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

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.

I have often indicated that when insurance company claims executives start developing attitudes of ensuring no overpayments occur, there is only one way for a claims adjustment to go. Implied threats to field adjusters' financial incentives through a number of methods is one method claims executives use to create a culture of underpaying claims. This appears to be the case as disclosed in the article which referred to internal TWIA documents:

Worried About Overpayment

But when USAA, a private insurer that also handled some claims for TWIA, used prices from industry software, a TWIA manager worried that USAA was paying more on losses than other adjusters. “This could create a problem at TWIA in the long run if it is discovered that USAA was allowed to do something different than the other” adjusting firms, Reggie Warren, vice president of claims, wrote in an e-mail to USAA.

In the same e-mail, he grants USAA permission to use the software, but suggests the association should rethink its contract with the company. A spokesman for USAA declined to comment.

The implication is obvious to USAA--"lower your prices or risk the possibility that your catastrophe adjustment contract will be terminated." Can there be any other reasonable implication meant by the email from the TWIA claims executive to USAA? Such an email is far different than:

We have very different pricing numbers for construction. We need to meet with you to go over how you have determined your numbers to reconcile the differences. If you are right and we are wrong, TWIA has been severely underpaying our customers for amounts owed and we will have to start re-opening claims to make certain our customers get every penny they deserve.

The documents referred to in the article are far from that type of attitude. Yet, such an attitude should be easily apparent from claims executives memos and training if an insurer truly has a claims culture based upon "good faith."

Instead, TWIA attorneys are spinning the claims attitude as TWIA executives being responsible for preserving assets. Those same attorneys are also seeking to avoid accountability for the wrongful claims conduct as indicated in Purva Patel's article "Windstorm Insurer Seeks Immunity in Lawsuits."

...lawyers for policyholders say the association is effectively a private company, and that immunity would let the insurer escape consumer protection laws. More than 900 lawsuits against TWIA could hinge on how courts rule on the immunity question.

Nearly all of the lawsuits seek punitive damages, attorney fees and other amounts beyond what policies provide, Mike Wilson, an attorney representing the insurer, said in a written statement.

“TWIA wants to pay all claims that are owed under the policy,” he wrote. “For claims that seek money damages beyond policy benefits, the association has a duty to conserve TWIA's assets so that affordable windstorm and hail insurance is available to all policyholders.”

See the clever "spin?" Those attorneys suggest it is better to break the obligation of good faith because they have an obligation to other customers to preserve money. They seek to avoid accountability for mistreating customers under a worthy, but false, pre-text--making certain there is money in the treasury for other losses. The effect is that while rules of good faith apply, there is no penalty for breaking any of the rules. I wonder if those other customers think they will be treated differently and in good faith when they eventually have a claim? Is it right to cheat people out of money or not pay fully on a debt to make certain there is money in the treasury?

Some political leaders in Texas have caught onto this claims mess and are also calling for regulatory action.

One lawmaker found the allegations and documents so alarming he called for an investigation of the insurer and its oversight by the Texas Department of Insurance. “The documents demonstrated a callous attitude toward insured families of the Texas coast,” Sen. Rodney Ellis, D-Houston, said in a written statement.

“These documents demonstrate a pattern of deception resulting in wrongful underpayment and denial of Hurricane Ike claims by TWIA.”

I made a comment yesterday to some insurance industry executives serving with me on the Windstorm Network's Board of Directors that 'TWIA claims executives make you guys look like pussycats when it comes to hardball claims practices.' They were amused by TWIA's practice of refusing to pay for adjusters time and work when a file was re-opened. I know of no other insurer with such a scheme from trying to get the full amount paid as reported by the Houston Chronicle:

By November, TWIA was getting hit with requests from policyholders asking for their homes to be reinspected. If an adjuster finds more damage upon additional visits, they submit what’s known as supplements to the claims.

...

In an e-mail to an adjusting firm in November, Warren noted that many of the adjusters it used were inexperienced and “not getting the job done.” If adjusters had done a better job the first time they visited a site, there would be fewer files to reopen, he noted.

