted may occur from ignorant jurists not fully versed in the nuances of insurance coverage lore and history.
In the adjustment field, where the rubber meets the road, adjusters warn policyholders that interpretations could give a zero result where a coverage "problem" may exist in return for the policyholder being thankful for even an underpaid claim. This is exactly the situation now facing the public because of this overly broad interpretation of the clause given by the Fifth Circuit. Judge Senter had it right when he wrote:
"Read literally, this provision would exclude all coverage when a windstorm did damage to both an insured dwelling (a covered loss) and adjacent "screens, including their supports, around a pool, patio, or other areas." (an excluded loss). I do not believe this is a reasonable interpretation of the policy. A windstorm is a weather condition that is specifically included in the coverage of this policy. When the policy is read as a whole, I find that this exclusionary provision is ambiguous -- the policy as a whole providing explicitly for windstorm coverage in one section and purportedly excluding the same coverage on the grounds that a windstorm, a "weather condition," and an excluded peril, a flood, ; occurred at approximately the same time. The most reasonable interpretation for these conflicting policy provisions is that this policy provides coverage for windstorm damage, in accordance with its terms, and that coverage is not negated merely because an excluded peril (in this case storm surge flooding) occurs at or near the same time. If this second provision were read to exclude wind damage that occurs at or near the time that any excluded water damage occurs, the result would be contrary to well-established Mississippi law...... This reading of the policy would make the windstorm protection illusory for those who live in areas where the risk of flooding is greatest. Nationwide seems to recognize this to be the reasonable interpretation of its policy. Nationwide has not invoked this policy provision to deny coverage to the Leonards for what everyone recognizes to be wind damage."(emphasis added)
Senter made the point that the Fifth Circuit missed, the insurance industry has heretofore no problem with paying for what damage wind does, despite a literal reading possibly giving rise to an absurd result. The example provided by Judge Edith Jones is an absurd result.
Isnt it "more" honest to say that the language should be interepreted for ambiguity without a causation analysis even being needed? It seems to me that the only time one needs to get into a causation analysis is to "explain-down" to the common folk, what the language says. The language, taken at its face value, says that if only one covered force (wind) does damage it is covered and if the same damage is caused by a non-covered force (water,) there is no coverage. It is said in fancy lawyer-like language but that is what it says. An agent gave me a car insurance example to explain it and it seemed to make sense. If you dont carry theft coverage on your car and it gets stolen, but you see where the thieves hit the mailbox on the way out of your driveway, does the insurance company owe you for the damage to the car from your collision coverage if you never recover the car? How do you then know what is owed? What a mess.
Curious,
Your impression is correct, “What a mess.”
Interpreting anti-concurrent clauses in property insurance policies is one of the most difficult deciphering exercises anyone may attempt. Honestly, I think people who are not well versed in insurance law and how these policies are supposed to work for the protection of the consumers will find the clauses impossible to understand. Understanding these clauses would require you to spend a significant amount of time analyzing coverage, causations, results, exclusions, and exceptions to the same. The agents selling these policies, I have deposed many during my career, have admitted that they do not understand what the clauses mean. How are policyholders, not in the business of insurance, supposed to “get it?”
Indeed, Judge Edith Jones got her example wrong. If there is any better or more telling proof about the ambiguity of a contractual clause, it may be that this intelligent judge does not understand what the clause means as evidenced by the horrible example she provides for what she thinks it means.
The development of the all-risk insurance policy in the mid-twentieth century contemplated a need for a product that would broadly insure structures for perils without naming them. Unless the insurance company could prove that the loss was caused by something expressly excluded, benefits would be paid if the policyholder merely showed damage to a structure. This product previously provided significant “peace of mind” to an ever more affluent society that their financial investments in property would be safeguarded should calamity befall them. So long as these clauses are interpreted to mean what the Leonard Court stretched them to mean, the financial safety blanket of “all risk” property insurance simply does not exist today.
In many Katrina cases where there is very little left of the structure, the insurance company simply cannot prove what damage the flood waters caused versus what the covered wind or rain did. Or stated another way, the insurance company admits that 1) a windstorm caused damage to the structure 2) a windstorm is in part a covered peril; and 3) Hurricane Katrina was a windstorm. The problem for the insurance companies trying not to pay their customers is proving how much of that hurricane damage should be excluded from coverage, i.e the storm surge or flood caused damage, which is excluded, versus wind and/or rain caused damage, which is covered. Under all-risk principles, the insurance company has this burden of proof which it simply cannot meet in many of these cases.
This proof problem is the reason why there was so much pressure placed by some insurers on their engineering firms to “word” their reports in such a way to possibly exclude or minimize coverage. Many of the engineering firms retained are longstanding consultants and expert witness firms for insurance companies. They market, court and sell their services to the insurance industry. They have experience in the “art” of drafting language in reports that dovetails with exclusionary language. This “outcome oriented” methodology becomes an even more repugnant concern to the public as anti-concurrent causation language is allowed to be as broadly interpreted in a causation analysis as the Leonard Court did last week.
its the best post from you, thanks a lot