Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

"The most important thing is the court realized the key thing to look for is to identify the "loss," because that is what the policy covers, not "damage." The Supreme Court also well understood that once loss has occurred and is covered, it can never become uncovered no matter what happens later." (emphasis added)

When considering a policy that covers "accidental physical risks of loss," I wonder what a "loss" would be if there were no "damage" that occurred with it. I cannot think of such a situation. Therefore, I do not think Rossmiller is right. When advocating for his insurance company clients, I am certain Rossmiller would argue that there must be "damage" for a "loss" to occur.

Indeed, this situation arises in many cases where adjusters determine whether "damage" is pre-existing (resulting from wear and tear) and not covered or caused by a non-excluded peril and covered. "Causes" of loss necessarily means "physical damage" in most property insurance policies, and this is what adjusters and courts should focus upon when considering coverage issues involving concurrent causation language. Property can be damaged by a sequence of causes.

For those who want a practical perspective about anticoncurrent clause situations, I suggest Concurrent Causation Analysis Applied by FC&S---Learning From an Insurance Industry Source. Additionally, as I noted in the comment I wrote for the Mississippi Law Journal and cited in Anticoncurrent Causation Clause Explained in Relation to Hurricane Losses, Rossmiller wrote excellent discussions of the topic for more academic types.

The Readers Digest introduction to this article is:

To understand the significance of the Mississippi Supreme Court’s decision in Corban v. USAA, it is necessary to consider the financial devastation and unnecessary insurance coverage litigation caused by the absence of it during the four years from the date Hurricane Katrina hit Mississippi’s gulf coast. During that time, insurers used the relatively untested Anticoncurrent Causation Clause (ACC), intervening Fifth Circuit Court of Appeal decisions interpreting it, and a new adjusting method called the wind/water protocol to wrongfully deny or underpay thousands of claims.

The property damage caused to Mississippi’s gulf coast during Hurricane Katrina was unprecedented in that the tremendous amount of damage was caused by both storm surge and wind. Shortly after the storm, Mississippi officials estimated that 90% of the structures within half a mile of the coastline were obliterated. Indeed, in the thirteen months following the storm, there were 263,774 insurance claims made in Mississippi’s six coastal counties alone. Most structures were insured by all-risk policies. Under traditional insurance adjustment rules, all-risk policyholders bear a minimal burden to establish that a “direct physical loss” was sustained and the dollar amount of their loss. Insurers are then required to prove the amount of the excluded or uncovered loss. Most all-risk policies also contained an exclusion for flood. Faced with the prospect of paying for thousands of slab or tremendously damaged homes, many insurers adopted the position that, where storm surge occurred, the claim would be denied unless there was physical evidence demonstrating wind damage. This was the wind/water protocol. Since there was usually no physical evidence remaining on a slab, many of the most catastrophic losses were denied with little or no investigation. To justify these denials, insurers cited the relatively new and untested Anticurrent Causation Clause. Several insurers also adopted a method of claims adjusting where claims for property that suffered flood damage were denied in whole unless the insured could prove a portion of the loss was attributable to wind alone.

The bottom line conclusion is:

...This shows that the true problem at the heart of the Katrina litigation remains. Insurers are using their vast resources to evade their responsibilities under the policies they wrote. The individual policyholder who has lost everything in a catastrophe is not a formidable opponent for an insurer. Most often, the policyholder is in a state of financial and emotional crisis.

Policyholders have a right to expect that the insurance they purchased, often for tens of thousands of dollars over the years, will provide the benefits they bought. Before Corban, the Fifth Circuit held that insurers had an arguable basis to deny claims and shift their burden of proof based on the ACC or wind/water protocol. I believe the Court would be hard-pressed to reach the same conclusion now.

In the end, Corban was a victory for policyholders, but a hollow victory because it came far too late for most Katrina victims to benefit from it. During the four years from the time Katrina obliterated the gulf coast to the date Corban was released, those who lost everything were further victimized by insurers that manipulated words or phrases in complex and difficult to understand policies to wrongfully deny and underpay millions in claims. Homes and businesses were lost and lives changed; there is no way to calculate the true devastation. Unless you have lost everything and have had your insurance denied, it is hard to comprehend how frustrating being embroiled in a sea of insurance lawyers can be—it is a curse at best.

While Corban cannot fix the ruin that resulted from insurers’ evasions of their obligations, every loss presents opportunities. Policyholders are taking more responsibility for the insurance they purchase and recognize that flood coverage is essential. Policyholders are demanding meaningful oversight and regulation of insurers by the Departments of Insurance. Most importantly, there is a movement to strengthen legislation that protects policyholders and exacts a high price from insurers that wrongfully deny, delay, or underpay claims. Corban will provide guidance in these efforts. (emphasis added)

Most of the Hurricane Katrina litigation is completed in Mississippi. The same issues are now raging in Texas from Hurricane Ike. They will appear again. As a result, I humbly suggest those involved with first party insurance coverage decisions should fully understand all the subtle and significant issues raised in this work.

The damage was caused by water backing up through the sewer and subsequent flooding from Hurricane Ivan. The physical damages caused by each event were not able to be segregated. The insurance company denied the claim citing fairly common exclusionary language:

B. EXCLUSIONS

1. 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.
* * *

g. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not.
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump;
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.

The endorsement purchased provided for the following:

II. Additional Coverages
The following Additional Coverages are added;
…
f. Back Up of Sewers and Drains
We will pay for loss or damage to Covered Property caused by a back up from a sewer or drain or an overflow from a sump within the building at the described premises.

The most we will pay for each location under this Additional Coverage is $ 5,000 for the sum of all expenses arising from back up or overflow during each 12 month period of the policy.

Exclusion B.1.9.(3) does not apply to this Additional Coverage

The Court pointed out the interpretation dispute between the parties:

Significantly, this language removes Exclusion B.1.g.(3) of the basic policy as a bar to coverage for damage caused by sewer and drain back-up and makes no effort to restate the language that bars coverage on the ground of concurrent causation by another excluded cause of loss. This omission fosters a measure of ambiguity unlikely to appear until the insured files a claim, confident in the notion that the endorsement he purchased rendered all aspects of the former exclusion void only to find that the insurer interprets his coverage far more narrowly. That ambiguity becomes evident upon consideration of Exclusion B.1.g.(3) in its entirety:

B. EXCLUSIONS

1. 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.
g. Water
* * *

(3) Water that backs up or overflows from a sewer, drain or sump;

 …Based on this language, the insured might reasonably conclude that the coverage he purchased eliminates both the specified limitation in subsection g.(3), concerning sewer and drain back-up, as well as the preliminary language in section B.1., concerning concurrent causation. Nevertheless, the insurer might concur only as to subsection g.(3) and, as Penn National did here, deny coverage on the basis of the concurrent cause language.

Ruling for the policyholder, the court noted the unfairness of applying the subject exclusion in this case:

In view of the evident linguistic joust between these controlling provisions of Penn National's policy, we find a significant indicator of the parties' intent--and the insured's expectations--in the fact that the insured paid an added premium for the coverage the Penn Pac Endorsement purports to unlock because the basic policy, in which the concurrent cause language appears, would otherwise exclude coverage. Thus, the insured purchased additional coverage ostensibly to make up for deficiencies in the basic policy only to find its claim denied not by virtue of any limitation on the coverage it bought but because ancillary language in the basic policy barred coverage for another excluded loss. Such a result strikes us as a variant of the "sleight of hand" we rejected in Betz, allowing an insurer to create the appearance of coverage using an amendatory endorsement tailored to cover a stated risk only to deny coverage when that risk comes to fruition by citing language not suggested by the endorsement…. Given that the concurrent causes of loss, flooding and sewer and drain back-up, were ineluctably linked by the effect of a hurricane on the municipal drainage system, we find this point particularly salient. No insured would purchase extra coverage for an added premium in the expectation that its claim under that coverage would be denied because the covered cause of loss, i.e., sewer and drain back-up, was itself caused by an excluded cause of loss, i.e. flood, when the two would naturally occur together. Nevertheless, the interpretation Penn National urges would validate just such an unseemly result and in so doing undermine the reasonable expectations of the insured.

The decision is very important for policyholder attorneys when attempting to avoid the effect of the anticoncurrent clause if the policy has an endorsement because the court specifically distinguishes this situation from cases where the clause concerns only coverage within the basic policy:

Unlike the courts of other jurisdictions on whose holdings Penn National relies, we have found the Endorsement and Exclusion provisions ambiguous to the extent that they fail to provide a clear indication of the continuing role of the concurrent causation language of Exclusion section B.1. after the insured's purchase of the extra cost Endorsement. Indeed, our construction, based on the express language of the Penn Pac Endorsement, finds little basis for the continued viability of the concurrent cause exclusion to sewer and drain back-up under the policy. By contrast, in each of the cases Penn National cites, Brief for Appellant at 22-33, the respective courts upheld concurrent cause provisions. See Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Noran Neurological Clinic, P.A. v. Travelers Indem. Co., 229 F.3d 707 (8th Cir. 2000); Front Row Theatre, Inc. v. American Mfrs. Mut. Ins. Co., 18 F.3d 1343 (6th Cir. 1994); [**29] Assurance Co. of Am., Inc. v. Jay-Mar, Inc., 38 F.Supp.2d 349 (D. N.J. 1999); Executive Corners Office Building v. Maryland Ins. Co., 1999 U.S. Dist. LEXIS 23444 (D. N.D. 1999); B&W Heat Treating Co. v. Hartford Fire Ins. Co., 23 A.D.3d 1102, 803 N.Y.S.2d 870, 2005 N.Y. App. Div. LEXIS 12729 (App. Div. 2005). Nevertheless, to the extent these decisions apply different language in differently structured policies, every one is distinguishable.

Of controlling significance is the fact that in every such case, without exception, the respective courts interpreted concurrent cause exclusions as they appeared in the insurers' basic policies, determining only whether a cause of loss otherwise covered by the basic policy was excluded from coverage when it occurred concurrently with a cause of loss excluded in the basic policy. None of those cases addresses the modifying language of an extra-cost endorsement on the language of the basic policy, the ambiguity that it created or the reasonable expectations of an insured in light of that ambiguity. Thus, those courts did not confront the linguistic interplay we address here. Consequently, they were able to find the language of the concurrent cause exclusion unambiguous as it applied to claims made under the basic policy. Given the language they considered and the circumstances to which they applied it, we might well have reached the same conclusions. Nevertheless, those scenarios are not before us. Accordingly, we do not find these cases Penn National cites apposite to our disposition.

This case is useful for policyholders seeking coverage when they have purchased additional coverage through endorsements but the insurer is trying to apply basic form exclusions.