Despite acknowledging TWIA could face many reopened claims because of adjuster mistakes, the insurer made it hard for homeowners to get their claims reexamined, according to the lawsuit. Warren told adjusters in a memo that homeowners had to have credible evidence to force the reopening of a claim. An estimate from a public adjuster — independent adjusters hired by homeowners — was not enough, according to the memo.

To make matters worse, in late 2008 TWIA restructured how it paid adjusters for re-inspections, effectively discouraging them from looking for more damage...After Dec. 1, adjusting firms earned $105 plus time and expenses if they denied a claim....If they found more damage, they risked not getting paid at all if TWIA determined an adjuster erred during the first inspection...

I recently read an interesting engineer's report attacking the opinion of a Safeco engineer's report. In it, the engineer was so upset with the Safeco's engineer that he wrote that Safeco was "peeing on my leg, but telling me it was raining." I suggest that many of TWIA's customers feel the same way when reading the responses from TWIA's claims management.
 

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.

I am thrilled as well. Our firm spent over sixty thousand dollars in costs for experts, deposition costs of USAA’s experts, deposition transcripts, and trial exhibits. All of it plus our time was on the line pending the outcome of the trial. Without spending the money to properly prepare and present the case, we certainly would have lost. I am fairly certain that USAA spent a considerable sum above that for its able attorneys and their costs. Its pockets are a lot deeper than ours because it can use its own customers’ premiums to finance litigation against them.

Craig Kubiak has tried approximately ninety cases to a jury verdict. I asked him what he felt was a significant deciding factor in the case. He claimed it was the credibility of the insurance company experts at trial. Sinkholes involve very complex geological concepts. Unfortunately in Florida, they are not rare. However, the distress sinkholes place on structures mimics a number of other geologic and subsurface activities which manifest in cracks or downward subsidence. Without precise and thorough investigation, much sinkhole damage to structures can improperly be attributed to a number of causes excluded under most property insurance policies. Indeed, except for Florida statutes mandating the sinkhole coverage, insurance policies generally exclude this cause of loss.

Craig felt that the pre-trial depositions taken by his wife Kelly lead to a number of flaws and admissions by the insurance company experts. Apparently, some of the soil borings taken by USAA sinkhole experts were discarded before we could have our experts review them. We felt this was improper and tried to exclude the experts’ opinions, but the trial court did not rule with us on the spoliation of evidence issue. We were surprised by this trial ruling. Indeed, the destruction of evidence certainly prevented us from fully questioning the basis for their findings. In the future and as a result of this case, it is my understanding that USAA will require its experts to retain the physical evidence gathered to support their experts’ opinions.

Craig also said the opposing counsel was one of the finest and most effective trial attorneys he has faced. Most insurance counsel are pretty good at trial or they would not be hired by insurance companies on a repetitive basis. Craig and I discussed how it must feel to represent insurance companies on such a basis and if there is joy in a sense of winning for an insurance company. The biggest litigation machines in America are insurance companies and they are savvy at legal representation. We are aware of a number of insurance defense counsel who pour their hearts out, win at trial, and then get rewarded with a fight about the amount of the legal bill or having other less skilled competitors ready to take over an account for cheaper fees.

Under Florida law, we are now allowed to request interest on the amount owed since the time of the denial. We will also ask for taxable costs and an award of reasonable attorneys fees. Had we not prevailed, USAA had filed an Offer of Judgment against its policyholder which it threatened to enforce. Such an action by USAA would have effectively bankrupted its customer merely for filing an insurance claim with USAA and challenging USAA in court. I mention this because, while many USAA customers think USAA is such a nice and good company typically catering to the military, it has a litigation history which can only be described as quite harsh with their member policyholders. The Mississippi Katrina litigation is such an example where USAA has tried nearly as many cases as State Farm, despite having a much smaller market share. Slabbed reported on one such a case in Judge Bridges: the negligence was not “gross.” Still, there are many insurers with a much more “difficult” claims culture than USAA and I feel the Katrina litigation was an aberration for the typical claims decision making for USAA.

Trials are important for society. Lessons are learned from them. Future litigation and controversies can be avoided from the lessons, if applied. I am certain that our mid-fifty year old single mother of two is relieved that she is not facing bankruptcy. Whatever USAA pays in judgment of the verdict and ancillary amounts owed has no such impact upon it. USAA executives and claims managers probably are not worried about any accountability for their wrong decision. I doubt they regret anything.

