In their rationale for upholding Judge Senter’s verdict, the 5th Circuit provides a less than stellar (okay really absurd) example of non-coverage that virtually all insurance companies issuing an all-risk policy would heretofore pay. After finding that the anti-concurrent causation language was not ambiguous, Judge Edith Jones went too far and provided the following:

“If, for example, a policyholder’s roof is blown off in a storm, and rain enters through the opening, the damage is covered. Only if storm-surge flooding – an excluded peril – then inundates the same area that the rain damaged is the ensuing loss excluded because the loss was caused concurrently or in sequence by the action of a covered and an excluded peril. The district court’s unsupported conclusions that the ACC clause is ambiguous and that the policyholder can parse out the portion of the concurrently caused damage that is attributable to wind contradict the policy language.”

Where did that come from? Virtually every adjuster and claims manager I have ever deposed with that similar hypothetical situation in a Katrina loss has said coverage would be granted under the all-risk policy for the full amount of the loss. Maybe Judge Jones and her colleagues know more about how to deny insurance claims than the people that could profit from doing so.

From a practical standpoint, where is there going to be any coverage if the flood policy has the typical exclusions regarding pre-existing loss or “roof leaks or wind-driven rain” as found in the National Flood Policy? Policyholders with all-risk and flood coverage under separate policies are left with the absurd result of having no coverage at all under this wrongly reasoned opinion. This has been the point of Representative Gene Taylor’s criticism of just such an interpretation and the reason why he so strongly believes that wind and flood need to be in the same policy and has so vehemently advocates the passage of H.R. 920, the Multiperil Insurance Act of 2007.  People will have no coverage whatsoever and that would be unconscionable when you buy insurance coverage that is supposed to cover a hurricane.

In finding that the anti-concurrent causation language is not ambiguous, the Court completely missed a proper causation analysis. I partially agree with David Rossmiller when he indicated in a recent blog posting that the “the Fifth Circuit reached the result I agree with, but the court said too much. Its reading of the contract language was right, but its causation analysis was not entirely correct.” Later on he further criticized the opinion stating “so we can see the court is dead wrong when it analyzes storm surge as being the product of concurrent causes.”

I do not agree that they read the anti-concurrent clause “right’ when it is accompanied by such a poorly reasoned analysis of causation and fails to consider the practical effect of what that reasoning does. I also find the affirmation of the verdict to be correct and have stated so despite grumblings from other consumer advocates that argue that the flood caused by wind pushing the water, i.e. storm surge–was not excluded. But this opinion is simply wrong because it overstates how even the insurance industry contemplated the use of its anti-concurrent causation clause.

At an American Bar Association National Institute on Coverage, I delivered a paper entitled “Does this Insurance Policy Cover Anything? An Insured’s Perspective of the Late Twentieth Century All-Risk Policy“, American Bar Association, National Institute On Insurance Coverage, Orlando, FL, 1994.  I suggested that the anti-concurrent causation language rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the anti-concurrent causation language adopted by many insurance companies invited creative findings of excluded causes “directly, indirectly, in any sequence, or as part of or a result of a loss” so that a loss would be denied or threatened to be denied. This is exactly the type of decision and practical result I feared and predicted may occur from ignorant jurists not fully versed in the nuances of insurance coverage lore and history.

In the adjustment field, where the rubber meets the road, adjusters warn policyholders that interpretations could give a zero result where a coverage “problem” may exist in return for the policyholder being thankful for even an underpaid claim. This is exactly the situation now facing the public because of this overly broad interpretation of the clause given by the Fifth Circuit. Judge Senter had it right when he wrote:

“Read literally, this provision would exclude all coverage when a windstorm did damage to both an insured dwelling (a covered loss) and adjacent “screens, including their supports, around a pool, patio, or other areas.” (an excluded loss). I do not believe this is a reasonable interpretation of the policy. A windstorm is a weather condition that is specifically included in the coverage of this policy. When the policy is read as a whole, I find that this exclusionary provision is ambiguous — the policy as a whole providing explicitly for windstorm coverage in one section and purportedly excluding the same coverage on the grounds that a windstorm, a “weather condition,” and an excluded peril, a flood, ; occurred at approximately the same time. The most reasonable interpretation for these conflicting policy provisions is that this policy provides coverage for windstorm damage, in accordance with its terms, and that coverage is not negated merely because an excluded peril (in this case storm surge flooding) occurs at or near the same time. If this second provision were read to exclude wind damage that occurs at or near the time that any excluded water damage occurs, the result would be contrary to well-established Mississippi law…… This reading of the policy would make the windstorm protection illusory for those who live in areas where the risk of flooding is greatest. Nationwide seems to recognize this to be the reasonable interpretation of its policy. Nationwide has not invoked this policy provision to deny coverage to the Leonards for what everyone recognizes to be wind damage.”(emphasis added)

Senter made the point that the Fifth Circuit missed, the insurance industry has heretofore no problem with paying for what damage wind does, despite a literal reading possibly giving rise to an absurd result. The example provided by Judge Edith Jones is an absurd result.