"Perhaps Lynda can explain why this is the policyholder’s fault?" is a Slabbed post where the absurdity of an insurer's argument is brought to light. Rarely do I find my attorney colleagues calling each other out for such stupid arguments. I do not often say "stupid" but some insurer arguments have been accepted as "arguable" when most courts should have chastised counsel so that these embarrassing arguments are never made. My hat is off to a non-commercial social blog, Slabbed, for pointing this out.

On this topic of concurrent causation, I made the following posts which others studying this topic should consider:

1. Concurrent Causation Analysis Applied by FC&S---Learning From an Insurance Industry Source;
2. Corban Mississippi Supreme Court Case Decided, Part 2;
3. Corban Part Three: A Win for Policyholders and a Decision Following Rossmiller's Causation Analysis of the Anti-Concurrent Causation Clause;
4. Personal observations of the Tuepker vs. State Farm oral argument

Florida’s first VPL was enacted in 1899. The Legislature never defined the term “total loss” and to date, it has been left up to the courts to interpret these elusive words. One can imagine the defense attorneys of the time arguing that if a fire left at least one wall standing, it was to be considered a partial loss and not a total loss for VPL purposes. The Florida Supreme Court has since adopted the “identity test” where a structure is considered a total loss if the building has lost its identity and specific character and it has become so far disintegrated that it cannot be possibly designated as a building, although some part of it may remain standing or be valuable for some purpose. Lafayette Fire Ins. Co., v. Camnitz, 111 Fla. 556 (Fla. 1933). Other courts have narrowed the test to require a total loss of the building, but not necessarily the absolute extinction of all its materials, or even that no part of it is left standing. See, Greer v. Owners, 434 F.Supp.2d 1267 (N.D. Fla. 2006). In a nutshell, we’ll know when we see it.

A building may also be deemed a total loss, for VPL purposes, if it is rendered a “constructive total loss.” A constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations actually prohibit or prevent the building’s repair. Netherlands Ins. Co. v. Fowler, 181 So.2d 692 (Fla. 2d DCA 1966). In practice, a constructive total loss finding will greatly depend on opinions from local authorities on the extent of the damage and reparability of the structure.

Today’s VPL requires the total loss be caused by a covered peril for which a premium has been charged and paid. This means that if the total loss was caused by both covered and excluded perils, the VPL will not apply, and the insurer will only be required pay the percentage of the damages attributed to covered perils.

The statute, however, provides that if the covered perils alone could have caused the total loss in a multiple causation scenario, then the VPL will apply and the carrier may not apportion the loss. See, Fla. Stat. §627.702(1)(b). Unfortunately, these modern nuances frequently force both sides to retain experts in a VPL scenario to prove or dispute the total loss and to find that the covered peril could have caused the loss in its entirety, even in the presence of a concurrent and excluded force.

Much has changed since 1899 and some may say that today’s VPL is akin to Mary Shelly’s monster, only endearing once fully understood. Tune in next week where I will examine more valuation issues in property insurance claims.

Robert Hartwig, who heads the Insurance Information Institute, said the ruling could affect the cost and availability of homeowner policies on the Mississippi Coast.

“What this basically suggests is that the cost of claims is going to be higher than insurers anticipated,” Hartwig said, “so there are direct consequences for the price of insurance in Mississippi and potentially for the availability as well.

If the state of Mississippi is going to take a different tack from the federal courts, the policies will have to be priced and underwritten appropriately. It makes selling policies in Mississippi risky and, on average, more expensive. There’s just no other way around that."

The propaganda threat and point is obvious—suggest to those who interpret policies against the insurance industry’s version (judges) that the case is wrongly decided and that those venues with a similar view will have unaffordable insurance, if any at all. This has been the mantra of his propaganda and that of the insurance industry wherever repeated catastrophes have occurred.
 

My response is:

How affordable is insurance that does not pay fully and promptly after a catastrophic loss?

And

Why does the insurance industry find that “good” judicial decisions only happen when denials of coverage are upheld and customers get nothing, unless the insurance industry is more interested in its own profits than caring for its customer and providing a product that serves a purpose after a catastrophe?

Many of my retail corporate clients and their general counsel have told me that if they advertised and then performed in the manner of their insurer, the federal and state trade commissions would be holding “bait and switch” hearings. But, this is exactly the type of treatment insurance executives are calling for when they support the propaganda against their own customers through spokespersons such as Hartwig.

I am not the only one to have noticed this. Slabbed had two posts on the topic, The Push Back on Corban – “You’re gonna pay for this” and Da Corban spin continues: AIA prefers denial while the National Underwriter carries III press release calling it news. The editors of Slabbed were pretty blunt about what they think about Hartwig:

The ink was still wet on that post when 2 days ago the Mississippi Supreme Court ruled that the ACC clause as interpreted by the notorious, corporation loving 5th Circuit ain’t the law in Mississippi. The tragedy is that hundreds of thousands of claims were illegally mishandled for 4 years before we got word. Anyway, State Farm, Allstate, Nationwide and USAA got bitch slapped, and they’re some kinda pissed. I knew there’d be press statements coming, all calculated to terrorize homeowners as soon as the shills got their poison pens loaded. We all know who they are: Robert Hartwig being foremost among them….
…
You see how this sick SOB thinks nothing of threatening us? What he’s saying is “you’re gonna pay for this . . . we’re gonna jerk policies if we have to, or raise rates on you . . . but one way or the other, you’re gonna pay for this!”

In other words, if policyholders dare invoke the rule of law to reign in these monolpolies, they come back with “You’re gonna pay for this!” See how this is just like “whipsawing” rate increases? I’ve said it over and over, big insurance is openly engaged in racketeering…
…
I think it is time we put such intellectually dishonest drivel to bed. Long standing legal principles were restored with the Corban decision which overturned the flawed anti concurrent causation analysis contained in Leonard as well as firmly setting out well established legal principle that insurers have the burden of proof to establish a non covered peril caused a loss on a all perils policy. Insurers, knowing full well the meaning of their policy language were no doubt overjoyed at the gift Edith Jones gave them in Leonard overturning literally hundreds of years of case law but make no mistake they knew the risk they were taking in Mississippi and Louisiana way before Katrina ever struck. To assume these highly paid execs were ignorant of their own policy langauage or that Corban somehow changes the coverage equation is wacky.

I agree completely with the highlighted portion of the quote from Slabbed. However, the equally important aspect of its post should be how insurance customers and regulators throughout the country should start to view most of the property and casualty insurance companies—they are purely interested in their own profits and self interest and do not look at the historical role of insurance as a social product. Insurance companies advertise peace of mind and all kinds of emotional messages. The truth is that many are engaged in a social propaganda campaign to make it appear as if their own customers are wrong to get fully and promptly paid after a disaster strikes. It is almost as if the intended message is that customers suffering a catastrophe are “bad” and getting their benefits is wrong because the poor insurance companies will leave markets or raise rates for the customers that did not suffer a loss in that catastrophe. The message is clear—try to pit the customers that did not suffer a loss that day against those that did to gain additional allies to the insurance industry agenda.

We need political, regulatory and thought leaders, like Slabbed, to make certain that the insurance industry propagandists are called out when they engage in a war against their customers. Until insurance industry executives accept the ethical obligations they have to their customers, there is an ever increased need for strong regulations and legislation mandating honest and fair conduct by this industry. We cannot trust insurance companies to be honorable or do the right thing when the moment of truth is at hand.

I live in a world where words, and the subtle understanding of them, mean much financially to everybody involved, including myself. I personally had millions of dollars on the line advancing the costs of lawsuits in Mississippi. I was very much a partner with my clients advocating for coverage.

Corban is a big decision in my world. As I read the decision, most of my thoughts were upon others that have been through this huge legal mess. Unless you have lost everything and have had your insurance denied, it is hard to comprehend how frustrating being embroiled in a sea of insurance lawyers can be—it is a curse at best.

When I first started reading the case, I was silently cursing our firm’s knowledge manager for not indicating which side won the decision. Since some of the award was for the insurance company regarding the flood issue, maybe he could not figure it out. I am certain that some insurance company claims executives and their counsel will feign that this is “a win” because the storm surge and flood exclusions were found to be valid and applicable. I have never shared much hope for that legal position. I think my view regarding that issue prevented me and others with me from joining Dickie Scruggs’ group and his attempts for a class action lawsuit on that issue.

Yet, I knew that Judy Guice always advocated that view of flood being covered. When I read Anita Lee’s article this afternoon quoting from Judy Guice’s class action attorney, Richard “Flip” Phillips, I kept thinking about Judy advocating that flood was not excluded for a number of reasons. Judy Guice is a noble person and a worthy advocate. I am happy she uses her talents for policyholders and people rather than corporate and insurance company interests. She should be proud of the result. She has worked very hard for the people along the Mississippi Coast.

I also thought about my argument against Flip and Judy Guice about making the cases a class action. The federal courtroom was filled with journalists and I was pretty punishing about my views of how a class would hurt most policyholders. Honestly, class action status would have been a windfall for the attorneys, but a lopsided loss for the policyholders. I know Dickie Scruggs and I disagreed about that, but all you need to do is watch our clients, the Lees, to understand why I say that.

Slabbed was also on my mind while reading the decision. Their post, Insurance is a big think – Have you ever tried to think?, is something I can appreciate and strongly urge others to read and gain a better intellectual knowledge of the legal discussion in Corban.

There was an entire causation discussion in this decision where I was thinking about an attorney, David Rossmiller, who had nothing personally involved with the outcome of any of these cases. Rossmiller is a former journalist turned lawyer. I thought of Rossmiller teaching that many concurrent cases were truly not concurrent situations when the Corban court wrote:

No reasonable person can seriously dispute that if a loss occurs, caused by either a covered peril (wind) or an excluded peril (water), that particular loss is not changed by any subsequent cause or event. Nor can the loss be excluded after it has been suffered, as the right to be indemnified for a loss caused by a covered peril attaches at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured. An insurer cannot avoid its obligation to indemnify the insured based upon an event which occurs subsequent to the covered loss. The insured’s right to be indemnified for a covered loss vests at time of loss. Once the duty to indemnify arises, it cannot be extinguished by a successive cause or event…. The same principle applies in reverse. In the case of a loss caused by an excluded peril, that particular loss is not changed by any subsequent covered peril or event. Nor can that excluded loss become a covered loss, after it has been suffered.

…

Loss to property can consist of many losses because property can consist of many
elements, and ‘loss’ need not refer only to the totality of the damage and in fact should not when different forces have caused different damage.” Appleman on Insurance § 192.03[H] (2009) (emphasis added). The subject homeowner’s policy insures “for direct, physical loss” to property.