Isidore argued that the federal court had subject matter jurisdiction under 28 U.S.C. s. 1332, based on diversity of citizenship; Isidore was a resident of Louisiana and USAA was a Texas entity. USAA argued it is a reciprocal interinsurance exchange, organized under the laws of Texas with members who reside in all 50 states, including Louisiana. A reciprocal interinsurance exchange is treated as an unincorporated association for the purposes of determining diversity jurisdiction. To determine the citizenship of an unincorporated association, the court must consider the citizenship of each of the entity’s members.

The Court granted USAA’s motion to dismiss. Pursuant to Federal Rule of Civil Procedure 12(b)(1), it was Isidore’s burden to prove that USAA was not a reciprocal interinsurance exchange, but Isidore presented no evidence or argument to rebut USAA’s representation. Additionally, the Court found that as USAA had members who were residents of Louisiana and Isidore was also a resident of Louisiana, complete diversity was lacking and the court lacked subject matter jurisdiction.

You can read the full opinion by clicking here.

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.

Need an example of how the small print is killing the so called, “all-risk” concept of insurance? See the recent California case of Freedman v. State Farm Ins. Co., 173 Cal. App. 4th 957 (Cal. App. 2d Dist. 2009). Here are the facts:

“In or about 2000, the Freedmans' home was repiped, and an upstairs bathroom was remodeled, including the replacement of drywall to cover the new piping. On or about August 12, 2005, “extensive water leakage was discovered in the upstairs bathroom wall. One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.” When the drywall was removed, it was discovered that a nail that had been used to hang the drywall had penetrated entirely through a pipe. “The pipe was corroded around the points of entry of the nail, and water was release[d] through that area of corrosion.” A damage restoration company discovered mold both upstairs and downstairs. On or about August 15, 2005, the Freedmans submitted a claim to State Farm. State Farm conducted an inspection and, on or about August 25, 2005, denied the claim.” (emphasis added)

Now, I bet most State Farm policyholders are wondering, “Is there any type of pipe breakage where water leaks that would be covered?“ I would ask that question as well because once you read what State Farm does not cover, most policyholders probably wonder if “all-risk” means anything. State Farm’s website conspicuously avoids advertising or discussing all the exclusionary language it relies upon to deny claims. However, I did find this promise and statement by State Farm on its website:

“We protect the roof over your head and everything under it, especially your sense of security.

State Farm® has been writing homeowners insurance for over 60 years. Today, we insure about 15 million homes.

We offer broad protection that you can trust, plus affordable rates, and outstanding service.

The State Farm Homeowners Insurance Policy offers protection for your dwelling, as well as your personal possessions and personal liability.”

The lesson to policyholders and the purchasers of insurance is that the small print is reserved for the policy because most would not purchase the product if it accurately advertised accidental losses would not be covered. While not close to all the exclusions found in the State Farm policy, the exclusionary language cited by the Court in the Freedmans’ State Farm policy was:

“Paragraph 2 of Section I—Losses Not Insured provides: “We do not insure for any loss to the property described in Coverage A which is caused by one or more of the items 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: … g. wear, tear, marring, scratching, deterioration, inherent vice, latent defect or mechanical breakdown; … h. corrosion, electrolysis or rust … .”

Paragraph 4 of Section I—Losses Not Insured provides: “We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of 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: … (4) continuous or repeated seepage or leakage of water or steam from a: … (c) plumbing system … .”

Paragraph 5 of Section I—Losses Not Insured provides: “We do not insure for loss described in paragraphs 2., 3. and 4. 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:… a. conduct, act, failure to act, or decision of any person, group, organization or governmental body whether intentional, wrongful, negligent, or without fault;… b. defect, weakness, inadequacy, fault or unsoundness in:… (2) design, specifications, workmanship, construction, grading, compaction; … of any property (including land, structures, or improvements of any kind) whether on or off the residence premises … .”

Many State Farm policyholders reading these exclusions probably worry that anything that accidentally breaks down will not be covered. State Farm and its competitors should make customers aware of how much is not covered, rather than advertise its affordable rates and those syrupy feel good advertisements. The true nature of the insurance company is determined by the coverage sold and the performance of the claims department. Those advertisements have nothing to do with what truly happens in the field on a day to day basis. Just ask the Freedmans.

