Insurance defense attorneys will not agree with this post. However, they fear the argument enough to falsely argue in some cases that a hurricane is not a “windstorm,” in order to avoid policy language that may provide coverage for total losses where wind and water combine to destroy a structure. As promised in yesterday morning’s post, The Insurance Industry Recognizes Hurricanes are "Windstorms"–An Important Admission, I am providing legal suggestions to help TWIA policyholders and others “slabbed” to obtain full coverage for their losses. Randy Santa Cruz, William Weatherly, and I came up with this idea while working in Mississippi following the devastation of Hurricane Katrina. I’ve attached a draft memorandum of law so others may use this argument with their own facts and policy language.
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
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.