Rossmiller wrote this about the Corban case long before this decision in his post, Mississippi Supreme Court Asked to Interpret Anti-concurrent Cause in Interlocutory Appeal:

When I see something like this, I call it a "yeah but" moment. Yeah, but where's the analysis showing exactly how you think wind and water acted either concurrently or sequentially to cause the same damage? Those words, concurrently or sequentially, can have meaning only within the context of the clause's overarching purpose – to address multiple causes of the same loss. And if there ain't no same loss, they ain't no good.

So "concurrent" and "in sequence" have to have some specialized meaning within this context, or they make no sense -- they can't be used in a colloquial sense. Merely because one thing follows another does not give it the meaning of sequentially within this context, nor are two things concurrent in this context merely because the forces act at roughly the same time or act on the same physical element of property. You have to understand the purpose of those words, and once you do, it is relatively easy to see that Katrina wind and water were neither concurrent nor sequential. They can't be, because they didn't cause the same loss at the same time, they caused different losses to property at different times. It is not important that the same element of property was damaged by different forces twice -- they are still distinct and so any form of causation analysis used to sort out what is responsible for the same loss is irrelevant. I am still waiting for anyone to show me even one instance of Katrina wind and water acting concurrently or sequentially as I explain those terms. No one has yet, and I doubt anyone ever will.

The Corban Court obviously followed Rossmiller’s causation analysis. While he is not blogging any longer, his analysis is still respected among those of us that do this law day to day.

Thank God the Mississippi Supreme Court did not follow Nationwide’s analysis or nobody would have coverage for just about any cause of loss. Nationwide is not on Your Side unless you have an ownership interest in its profits. Beware if this is your insurance company. Their public claims of limited coverage in courts and lawsuits are very different than what that company advertises and leads customers to think is covered. The executives of Nationwide should be ashamed to have allowed their attorneys to argue what they did. The Mississippi justices singularly pointed out how harsh Nationwide’s interpretation was against the policyholder. This company obviously has an anti-customer attitude when it comes to claims. Buyer beware.

I wish this case came out two years ago. The Fifth Circuit should have allowed the Mississippi Supreme Court to decide these issues in the Leonard case, but it refused to place a certified question before the Mississippi Supreme Court at that time.

The bottom line is that this case is so long in the tooth that most Mississippi policyholders cannot benefit from it because most cases are finished. It is a rule of law that benefits a few and hurts a few because the vast majority of Katrina cases are settled, for better or worse.

Still, I keep wondering what I, and my clients, would have done had this case come out three years ago and followed Nationwide’s argument. We would have been in a world of hurt and true despair.

With respect to the “all-risk” coverage of “Coverage A - Dwelling” and “Coverage B - Other Structures,” the Corbans are required to prove a “direct, physical loss to property described.” Thereafter, USAA assumes the burden to prove, by a preponderance of the evidence, that the causes of the losses are excluded by the policy, in this case, “[flood] damage.” USAA is obliged to indemnify the Corbans for all losses under “Coverage A - Dwelling” and “Coverage B - Other Structures” which USAA cannot establish, by a preponderance of the evidence, to have been caused or concurrently contributed to by “[flood] damage.” “Contributed to” comes into play only when “[flood] damage” is a cause or event contributing concurrently to the loss. Pursuant to the policy language, only if proof of a “concurrent” cause is presented to a jury for consideration would the jury receive an instruction including the policy phrase “contributing concurrently.

This ruling confirms State Farm’s Wind/Water Protocol is the wrong test under Mississippi law because it improperly shifted the burden upon the policyholder to prove that the wind caused the damage rather than the insurer having to prove that the damage was excluded. Corban undermines the Fifth Circuit reversal of Judge Senter in Broussard vs. State Farm and as I suggested in Broussard's Bad Faith Decision Impaired by the Mississippi Supreme Court.

There is one important mistake the Court did make in its decision when it held:

With respect to the “named perils” coverage of “Coverage C - Personal Property,” the Corbans are required to prove, by a preponderance of the evidence, that the “direct physical loss” to the property described in Coverage C was caused by wind.

There is no named peril of “wind.” Policies have always required the policyholder to prove damage by the named peril of “windstorm.” In insurance lore and law, there is a big distinction. The most significant for Katrina victims is that a hurricane is a “windstorm.” The policyholder can easily prove that.

One section I routinely read from the FC&S Bulletins are the Question and Answers posed to the editors from subscribers regarding loss situations with coverage questions. Two recent discussion regarding the “acts or decisions” and “governmental authority” exclusionary clauses help show how the anti-concurrent language should not be so broadly read in conjunction with other exclusions to prevent coverage.

The first question involved:

…the commercial property policy's exclusion 3.b., wherein losses "caused by or resulting from acts or decisions, including the failure to act or decide" are not covered.

The insurer is denying coverage for damage caused to an insured's apartment building when police forced entry into the building to apprehend a suspected criminal, causing some $5,000 damage to the structure.

We referred the insurer to the Q&A regarding seizure of property by governmental authority (see Coverage Applies to Property Damaged by Police Chasing Fugitive), at which time the company responded that exclusion 3.b. applies and no coverage would be afforded.

It occurs to us that this exclusion is being misused to reject coverage in this case, notwithstanding the "concurrent causation" issues.

The answer was quite to the point and demonstrated how important the lead in language is to a proper reading of most anti-concurrent clause situations:

…exclusion 3.b. is one of the concurrent causation exclusions. These exclusions are meant to avoid coverage when a previously unexcluded cause of loss (a bad decision) joins with an excluded cause of loss (flood) and the claimant is able to make the argument that it was the unexcluded (and therefore covered) cause of loss that led to the damage. Claimants did successfully make the argument in court that it was actually the negligence (a then unexcluded cause of loss) of the water authority in not opening a dam early enough that caused damage to insured property, and not the resulting flood (an excluded cause of loss). It was results such as this that prompted additions of the "concurrent causation" language.

The above would be an example of the acts or decisions exclusion at work. However, as is plainly clear from the lead-in language to the concurrent causation exclusions, if an excluded cause of loss (such as an act or decision) results in a covered cause of loss (which your insured's damage otherwise would be under the special causes of loss form) then coverage applies. Since there is no exclusion otherwise applicable, coverage is available in this situation. (emphasis added)

The governmental authority clause referred to in the question posed the following:

The insured is a health clinic covered under the commercial property open perils form. Recently, a man who was trying to evade capture by the police ran into the clinic and proceeded to take hostages. Eventually, he was forced to surrender by the police who used tear gas and gunfire. In the process of capturing the fugitive, damage was done to both the building and personal property of the health clinic.
The insurance company is denying coverage under exclusion B.1.c. of the CP 10 30 04 02 form. This exclusion avoids coverage for loss or damage caused directly or indirectly by "seizure or destruction of property by order of governmental authority….

The answer by the editors again indicated that exclusionary language should not be so over-broadly interpreted to avoid indemnity for the loss:

The exclusion of loss caused by order of governmental authority is not so broad as to exclude this type of loss. The aim is to exclude coverage for the intentional destruction of property by governmental authority because of some hazard that the property presents, such as when the government orders the destruction of vegetables that are infected with the Mediterranean fruit fly.
In the case you present, the destruction done by the police was incidental to the capture of the fugitive. Bullets that damaged equipment were intended to control the fugitive—they were not fired because the equipment posed any danger to people or property. One would not expect the police officer in charge to state that he or she ordered the destruction of property. For these reasons, the insured has coverage under the policy. A New Jersey court has held, however, that damage done to an apartment by the police in conducting a search warrant was properly excluded under the governmental authority exclusion.

Perhaps, if the New Jersey policyholder had done some homework and selected a policyholder counsel that invested in such resources as those published by the FC&S, the case might have been won.

Let me give you the Reader’s Digest version of this analysis. The relevant policy language is fairly standard in most homeowner policies. The language regarding “collapse” caused by a “windstorm” is significant to this claim. “Collapse” is usually excluded under many insurance policies. However, it is then granted back as an additional coverage because it is “excepted” out of exclusions. This exception to the exclusions only happens if the “collapse” is caused by certain causes. One of those causes is “windstorm.” If a “hurricane” is a “windstorm,” and hurricanes are a combination of wind and flood, the logical reading of the policy is that hurricanes that cause complete destruction will provide coverage because the collapse language excepts the damage out of the “flood” exclusion.

Here is the relevant language from a standard State Farm policy:

SECTION I – ADDITIONAL COVERAGES

* * *

11. Collapse. We insure only for direct physical loss to covered
property involving the sudden, entire collapse of a building or any
part of a building.

Collapse means actually fallen down or fallen into pieces. It does
not include settling, cracking, shrinking, bulging, expansion,
sagging or bowing.

The collapse must be directly and immediately caused only by one
or more of the following:

a. perils described in SECTION I – LOSSES INSURED,
COVERAGE B – PERSONAL PROPERTY. These
perils apply to covered building and personal property for
loss insured by this Additional Coverage;

* * *

SECTION I - LOSSES INSURED

COVERAGE A – DWELLING

We insure for accidental direct physical loss to the property described in
Coverage A, except as provided in SECTION I - LOSSES NOT
INSURED.

COVERAGE B – PERSONAL PROPERTY

We insure for accidental direct physical loss to property described in
Coverage B caused by the following perils, except as provided in
SECTION I – LOSSES NOT INSURED:

* * *

2. Windstorm or hail. This peril does not include loss to property
contained in a building caused by rain, snow, sleet, sand or dust.
This limitation does not apply when the direct force of wind or hail
damages the building causing an opening in a roof or wall and the
rain, snow, sleet, sand or dust enters through this opening.

** *

SECTION I - LOSSES NOT INSURED

 1. We do not insure for any loss to the property described in
Coverage A which consists of, or is directly and immediately

caused by, one or more of the perils listed in items a. through n.
below, regardless of whether the loss occurs suddenly or gradually,
involves isolated or widespread damage, arises from natural or
external forces, or occurs as a result of any combination of these:

a. Collapse, except as specifically provided in SECTION I
ADDITIONAL COVERAGES, Collapse.(emphasis added)

* * *

2. We do not insure under any coverage for any loss which would not
have occurred in the absence of one or more of the following
events. We do not insure for such loss regardless of: (a) the cause
of the excluded event; or (b) other causes of the excluded event; or
(c) whether other causes acted concurrently or in any sequence
with the excluded event to produce the loss; or (d) whether the
event occurs suddenly or gradually, involves isolated or
widespread damage, arises from natural or external forces, or
occurs as a result of any combination of these:

* * *

c.Water Damage, meaning:

Flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not;

* * *

3. We do not insured under any coverage for any loss consisting of one or more of the items listed below. Further, we do not insure for loss described in paragraphs 1. and 2. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss:

* * *

c. Weather Conditions

However, we do insure for any resulting loss from items a., b., and c. unless the resulting loss is itself a Loss Not Insured by this Section.