The Court upheld State Farm’s denial for a number of reasons which I quote below:

“…the Freedmans' policy exclude third parties' negligent conduct and defective workmanship whenever they interact with an excluded peril…Corrosion and continuous or repeated seepage or leakage of water are excluded perils under the Freedmans' policy…Thus, the Freedmans' policy excludes contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water…The Freedmans have introduced no evidence that contractor negligence caused their loss in any way apart from the nail's role in triggering corrosion and a water leak…Accordingly, the Freedmans' loss is not covered…

…

…the Freedmans contend that the exclusion is “ambiguous” because it does not say how long a leak must last in order to be “continuous” or how many times the leak must stop and start in order to be “repeated.” The argument fails because it does not purport to show that the application of the exclusion to the stipulated facts of this case is in any way unclear. The parties stipulated that the water that damaged the Freedmans' home leaked “through [the] area of corrosion” around the nail through the pipe. Given the small size of the hole(s) through which the water leaked, and given the extensive amount of water damage (“One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.”), the leak must have lasted a sufficiently long time, or stopped and started sufficiently many times, to count as “continuous” or “repeated” under any reasonable construction of those terms…

…the Freedmans argue that the exclusion applies only to “normal deterioration of the plumbing system,” not to leaks “caused by some force other than deterioration.” We disagree because the policy language is inconsistent with the Freedmans' interpretation. The policy excludes “coverage for any loss which is caused by [continuous or repeated seepage or leakage of water from a plumbing system], regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, [or] arises from natural or external forces.” …The policy thus expressly provides that leaks are excluded regardless of whether they are caused by natural forces such as normal deterioration or external forces such as a nail driven through a pipe.

…the Freedmans argue that application of the exclusion here would violate the efficient proximate cause doctrine, because contractor negligence is a covered peril and was the efficient proximate cause of their loss. We have already discussed and rejected that argument…

III. The Mold Coverage

The Freedmans argue that because their policy includes an endorsement relating to mold, the damage caused by mold is covered. We disagree.

The mold endorsement provides limited coverage for losses caused by “fungus,” which is defined to include “any type or form of fungi, including mold or mildew.” Within the specified limitations, such losses to the Freedmans' dwelling are covered if they were “caused by or directly result[ed] from” either a specified peril under the personal property coverage or a peril not otherwise excluded.

…the mold damage to the Freedmans' dwelling was caused by the water leak, which was caused by corrosion, which was caused by the nail through the pipe. As we have explained…ante, contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water are excluded perils…” (emphasis added)

The Freedman result is exactly the type of denial I referred to in a speech I gave fifteen years ago. At an American Bar Association National Institute on Coverage, I delivered a paper entitled "Does this Insurance Policy Cover Anything? An Insured's Perspective of the Late Twentieth Century All-Risk Policy.” I suggested that the anti-concurrent causation language and re-writing of exclusions rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the exclusionary causation language adopted by many insurance companies invited creative findings of excluded causes "directly, indirectly, in any sequence, or as part of or a result of a loss," so that a loss would be denied or threatened to be denied. This is exactly what is happening and is the result I feared.

I am delivering a presentation at the Annual Convention of the National Association of Public Insurance Adjusters this week. In preparation, I spoke with a colleague, Jonathon Wilkofsky who will be part of a panel in the educational discussion. Jonathon was the NAPIA Co-Person of the year with me in 2007. In our discussion, Jonathon complained that he was being forced to request the New York Department of Insurance to decertify newly written exclusions as against public policy in a number of instances. His perception is the same as mine-insurers are significantly limiting the amount of coverage with small, but significant, changes in policy language that most, including regulators, would not appreciate until after a loss occurs.

Are there insurers that offer better protection? Yes. Policyholders should ask their agents that question and should seek alternatives from truly independent agents. After all, if you have a great rate from your insurer, but you collect less or not at all, how truly affordable is that type of insurance? Can you say it has the value that provides peace of mind or a sense of security? I suggest reading Chubb Calls Competitors Cheap And Unfair to obtain one example of a company that generally offers more coverage to commercial and residential policyholders.

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.