* * *

Although a loss caused by “collapse” is listed under subsection (1) of “Losses not
Insured,” that portion of the policy tells the insured that coverage will be afforded if the
contingencies of the policy’s additional coverage for “collapse” are triggered. That
additional coverage is triggered if the “collapse” involves the sudden entire collapse of a
building or a part of a building. The policy’s “collapse” coverage must also be caused by
certain enumerated actions. In the case of a policyholder that has been “slabbed,” it is undisputed that their property was reduced to a slab, or that the insured dwelling sustained a “collapse,” as that term is defined in the policy. It is also undisputed that the “collapse” of such an insured home was caused by one of the required events listed in the policy, a peril described in Section 1 – “Losses Insured, Coverage B – Personal Property.” According to the policy, State Farm’s “collapse” coverage is triggered by a “windstorm.” In this case, the loss was caused by a “windstorm” event, Hurricane Katrina. State Farm’s insured is, therefore, entitled to rely upon the policy’s additional coverage for “collapse” as an alternative theory to obtain benefits.

It is important to note that the “water damage” exclusionary language is found under Subsection (2) of the policy’s “Losses not Insured.” The introductory language of Subsection (2) contains State Farm’s notorious, “anticoncurrent causation” clause. The policy’s “collapse” provision is grounded under Subsection (1)’s “Losses not Insured” language, and the authority to add the coverage back in is found there.

As Subsection (1) contains different lead-in language, with a much different level of exclusionary authority, it does not make sense for the policy’s Subsection (2) lead-in language to apply to a “collapse.” Essentially, the provisions conflict, creating an ambiguity with respect to the additional “collapse” coverage. Courts routinely hold that conflicting language must be interpreted in the policyholder’s favor. Accordingly, the lead-in language of Subsection (2) and its resulting “water exclusion” cannot be used to defeat coverage in any way.

Importantly, the policy must be read as a whole, and all policy provisions must be harmonized. The additional coverage for “collapse” allows coverage for a “windstorm,” not just for “wind.” Yet, if State Farm (or any other insurer) is allowed to apply the anti-concurrent causation language and/or its “water damage” exclusion to the additional “collapse” coverage, the coverage for “windstorm” would be illusory and meaningless. See York Ins. Co. v. Williams Seafood of Albany, Inc., 544 S.E.2d 156 (Ga. 2001) (explaining, under Georgia law, that an insurer cannot rely upon an exclusion contained in a separate section of the policy as a way to defeat coverage for an additional coverage provision, when the applicability of the exclusion would render the additional coverage meaningless).

Further, if the “water damage” exclusion and the “anti-concurrent causation” clause were to apply under the circumstances of a “slabbed” structure, there would be no need to have the additional coverage for “collapse” caused by “windstorm.” The provision would be meaningless and illusory.

A “windstorm” typically implicates and involves some type of water damage when the windstorm is a hurricane. Similarly, in this instance, the coverage obligation for “windstorm” creates, at best from State Farm’s view, an ambiguity when looking at the exclusionary language at hand. State Farm chose its words carefully, recognizing that a “windstorm” is different than loss caused from “abnormally fast wind.”

If State Farm and other insurers wanted to exclude “collapse” from the flood waters of a hurricane and keep the “collapse” language from “excepting” out the “anti-concurrent” loss language, it should have written the policy in that manner. I think nobody thought about how the “collapse” peril as an exception to the exclusions would apply to a hurricane with storm surge. I predict the ISO and other carriers writing their own standard forms will change the language in the future just to prevent policyholder attorneys from noting this claim to coverage.

I am certain our draft brief can be improved upon. For others who make this argument, please send us whatever you write.

Most fall into the second category. There is an epidemic of underinsured structures. I have no idea why the insurance industry is not pushing harder to correct this problem, but I suspect ninety percent of all properties do not have the coverage necessary to fully replace a structure following a catastrophe.

This problem was highlighted in 2004 congressional hearings following Hurricane Isabel in 2003. A number of Mid-Atlantic Congressional leaders had complaints from constituents following these storms. The claims handling problems were exacerbated by many not having sufficient National Flood Insurance limits. Those from major computerized construction cost estimating companies essentially testified that the construction costs in their database reflected new construction costs not following a catastrophe. If a catastrophe ensued, the costs could be up to forty percent higher.

When policyholders underinsure, it is an underwriting problem. The issue rarely arises because the vast majority of all losses are small--many are not even reported because of deductibles or the hassle of reporting and collecting upon small claims is financially not worth the effort. Some policyholders are even warned that they may become "undesirable" for reporting small losses--so they simply do not. So, the first lesson is that most losses are not total and the need for policy limit coverage seldom arises.

But what about co-insurance penalties that penalize policyholders for not insuring to value as I warned recently in "Coinsurance Penalties Await Policyholders Who Do Not Insure to Full Value?" A coinsurance penalty occurs when a policyholder purchases less coverage than is needed to insure to full replacement value. It exists just to prevent policyholders from gambling with the probabilities that a total loss will never happen.

Typically, the larger the loss, the greater the economic incentive for the insurer to investigate whether a coinsurance penalty applies. The second lesson is to avoid the financial catastrophe of having any significant loss not fully covered. Policyholders, agents, and insurers need to promote the idea that properly insuring to value is a significant part of underwriting. The wide-spread practice of promoting construction underwriting estimates that are insufficient to restore structures must stop. All of us in the insurance claim business see this underinsured to value phenomenon as a repeated problem---is anybody at underwriting listening?

If National Flood had doubled the residential limits to $500,000 and made commercial limits available to $1,000,000, with proper underwriting of insurance to value, many of the Hurricane Katrina total loss cases may never have been litigated. While there seems to be significant political reservation about the Federal Government competing with the private market, why not increase the coverage? The insurance industry cannot or will not underwrite at a limit that satisfies the vast majority of structures. Increased coverage would allow National Flood to insure to value on many structures and therefore, be more actuarially sound.

The uninsured flood policyholders need better education or "required" lending incentives to purchase flood coverage. Standard mortgage requirements at time of closing need to reflect the flood peril. Flood waters occur much further inland than many expect. While infrequent, inland floods can devastate, but the cost is so minimal in those areas of slight risk that it should almost be required--just ask those several miles from the Mississippi and Louisiana coasts. Flood limits should be the same as "all-risk" limits. Many coastal insureds had substantially less coverage for flood than under their all-risk policies. The third lesson is that the concept of insuring to value should be promoted in flood underwriting. Currently, that seems to be a foreign concept.

Some may wonder why I would call for higher National Flood limits and better underwriting of policies. After all, it would certainly decrease the need for my legal services. Many Katrina lawsuits in Mississippi would never have been filed if these few suggestions were followed. Many Hurricane Ike lawsuits in Galveston and the Bolivar Peninsula would not be needed either. Much of this madness can stop without a major disruption in the day to day operation of the way insurance currently works and without major political changes to National Flood, if today's suggestion were put into practice.

So why not do it? It seems the only people to lose are the lawyers, and we have no problem with that in this case. We have plenty of other insurance coverage disputes to keep us busy.

Below is an exchange between a Mississippi Justice and Nationwide’s lawyer during the Corban oral argument. Justice Pierce stretches a hypothetical position to show the illogic of Nationwide’s argument. I found it most recently at the end of Slabbbed’s post, Have we seen the end of rational economics? Behavioral Economics explains the Scheme:

“Justice Pierce:…. if 95 percent of the home was destroyed (by wind), and then we have the event of the storm surge, then you would not pay a dime?

MR. LANDAU: Your Honor, if we prove that the storm surge was sufficient to cause – we have that burden, again, and that is absolutely crystal clear.

If we can prove that the storm surge was sufficient to cause all of this, it is no answer then to say, ‘Yeah, but I’m going to show it — I’m going to have somebody come in and say, “Look, guess what, the window was broken before the storm surge came and then wiped away the whole house.

But you don’t get into those kinds of issues precisely because of the sequencing of the damage.

JUSTICE PIERCE: So you wouldn’t pay a dime?

MR. LANDAU: If – again, we wouldn’t pay a dime for things where we can carry our burden, which is right there in the policy, of showing that the loss was caused concurrently –

JUSTICE PIERCE: I’m giving you — the example is 95 percent of the home is destroyed, the flood comes in and gets the other five percent, and you know that.

Does your interpretation of the word “sequence” mean you pay zero?

MR. LANDAU: Yes, your Honor.”

If this is Nationwide’s position, they should make it clear to every policyholder. Then policyholders and potential customers would have fair warning that Nationwide is not on any policyholder’s side. Some may suggest that insurance policies need warning labels that there is no peace of mind because that position clearly contemplates illusory coverage. To be fair, I have found that Nationwide adjusters in the field do not adjust claims using this interpretation. Why Nationwide allows its attorneys to do so in court is beyond me. Slabbed is to be congratulated for publishing this absurd legal argument and for publicizing the problems resulting from Nationwide’s anti-concurrent causation clauses.

Slabbed highlighted Nationwide’s argument in Breaking: Gene Taylor sends letter to DHS Secretary Napolitano on Nationwide’s stunning admissions in Corban. Representative Gene Taylor has repeatedly tried to prove that insurance products available cannot adequately protect policyholders when a hurricane is accompanied by storm surge. Slabbed has reported in depth on Taylor’s efforts to pass legislation correcting this problem.

Discovery in Mississippi Katrina litigation has proven difficult. There is little downside for an insurer to refuse to turn over information and either objecting for a myriad of reasons or requesting a Protective Order which prevents policyholder attorneys from checking the veracity of the discovery the insurer did turn over. Early in litigation, State Farm would answer the same requests with different responses and far different documents. This did not last long. Now, State Farm objects to disclosure of internal information regarding the claims decisions impacting Mississippi claims. This evidence is crucial to reveal the true story of what, why and how the insurer created its wind/water protocol.

Slabbed reported on this recurrent issue recently in Keeping score #3 – Who has the balls?. The post quoted Mississppi attorney Judy Guice’s brief argument that a federal magistrate was not following longstanding discovery precedent. Her rhetoric shows that she has the guts to pointedly stand up to a federal judge:

“For no good reason expressed, State Farm unilaterally rewrote Plaintiff’s discovery and produced only limited documents relating to claims…This arbitrary restriction was approved by the Magistrate Judge. Given that such discovery is not only allowed within the broad parameters of the Federal Rules of Civil Procedure but more specifically by the same Magistrate’s own orders in similar cases, the restriction in this case is clearly “contrary to law.

…

Plaintiff has sought discovery of documents relating to meetings conducted by State Farm concerning the handling of Hurricane Katrina claims. Acting in a manner contrary to law, the Magistrate Judge protected State Farm from this discovery. Indeed, State Farm has not even been required in this case to produce documents it has produced in other cases.”

I feel for Judy Guice because we have experienced the same frustration. Possibly, this type of pointed argument will be more successful. For a non-lawyer social media web site, Slabbed has done an excellent job portraying the emotional frustrations advocates and policyholders are living through in the Katrina litigation. I will reenergize my efforts in our remaining cases and become more active in coordinating efforts among policyholder attorneys along the Mississippi Gulf Coast to do my best to ensure that those lingering matters also achieve justice and consideration.

I simply do not have time to read Slabbed everyday. Yet, I have no hesitation in suggesting that many can learn a great deal from the posts. The ideas are exceedingly original. I am certain that those in the insurance industry dislike Slabbed because it does have a tendency to demonize the industry and those supporting their status quo. Imagine if all your best friends, neighbors, and family had to endure financial ruin caused by insurance not paying following a devastating catastrophe like Hurricane Katrina. I imagine your rhetoric towards insurers and their agents would not be very complimentory either.

Slabbed posted an excellent discussion of an often missed legal point today in "Anti-concurrent causation intended to contractually overturn efficient proximate cause – according to in-house attorney for State Farm." It notes that State Farm wrote its anti-concurrent policy for judges and how difficult it is for the layperson to decifer.

Slabbed referred to David Rossmiller's discussion of the history of the anti-concurrent causation language. Rosmiller, as part of his analysis, cited to an in-house State Farm attorney I knew through the American Bar Association's Property Insurance Law Subcommittee, Michael E. Bragg. Bragg wrote an article long ago, Concurrent Causation and the Art of Policy Drafting: New perils for Property Insurers, 20 Forum 385 (Spring 1985), which discussed State Farm's attempts to draft language trying to exclude certain types of mudslides, landslides, and earth movement scenarios which gave rise to the anti-concurrent language. Everybody reading articles from this time frame should appreciate that many of the authors were insurance counsel trying to demonize certain coverage decisions as a reason for the re-drafting of policy language. I think many authors were just trying to pander publicly to their insurance clients in these journals--my opponent and respected adversary Doug Houser being a prolific example of such prose.

Nevertheless, in his opening, Bragg noted the difficulty of writing language dealing with causation:

"Causation is a cornerstone of the property insurance contract. From the infancy of the profession, insurers have used causal relationships both to describe the insured event and to define under what circumstances coverage does not apply. The choice has not always been a happy one.

Philosophers and linguists insist that language is merely man's meager attempt to describe the reality of the physical world. We talk of "causes" of an event as if there were such things physically "out there" waiting to be discovered. Thus, we send adjusters, engineers, and geologists to determine the "causes" of a mudslide. While this approach was adopted from the much-heralded scientific method and appeals to common sense, philosophers would laugh at the futility. For them causes are not physical forces waiting to be discovered; they are nebulous relational constructs waiting to be described.

This philosophic premise has two very important corollaries: first, every event has an infinite number of causes; and second, each cause can be described in an infinite variety of ways. Although these statements are beyond serious philosophic challenge, they seem far removed from the practical considerations faced daily by policy drafters, underwriters, and claims persons."

Bragg also admitted that the needed language was complex and difficult to understand:

"The difficulty, of course, is usually not one of intention, but one of language. We humbly acknowledge the inherent artificiality, inadequacy, and imprecision of our language. Yet we ask the policy drafter to forge the magic words that are at once easy for the lay reader to comprehend and at the same time legally sufficient for the court to sanction. It is this challenge of writing for a dual audience (laymen and judge), and the often contrary demands of each, that leaves fertile ground for litigation.

When policy drafters from individual companies began to examine concurrent causation, they quickly learned that the issue was overwhelmingly complex. The "solution," in the words of McGeorge Bundy, was as elusive as "picking up a jellyfish by the corners."

I suggest that the worded solution found in Corban's USAA policy is still that elusive to most people. It is no surprise that State Farm's amicus attorneys now seem to miss the prior admissions of how difficult and complex Bragg found the language to write. Hopefully, the clerks and judges of the Mississippi Supreme Court find their way to these older articles and to Rossmiller's analysis. The people of Mississippi deserve that depth of legal reflection from their jurists on this most important insurance case.

Here are some of the Briefs:

• Corban Initial brief
• Amicus brief filed on behalf of United Policyholders by the Merlin Law Group (You do not want to miss my prose)
• USAA Answer brief
• Corban Reply brief
• Amicus brief of Allstate Insurance Company in support of USAA
• Amicus brief of Jim Hood, Attorney General of the State of Mississippi
• Amicus brief of Nationwide Insurance in support of USAA
• Amicus brief of NAMIC and State Farm in support of USAA

Corban raises the most important issues regarding causation and burdens of proof which have been at issue in the Mississippi Katrina cases. Finally, the highest Court in this fair state will hear the issues so important to its citizens. It will be a landmark decision no matter how it is decided.

When causes of loss are all covered, the causation rule in Texas is seemingly just like every other state. In Evergreen Nat'l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex. App. Austin 2003), the Court noted this general rule:

"Generally, the insured had the burden to prove its claim comes within the scope of coverage provided by the policy, and the insurer has the burden to prove a claim comes within a policy exclusion or limitation of coverage. Venture Encoding Serv. v. Atlantic Mut. Ins. Co. 107 S.W.3d 729, 733 (Tex. App. --Fort Worth 2003, pet. filed); see also Tex. Ins. Code Ann. art. 21.58 (West Supp. 2003). Employers Cas. Co. v. Block, 744 S.W.2d 940, 944, 31 Tex. Sup. Ct. J. 245 (Tex. 1988)."

Proving the loss happened during the policy period is the policyholder’s burden:

"An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy. See Royal Indemnity Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965); Bethea v. National Casualty Co., 307 S.W.2d 323, 324 (Tex. Civ. App. -- Beaumont 1957, writ ref'd); Reserve Life Ins. Co. v. Crager, 421 S.W.2d 697, 698 (Tex. Civ. App. -- Beaumont 1967, no writ). As pointed out in the dissenting opinion of the court of appeals, the time of the insured's damages is a precondition to any coverage rather than an exception to general coverage. Thus, we hold that Employers Casualty's general denial placed the burden on the Blocks to prove that their house was damaged during the policy period."

Employers Casualty Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988).

In cases where the cause of the loss is in dispute, any similarity ends. If there is a covered cause of loss and at least one uncovered cause of loss, Texas’ unconsumer friendly rule of "concurrent causation" comes into play. This rule differs from what most adjusters are taught regarding policy interpretation. A recent case, Laird v. CMI Lloyds, 261 S.W. 3d 322 (Tex. App. Texarkana 2008), states the Texas rule: 

"Under the doctrine of concurrent causation, when covered and noncovered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indem. Co. v. McKillip, 469 S.W.2d 160, 162 (Tex. 1971); Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 302-03 (Tex. App.--San Antonio 1999, pet. denied). The Texas Supreme Court has continued to uphold this requirement. See Mem'l Hosp., Inc. v. Murdock, 946 S.W.2d 836, 840 (Tex. 1997) (reaffirming holding in McKillip). Under the concurrent causation doctrine, it is entirely possible that some of the damage could be due solely to a covered peril, and therefore covered, and some of the damage could be due in part to an excluded peril, and therefore excluded."

Texas has a unique "concurrent causation" analysis. The minority of states that use a "concurrent causation" theory of recovery generally refer to a theory of recovery started in California, which lead to insurance companies making "anti-concurrent causation" clauses. A Florida case, Wallach v. Rosenberg, 527 So. 2d 1386, 1389 (Fla. Dist. Ct. App. 3d Dist. 1988), has a very good discussion of what most insurance coverage experts consider a traditional "concurrent causation" analysis and liberal theory of recovery:

"...the jury may find coverage where an insured risk constitutes a concurrent cause of the loss even where "the insured risk [is] not . . . the prime or efficient cause of the accident." 11 G. Couch, Couch on Insurance 2d § 44:268 (rev. ed. 1982). This view was adopted by the Supreme Court of California sitting en banc in State Farm Mutual Automobile Insurance Co. v. Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123 (1973).

In Partridge a passenger in a car was injured when the driver negligently drove off a road, hit a bump, and caused a gun to discharge a bullet into the passenger's spine. The driver had negligently filed the gun's trigger mechanism to give it a "hair trigger action." An issue at trial was whether coverage was available under the tortfeasor's homeowner's policy which specifically excluded coverage for injuries arising out of the use of a motor vehicle but provided coverage for the negligent filing of the trigger mechanism. The California supreme court held that where an insured risk and an excluded risk jointly caused the accident, coverage was available under the policy, stating: "Although there may be some question whether either of the two causes in the instant case can be properly characterized as the 'prime,' 'moving' or 'efficient' cause of the accident, we believe that coverage under a liability insurance policy is equally available to an insured whenever an insured risk constitutes simply a concurrent proximate cause of the injuries. That multiple causes may have effectuated the loss does not negate any single cause; that multiple acts concurred in the infliction of injury does not nullify any single contributory act."

Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d at 130 (original emphasis). The court distinguished the facts in Partridge from the facts in Sabella v. Wisler, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 (1963), on which Old Republic relies. Sabella held that where there is a concurrence of different causes, it is the efficient cause that is the cause to which the loss is attributed. The California court found the efficient cause language in Sabella to be of little assistance in cases where both causes of the harm are independent of each other (the filing of the trigger did not "cause" the negligent driving or vice versa, but the two acts combined to cause the accident). Partridge, 10 Cal.3d 94 n.10, 109 Cal.Rptr. 811 n.10, 514 P.2d at 130 n.10.

We agree with the California court that the efficient cause language set forth in Sabella and cited by Hartford Accident & Indem. Co. v. Phelps, 294 So.2d 362 (Fla. 1st DCA 1974), offers little analytical support where it can be said that but for the joinder of two independent causes the loss would not have occurred. Where weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage. See Safeco Ins. Co. v. Guyton, 692 F.2d 551 (9th Cir. 1982)(coverage was available where a covered risk, negligent maintenance of flood control structures, combined with an excluded risk, a flood, to cause a loss). See also Mattis v. State Farm Fire & Casualty Co., 118 Ill.App.3d 612, 454 N.E.2d 1156, 1160, 73 Ill. Dec. 907 (Ill.App.Ct. 1983)("Where a policy expressly insures against loss caused by one risk but excludes loss covered by another risk, coverage is extended to a loss caused by the insured risk even though the excluded risk is a contributory cause."). n1 There is no contention here that the policy contains a provision which specifically excludes coverage where a covered and an excluded cause combine to produce a loss.

Another factor weighing in the insured's favor is the liberal construction generally given all-risk insurance contracts. The term all-risk is given a broad and comprehensive meaning. Phoenix Ins. Co. v. Branch, 234 So.2d 396, 398 (Fla. 4th DCA 1970). An all-risk policy provides "a special type of coverage extending to risks not usually covered under other insurance" and coverage is available for all loss not resulting from the insured's willful misconduct or fraud unless the policy contains "a specific provision expressly excluding the loss from coverage." Id. Once the insured establishes a loss that appears to be within the terms of the all-risk policy, the burden is on the insurer to prove that the loss was caused by an excluded risk. Hudson v. Prudential Property & Casualty Ins. Co., 450 So.2d 565, 568 (Fla. 2d DCA 1984).

Starting with the well-settled law in Florida that exclusionary clauses are construed more strictly than coverage clauses, Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976), the insurer's burden is even heavier under an all-risk policy. Further, exclusionary clauses that are uncertain in meaning are construed in favor of the insured. State Farm Mut. Auto. Ins. Co. v. Pridgen, 498 So.2d 1245, 1248 (Fla. 1986), for a collection of cases construing the term earth movement to be ambiguous see Annotation, 44 A.L.R.3d 1316 (1972)).

Next Old Republic contends that the jury instruction imposing upon the insurer "the burden of proof to show by the greater weight of the evidence that the exclusion in the insurance policy was the sole, proximate cause of damage or loss to the property . . ." was incorrect. A similar instruction was given in Vormelker v. Oleksinski, 40 Mich.App. 618, 199 N.W.2d 287 (Mich. Ct. App. 1972). A key issue was whether the collapse of the plaintiffs' house was due to improper construction (a covered event under the policy) or earth movement (an excluded event). The jury was instructed that it could find more than one proximate cause of the loss; however, the judge also directed the jury to return a verdict for the insurer if they found that earth movement was the sole proximate cause of the collapse. The defendant argued that because earth movement could never be the sole cause of a collapse, the effect of the jury charge was to direct a verdict for the plaintiff. Approving the instruction the appellate court wrote: It is our opinion that the exclusions contained in the policy apply only when it can be shown that earth movement et cetera was the sole cause of the damage. If it can be shown that the building was improperly constructed . . . and "but for" the inadequate construction the building would not have collapsed even with the earth movement, then the damage should come under the protection of the policy.

Vormelker, 199 N.W.2d at 294.

We agree with Vormelker and approve the charge. See also Fireman's Fund Ins. Co. v. Hanley, 252 F.2d 780, 786 (6th Cir. 1958)(approving charge that if damage to property resulted from combination of causes under and outside coverage, insureds are entitled to recover under all-risk policy)."
 

When there are both covered and not covered causes of loss, the Texas approach is more akin to a comparative negligence state, where the jury determines and apportions how much is covered under the policy and how much is excluded. It may not be an all or nothing proposition, so, I probably should not say it is as unfair. But, when the rule is fully stated along with the burden of proof, most find Texas different because the burden placed on the policyholder is very different than in the majority of states:

"Under the doctrine of concurrent causation, where covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indemnity Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971); Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 302-03 (Tex. App.-San Antonio 1999, pet. denied). The doctrine of concurrent causation is not an affirmative defense or an avoidance issue; rather, it is a rule embodying the basic principle that insureds are not entitled to recover under their insurance policies unless they prove their damage is covered by the policy. Wallis, 2 S.W.3d at 303. The burden is on the insured to prove coverage. Id."

All Saints Catholic Church v. United Nat'l Ins. Co., 257 S.W.3d 800, 803-804 (Tex. App. Dallas 2008).

Most states place the burden on the insurance company to prove how much of the loss is excluded. The discussion in the All Saints case explains how the burden on the policyholder, instead of the insurer, can make a big difference in the outcome of a case if the policyholder does not fully prepare the causation issue:

"The policy covers damage caused by hail, but not damage caused by wear and tear or by latent defects in the roofing materials. All Saints contends that the doctrine of concurrent causation does not apply and that United National is bound by the policy to replace the entire roof. All Saints argues that even though the Hardi-Slate tiles were prematurely-aged, the roof functioned properly before the hailstorm. After the hailstorm, the roof no longer functioned; it no longer kept the rain out. Thus, the damage was not caused by the aged, defective Hardi-Slate tiles, but by the hailstorm alone. Because the only way to repair the roof is to replace it, All Saints argues that under the policy United National must pay the cost to replace the roof in a condition equal to when it was new.

All Saints further argues that United National is seeking a deduction from the cost of repair for betterment because the undamaged tiles must be replaced, which Texas law does not allow. In support of this contention, All Saints relies on Great Texas County Mutual Insurance Co. v. Lewis, 979 S.W.2d 72 (Tex. App.-Austin 1998, no writ). There, the insured sustained covered damage to his car engine from an accident. The engine had 110,000 miles on it, 75% of its useful life. Id. at 73-74. The insurance company paid the cost of replacement minus a charge for betterment, because the insured would get a windfall receiving a new engine to replace the old one. Id. The policy required repairs or replacement to be of like kind and quality. Id. at 73. The court held this language permitted, but did require, the engine to be the exact same age or in the exact same condition; rather, the words "repair" or "replace" mean restoration to a condition substantially the same as that existing before the damage was sustained. Id. at 74. All Saints argues that the language of its policy, to repair or replace the roof in a condition equal to when it was new, is stronger than the language in Lewis; therefore, the roof should be restored to at least a condition substantially the same as that existing before the damage was sustained, and that condition is one of a functioning roof that keeps the rain out.

We reject All Saints' arguments. The policy obligates United National to indemnify All Saints-not for the costs of a roof-but for the cost to repair, rebuild or replace damaged property, including property damaged by hail and excluding property damaged by wear and tear and latent defects. The hailstorm damaged some of the tiles in All Saints' roof, but not all of them. As All Saints argued below and here, the remaining tiles were "functioning properly" after the hailstorm. Under the policy, United National is obligated to indemnify All Saints for the cost of repairing, rebuilding, or replacing the tiles damaged by the hailstorm-and those tiles only. Any other tiles constituting "damaged property" under the policy were not reduced to that condition by the hailstorm, but by wear and tear and the nature of the Hardi-Slate tiles. Although the hailstorm brought their condition to the forefront, it does not change the fact that these tiles were not damaged by a covered peril. See Wallis, 2 S.W.3d at 303 (insurer not liable for damage caused by non-covered perils).

To the extent All Saints insists on treating the roof as a single, integrated unit, we conclude the doctrine of concurrent causation does apply. Part of the loss of the roof resulted from a covered peril-the hailstorm, while part of the loss resulted from non-covered perils-wear and tear and latent defects. Thus, covered and non-covered perils combined to cause the loss of the roof, and the insured is entitled to recover only that portion of the damage caused solely by the covered peril. See Wallis, 2 S.W.3d at 302-03; McKillip, 469 S.W.2d at 163 (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, snow); U.S. Fire Ins. Co. v. Matchoolian, 583 S.W.2d 692, 693-94 (Tex. Civ. App.-Houston [14th Dist.] 1979, writ ref'd n.r.e.) (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, rain). Thus All Saints is not entitled to recover the cost of replacement of the non-hail damaged tiles.

...Here, United National did not deny All Saints new tiles of the same quality to replace those damaged by the covered peril, hail; it only denied the cost of new tiles to replace those damaged by the non-covered perils of wear and tear or latent defects. Thus, United National did not seek or obtain an improper deduction for betterment....
All Saints is entitled only to the amount necessary to repair the hail-damaged tiles. See Wallis, 2 S.W.3d at 303; McKillip, 469 S.W.2d at 163. It has already received this from United National..."

In Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 303-304 (Tex. App. San Antonio 1999), the expert's inability to state a basis for allocating the covered versus uncovered damage was catastrophic for the policyholder:

"Texas recognizes the doctrine of concurrent causes. This doctrine provides that when, as in the instant case, covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril(s)...To this end, the insured must present some evidence upon which the jury can allocate the damage attributable to the covered peril...

The Wallises contend that the insured's burden to segregate damages has been legislatively overruled by article 21.58 of the Texas Insurance Code. Pursuant to article 21.58, USAA had the burden to establish what part of the Wallises' damage was caused by an excluded peril. The Wallises contend that USAA failed to satisfy its statutorily-mandated burden of proof, and that the trial court thus erred in disregarding the jury's answer to question two. Alternatively, the Wallises argue that the issue of allocation is immaterial because the evidence introduced at trial was that the entire house needed to be repaired. We reject these contentions.

Article 21.58 (b) of the Insurance Code provides that:

In any suit to recover under an insurance contract, the insurer has the burden of proof as to any avoidance or affirmative defense that must be affirmatively pleaded under the Texas Rules of Civil Procedure. Any language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense.

...The Wallises' argument regarding article 21.58 fails because the doctrine of concurrent causation is not an affirmative defense or an avoidance issue. Rather, it is a rule which embodies the basic principle that insureds are entitled to recover only that which is covered under their policy; that for which they paid premiums. It is well established that insureds are not entitled to recover under an insurance policy unless they prove their damage is covered by the policy. Employers Casualty Co. v. Block, 744 S.W.2d 940, 945 (Tex. 1988) overruled in part on other ground, 925 S.W.2d 696 (Tex. 1996) . The doctrine of concurrent causes limits an insured's recovery to the amount of damage caused solely by the covered peril. Because an insured can recover only for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof. Cf. Telepak v. United Services Auto. Assoc., 887 S.W.2d 506, 507-08 (Tex. App.--San Antonio 1994, writ denied) (determining that insured carries burden to establish exception to exclusion because exception to exclusion creates coverage). Moreover, it follows that an insured's failure to carry the burden of proof on allocation could not be immaterial because it is central to the claim for coverage.

...USAA lodged a legal sufficiency challenge to the jury's finding that plumbing leaks, a covered peril, caused thirty-five percent of the Wallises' damage...The record contains evidence from which the jury could conclude that plumbing leaks had contributed to the Wallises' loss. Indeed, three engineers so testified. The testimony varied, but the jury heard that the plumbing leaks did contribute to the damage, or that the plumbing leaks could have contributed to the damage, or that the plumbing leaks could not be excluded as a contributing factor to the damage. From this testimony, the jury could believe that plumbing leaks caused part of the complained-of damage. However, the engineers could not indicate the extent to which this peril damaged the Wallises' home. This is fatal to their claim. Although a plaintiff is not required to establish the amount of his damages with mathematical precision, there must be some reasonable basis upon which the jury's finding rests... Here, we have neither mathematical precision, nor a basis from which the jury could reasonably infer that thirty-five percent of the Wallises' damage was caused by the plumbing leaks. The jury heard no testimony regarding how much of the Wallises' damage was caused by the plumbing leaks. It learned only that plumbing leaks were found. Because there is no evidence upon which the jury could determine that thirty-five percent of the damage was caused by plumbing leaks, the trial court properly granted a take-nothing judgment in favor of USAA..."

Ouch! I was amazed that the appellate judges dismissed the statutory change which made exclusions the insurance company’s burden to prove. This statutory rule is how the vast majority of states place the burden on all-risk insurers to prove how much of a loss is excluded under the policy. If Texas courts continue to follow this analysis, policyholders may effectively have to disprove exclusions.

I suggest policyholders have their experts specifically determine how much of the damage is caused by an alleged excluded peril. This is a bit trickier than it may first appear. For example, if the expert thinks that the excluded peril played no role in the loss, but is wrong, the policyholder could effectively have no recovery. Imagine how unfair that would be if the covered peril caused virtually all the loss except for a very small amount, but the policyholder expert or estimator thought that it was 100%. Following the Wallis reasoning, the policyholder gets nothing? Under most jurisdictions and under the Texas statute, which was obviously made to correct this unfair rule of common law, the insurer must bear the burden to prove the amount excluded. Under this view-- not shared by the Texas courts-- the policyholder merely shows a physical loss within the all-risk policy or a loss caused by a peril insured with an alleged amount of damage.

Texans rightly take a lot of pride in being different than other states. Different is neither wrong nor right, it just is different. However, I bet most Texas policyholders would not like Texas to be so different on this issue of law.

While researching concepts of "windstorm" coverage, I recently came across an older Texas case and fact pattern that made me smile-almost laugh. I am certain the attorney first hearing it must have felt the same way. I assume the insurance adjuster was not so amused by the facts.

Howsley, an avid outdoorsman, lost his personal property consisting of camping and fishing equipment, clothes and camera equipment when two rubber boats or rafts overturned while floating down the Rio Grande River in New Mexico. The only evidence concerning the accident is found in Howsley's deposition. Howsley and a friend were in the two rubber boats which were attached to each other as they floated down the river at the place he referred to as the "Rio Grande Gorge". They experienced difficulty in rowing the boats because of a current which was "split by a large rock". The currents apparently caused the two boats to float "sideways". The boats washed up against the large rock "one of them went on this side and the other on this side". The men were rowing against the wind which Howsley described as "a terrifically strong wind". He testified that when the boats came to rest on the rock the wind "flipped it over like flipping a match or something". His testimony was to the effect that the force of the impact of the boat upon the rock did not overturn the boat but that it was caused by the wind. The equipment was lost in the river when the boat capsized.

Employers' Fire Ins. Co. v. Howsley, 432 S.W.2d 578, 579 (Tex. Civ. App. Amarillo 1968) (emphasis added).

Howsley's insurance policy covered his personal property for "windstorm" loss. Howsley's insurance company took a position that I am going to hear hundreds of times from TWIA and other Texas insurers in the near future, just as in Hurricane Katrina litigation:

One of the exclusions of the policy provides: "This insurance does not cover a loss caused by or resulting from:

(1) flood, surface, water, waves, title water or title wave, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by wind or not."

Howsley, 432 S.W.2d at 579.

Howsley won. The Court upheld the trial court's finding that the lost was not excluded and that a "windstorm" caused the loss:

One of the perils insured against was "windstorm", which has been defined as "something more than an ordinary gust of wind, no matter how prolonged, and though the whirling features which usually accompany tornadoes and cyclones need not be present, it must assume the aspect of a storm." Fireman's Ins. Co. v. Weatherman, Tex.Civ.App., 193 S.W. 2d 247 (ref'd n.r.e.). The case cites other authorities approving similar or identical definitions. Howsley described the wind as "terrifically strong" and said the wind was "blowing up the canyon". We think the record is sufficient to bring the loss within this insured peril of the policy, and that the "terrifically strong wind" was the dominant and efficient cause of appellee's loss. The evidence does show the split or divided currents were instrumental in forcing the raft upon the rock. Although this condition did contribute to the circumstances leading to the loss it was not the efficient cause. It has been held that if a windstorm is the dominant or efficient cause of loss the insured may recover notwithstanding that another cause or causes contributed to the damage.

Howsley, 432 S.W.2d at 580.

Texas Slabbers and others should get the same result so long as they do not give up the fight. Maybe there is some good that arises out of a situation which may seem terrible at first. That is an idea which should be contemplated since many of us have just celebrated Passover and Easter.

I vividly recall getting an agreement from State Farm (which made the infamous wind/water protocol) that a hurricane was a windstorm and that the State Farm claims manual listed "hurricane" as a windstorm. During the Katrina trial in Broussard v State Farm, Judge Senter noted that under the policy, Hurricane Katrina was a windstorm that damaged the real and personal property of the policyholders. In that case, State Farm admitted Hurricane Katrina was a windstorm. All adjusters are taught that hurricanes are windstorms.

So, when Texas Windstorm Insurance Association policyholders think that they have hurricane coverage that covers the waters in a hurricane, and they find the small print of their policy attempts to exclude storm surge and flood related damage, there should be empathy for them. I find it troubling that some might actually display distain for those policyholders confused by TWIA’s policies. It certainly was not the policyholders’ fault or choice to have Hurricane Ike devastate their homes.

The writers from Slabbed hit the mark in their post, Slabbed Welcomes Texas Windstorm Association and Ike victims to "the scheme.” The Slabbers in Texas are just like the Slabbed in Mississippi. For me, the legal causation facts and issues are like deja vu all over again.

The primary coverage difference is that most Slabbers are covered by TWIA while most Slabbed in Mississippi had private all risk carriers. Of course, both the all risk policies litigated in Mississippi also had a named peril of "windstorm" for personal property and "collapse" coverage which is the same as the "windstorm" peril covered for real and personal property in the TWIA policy.

Still, I am going to prove that my clients suffered windstorm damage. Even if the flood and storm surge exclusions will be found as valid in Texas, TWIA is going to have to prove those exclusions. In the Slabbers cases there is nothing left and TWIA will have the same problem all the insurers had in Mississippi proving the fact of the its exclusions. Still, it is going to be a legal fight.

So, for those anticipating and predicting how the litigation may be fought and argued in Texas, I suggest some of the Katrina cases and analysis may provide some guidance. If you read them all, they will most likely provide you some sleep as well.

For non-slabbed structures, which are those that were not completely blown or washed away, the causation and proof of the amount of damage becomes paramount. Some of the recent discussions on Slabbed concerning the Mississippi Rigsby case (which came about from the McIntosh case) demonstrate the numerous factual disagreements.

For those inflicted with insomnia and interested in Slabbers, I suggest that you read the following:

1. Broussard Oral Argument: Warming The Bench Is No Easy Task. (This is very interesting and will not cure insomnia. I wrote it).

2. Two posts by insurance defense lawyer, David Rossmiller: Kodrin Katrina case: Fifth Circuit vacates punitive damage award against State Farm, upholds verdict of wind damage and Abracadabra:anti-concurrent cause and the search for "illusory" insurance coverage. (You may at least be yawning after reading these. I hope Rossmiller does not take a Scruggs-like jab at me for warning you).

3. Northrop Grumman v Factory Mutual 538 F 3d 1090 (9th Cir. 2008). (Sleep time. But, this case and its briefing says a lot about the litigation that I expect will come in Texas.)

There are a couple of fun Texas cases regarding windstorm and some other legal issues I will address in Sunday's post.

First, flood insurance is absolutely essential. Most property insurance policies specifically exclude coverage for floods and also contain an anticoncurrent causation clause, which prohibits recovery when a covered peril and a flood combine to cause a loss. For example, hurricane winds may devastate the structure of a home and then a storm surge floods it. Because the covered windstorm combined with the not-covered flood to cause the loss, the insurer will not cover it. In the litigation following Hurricane Katrina, courts routinely enforced anticoncurrent causation clauses, leaving those without flood insurance devastated, with no means of recovery.

Flood coverage is available through the National Flood Insurance Program, and can be purchased through FEMA or authorized private carriers. The premiums are relatively inexpensive and recovery is limited to $250,000. In many hurricane situations however, it could be the only recovery a homeowner can get.

Second, estimated replacement value rarely equals the actual costs of repair. A homeowner may have determined the replacement cost of his home based on the purchase price or current market value. However, after a loss, the home is to be repaired, not simply replaced, and the cost of repairing the structure can far exceed the estimated replacement costs. Debris removal, specialized work to dry out walls, and new building codes can push the repair costs well over the replacement value limit. Additional factors such as temporarily high prices in the wake of a catastrophe can also significantly increase the repair costs.

To ensure that the replacement value of a property is accurate, a homeowner could ask an expert, such as a contractor, who is knowledgeable about the current costs of construction, including current costs of materials and code requirements. The cost of recently remodeled houses in the same neighborhood could also provide a basis for a more accurate estimate of replacement costs.

Third, Additional Living Expense Coverage, which pays for temporary housing when a covered event renders the covered home uninhabitable, could make the difference for a family after a loss. Many families could not afford their mortgage, car payments, and other monthly bills if they had the added expense of rent while their home is repaired after a storm.

Again, this blog may be unexciting for daily readers or those who work in insurance, but if it helps one homeowner, it was certainly worth it.

Look for tomorrow’s blog; Chip is back from Italy.

“Further, Jay had no training in meteorology, structural engineering, civil engineering, or other expertise for differentiating between wind and water damage. Audubon also failed to provide Jay with standard meteorological data, a consulting meteorologist, or any other consulting expert in adjusting the Fontes’ claim.

In State Farm Mutual Automobile Insurance Company v. Grimes, 722 So. 2d 637 (Miss. 1998), this Court addressed the issue of punitive damages for denial of an insurance claim, determining that: [t]he issue of punitive damages should not be submitted to the jury unless the trial court determines that there are jury issues with regard to whether:

1. The insurer lacked an arguable or legitimate basis for denying the claim, and
2. The insurer committed a willful or malicious wrong, or acted with gross and reckless disregard for the insured’s rights.

The Fontes’ adjuster, John Jay, made an arbitrary determination that he was “going to adjust this claim based on the top half of the home being damaged by wind,” and he thinks it would be correct to say “that this estimate did not take into account possible damage to the lower portions of the home that would have been caused by the loss of the roof or breaking of the windows on the upper portion of the home from the ingress of rainwater or wind driven water.” Jay’s determination was made with limited expertise, without meteorological data, without a consulting expert, and based on the instruction not to pay one hundred percent of the Fontes’ policy limits. Whether an arguable or legitimate basis for denying the Fontes’ claim existed for Audubon’s decision not to pay the policy limits must be examined by a jury to determine if there existed a gross and reckless disregard for the Fontes’ rights.”

 I was in Judge Senter's Courtroom when he directed a verdict against State Farm regarding its claims handling. He seemed emotionally upset regarding the handling of the claim. State Farm established a Wind Water Protocol for handling cases where the structure was damaged and nothing remained. I wrote about the arbitrary nature of State Farm's decision in a prior post, Broussard Oral Argument: Warming The Bench Is No Easy Task: 

"Judge Senter noted that State Farm admitted that a "windstorm" damaged the property. While the claims management in Bloomington may disagree, the wind/water protocol and the creative, after the fact effort, to prove the amount of "possible" damage by wind through statistical experts is where State Farm damned its customers.

Before Katrina, the issue about paying or not paying for physically damaged homes which were destroyed through a covered cause of loss, wind, or by an excluded flood had not arisen frequently enough for State Farm to make an operational guide. I assume, following the aforementioned principals, that State Farm previously paid those claims. Faced with the dilemma of paying for hundreds, if not thousands, of "slab" homes, upper management of State Farm made a new claims standard known as the "wind/water protocol." In short, it stated that in absence of physical evidence demonstrating wind damage, the claim should be denied. Since slab cases had no physical evidence remaining, the entirety of those claims were denied.

Unfortunately for many along the Mississippi Gulf Coast, other insurers, but not all, followed the example of the industry leader. State Farm and many other carriers started denying claims en masse approximately six weeks after the storm. Many of these denials were based on simple and quick field observations by the claims representatives following "marching orders" from home office executives. Indeed, since many engineering reports undermined the analytical basis for complete denial, many companies ordered engineering investigations stopped.

A former CEO of Allstate, Jerry Choate, once said that Allstate would be judged when it came to "moments of truth." Those are the instances where hard decisions would be made to do the "right" thing regardless of the economic consequences. I have remembered those words every time these issues arise because ethical claims behavior calls for a different standard. It is hard for me to believe that somebody in Bloomington did not have the backbone to raise it. It is why have I have frequently asked claims management to reconsider what they have done and possibly have a change of heart.

Nevertheless, Judge Edith Jones commented that nobody paid much attention to the "wind/water protocol" in the briefs and nobody mentioned it in argument until she raised the topic during Clark Holland's rebuttal on behalf of State Farm. Judge Senter, who appears to be of a similar mind to my firm, found this written standard as evidence of bad faith because it violated long standing good faith requirements requiring full investigation and it wrongly changed the burden of exclusionary proof the insurer had under traditional all risk coverage analysis. Holland claimed that the protocol correctly guessed the proper standard which Judge Edith Jones wrote about in Leonard vs Nationwide. While I have publicly criticized portions of Jones' opinion previously, there is nothing in it which comes close to what State Farm made up as a reason to deny slab claims.

From a practical standpoint, it is a ridiculous standard. The strongest winds with the most damage were within the first several miles of the Coast. Many of these structures also sustained flood and storm damage. However, State Farm was paying tens of thousands and sometimes, hundreds of thousands per claim on losses which occurred twenty, fifty and a hundred miles further inland with far less wind strength. Many of these losses were caused by homes that lost shingles, roofing and windows allowing rainwater to soak the inside of the structures and contents. Thus, State Farm created an arbitrary standard resulting in no payment to those who had the highest amount of wind force and knowing that it was paying millions for structures losses which in all probability had sustained much less wind damage than those along the Coast. At the Broussard trial, this was an apparent reason for the grant of punitive damages. However, it was never discussed at oral argument." (emphasis added)

Fonte's factual case seems very similar to what State Farm did to its customers--assumed the cause of damage with an arbitrary standard. In many cases, Mississippi policyholders had adjusters with a similar background and experience as the adjuster assigned in Fonte. I suggest that the federal judges are going to have to revisit their claims practice cases and not simply rely on Broussard when interpreting Mississippi law. 

The parable is a story of two men, Larry and Moe, who were on the peninsula when Ike hit. Larry was struck by a flying 2X4 launched by the wind, then, when the surge came, he grasped a floating timber and made it to safety. He was treated for his injuries, estimated at 11% of his being.

Moe was not so lucky. He was killed instantly by a flying TV set. The storm surge subsequently swept his body away.

The medical examiner compared Moe's corpse to Larry. After taking several months to consider the situation, the examiner declared that Moe was only 11% killed by wind, because that's what happened to Larry. He opined that 89% of Moe's death must have been due to flooding.

The TWIA policyholders from Bolivar Peninsula are furious with their claims treatment. It is my understanding that many may protest in Austin on March 13. More power to them.

Good day Chip: Per our discussions, my personal receipt of memo below is the most "real time" authentication I secured from trusted and experienced adjuster friends who were thrown into the TWIA adjusting fray, fully validating your points and the tendency to cast exclusion style chaos into the face-to-face adjusting responsibilities. Hope this is helpful. Mark Phillips

Documentary Provided by:
(Redacted).

Dateline: October 31, 2008
Relayed To: Mark Phillips, Loss Consultant

The problem we have encountered as adjusters in relation to this storm is the wind/flood/surge problem; something we've encountered very little in the past. We had to get online and do a little research to make ourselves more aware of exactly how surge happens; as one of our claims was a total loss, possibly from surge as no one really knows what happened, and it requires a great deal of documentation to get the claim settled. We do not believe it was from surge. It's difficult to prove. We believe the wind blew it away and the surge then washed it away. Proving wind happened first would mean a huge difference in what the insured is paid in damages. There will be much controversy over this topic.

The people all must carry flood insurance, wind insurance (we've been working for Texas Windstorm) and then they have their home owner policies; three kinds of insurance to pay for.

We're finding that even though they knew they needed flood insurance and wind insurance the agents, in many cases, didn't do a very good job of explaining how they work in relation to surge, which plainly is not covered in the policies. We're finding many of the agents do not even understand the concept of surge. The agents believe their customers' properties are well insured no matter what the flooding issue. It's fairly simple for us to refer them to their flood insurer but we try to explain a little of the concept of flood as compared to surge.

We're hearing that the flood guys are not doing a good job of taking the time needed to do their part of explaining and they may not be doing a good job in some instances (we are told this from our insureds) in working the claims. It is fairly simple to tell the customer it is surge and walk away! Research takes time and sometimes is a wasted effort. No doubt the information and documentation required is very hard to come by. The insureds in many cases are left very upset.

We've been grateful we are working for wind and not for flood!

Agents realize the policies exclude surge (there is no surge insurance available); but they don't really understands the mechanics of surge and they haven't explained it well. We expect many to be using their E&O insurance because their lack of explanation has caused great grief to many.

The claimants find that after paying all that money flood doesn't cover it. Wind doesn't cover it and home owner policy doesn't cover it so who does? That nasty little word "surge" ruins everything! In cases where mortgages will allow, many plan to drop their insurance saying it's worthless. We're so grateful most of our claims affect the 2nd floor up! The flooding for Texas Wind has to come from the top down rather than from the bottom up. Seldom do we (as wind adjusters) have to worry about the bottom floor of the multi-floor break-away bottom floor homes because that is usually a flood problem. Most every home on Tiki Island Village is missing the bottom floor after the storm. We understand that the city fathers will be taking a new look at the regulations to build the break-away walls. That perhaps those walls breaking away with the force they did is what caused much of the damage.

We hear stories that if they were OUR PERSONAL story, it would be a heart breaker!
We hear from many of the insureds that the adjusters take one look, say sorry, its surge..and walk away. Hearts are broken, they feel they didn't even get a chance to show the damage or even talk to the adjuster. That has not been popular. We've inherited a few of those claims.

It's greatly appreciated when we listen intently to them, do our best to feel their pain and even though our ultimate findings may turn out the same, at least we didn't brush them off with the "surge" word before hardly even shaking their hand. We have emails to prove how much they appreciate the special attention and sympathy! It shows someone at least cares for their pain!

Speaking of Tiki, there are stories we heard during our investigation that are very interesting. When there is a claim where the insured loses everything, where the house is completely gone & there has to be much investigation and documentation to be done. You have to talk to the city officials to see what exactly was documented. You have to talk to neighbors and make lots of watermark pictures and compile all kinds of documentation. In checking on one of our "completely missing" claims, we heard some interesting stories. This particular property was in Galveston but it was on Tiki that we got some of our most interesting information; information that will probably be of prime importance in upcoming investigations.

Supposedly only a few people, possibly only one person, stayed on Tiki during the storm considering the mandatory evacuation. We heard that person tells that the water rose up gently -- pretty quickly but gently. But the water did not go down gently. It didn't recede as you would expect water to do. It went out immediately as if someone pulled the plug on a bathtub and that is when much of the damage was done. It will be a large point of evidence when the litigations start. Surge takes it all away instantly but this bathtub effect is different. That's when the walls on the 1st floors went out; when the boats and appliances that had floated up began to bang up against things and did the damage, etc. Supposedly the few people who saw this will be important witnesses to how things happened. That's supposedly why cars and other large objects were buried.

I feel the "Surge" phenomenon will be an always present cause of damage in upcoming storms. But we're told that this was a particularly unusual storm and that surge is not always present.

A few ideas struck me as I read this. First, the adjusters seemed sympathetic to the policyholders’ plight. They seem like they want to do a good job and help. My impression is that they are inexperienced regarding major hurricane adjustment because they had not encountered storm surge.

Second, they have no clue how flood insurance works. Storm surge is covered under a flood policy. It is water damage from a body of water and within the definition of a "flood" under the National Flood Program. If the National Flood adjusters are denying those storm surge claims, we have not been getting calls to that effect.

Third, the adjusters admit they cannot figure out exactly what happened. They admit there is going to be a lot of controversy over flooding and wind damage as the cause of the loss. I agree. We have been retained on many of these controversies. The same issues were litigated after Hurricanes Katrina and Ivan.

Next, they are hearing that National Flood adjusters are not doing a good job. I have been hearing the same. The typical National Flood adjuster gets paid a percentage of the flood payment. However, overpayments come out of the adjuster's own pocket. As a result, estimations of damage tend to be low to prevent the penalty of overpayment. For the first time in a decade, I have seen total loss flood claims where the estimate of damage is less than the policy limit.

Finally, I wonder what instructions these field adjusters have been getting from Texas Wind in Austin. The manner of calculation and reasons should be transparent. For example, the total loss policyholders coming to us from Bolivar were initially getting about ten percent of policy limits from TWIA. Later, they were paid another one to three percent with an estimate that did not include a full explanation. Even State Farm eventually agreed to pay more than that amount to policyholders after Katrina.

As the litigation starts for our clients against Texas Windstorm Insurance Association, we will find out more about the internal workings and directions from TWIA claims management to its field adjusters. At least these two field adjusters cared enough to read the blog and respond. Most of our clients got no calls or explanations from the claims managers in Austin.