Insurance Law Hawaii

Coverage Found Under Unusual Flood Exclusion, Anti-Concurrent Causation Clause

    Two issues were presented in Stewart Enterprises, Inc. v. RSUI Indem. Co., Inc., 2009 U.S. Dist. LEXIS 50156 (E.D. La. June 15 2009).  First, was the excess carrier's following form policy was bound by the primary carrier's exception to the flood exclusion?  Second, was the primary policy's anti-concurrent causation clause applicable?

    The insured owed various cemeteries, funeral homes, and other commercial properties that were damaged during Hurricane Katrina.  The insured held a primary layer of property insurance from Lexington Insurance Company with a limit of $10,000,000.  The first excess layer of coverage was provided by Lloyd's, with $15,000,000 in excess of the primary limit.  Finally, RSUI provided a second excess layer of coverage for $225,000,000 in excess of the $25,000,000 primary and first excess limits.

    Lexington and Lloyd's paid policy limits, but RSUI only made a "good faith" advance of a little over one million dollars.  The insured sued.

    Because RSUI's policy was following form, Lexington's flood exclusion was critical.  Lexington's policy excluded, "Flood, unless specified in Section 3, Sublimits of Liability, Paragraph H., and then only for such specified amount."  Section 3, paragraph J then set forth a $10,000,000 sublimit of liability "in the aggregate for any one policy year for the peril of Flood."  The Lexington policy, therefore, excluded the peril of flood, but in the same sentence created an exception to that exclusion by providing flood coverage up to $10,000,000.

    RSUI argued its policy simply adopted the flood exclusion as a traditional exclusion, i.e., without the $10,000,000 sublimit exception in the Lexington policy.  The court disagreed.  Had RSUI desired to exclude flood coverage, it could have done so by an exclusion in its own policy rather than by complex and indirect reliance on Lexington's exclusion with an exception. 

    Next, the court considered the insured's motion for summary judgment that the anti-concurrent causation clause was ambiguous.  The policy provided,

    This policy does not insure against loss or damage caused directly or indirectly by any of the following excluded perils.  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:  

    . . .                                                         

    P. loss or damage cause by or resulting from:

    . . .

    (2) Flood, unless specified in Section 3, Sublimits of Liability, Paragraph J., and then only for such specified amount

    (3) any and all loss from any other cause when occurring concurrently or sequentially with . . . Flood . . . .

    Regarding Paragraph P(2), the Court declined to enforce the anti-concurrent causation clause to preclude recovery for flood damage when the RSUI policy afforded coverage for that same peril.

    A different result was reached under paragraph P(3), however.  This paragraph contained anti-concurrent language independent of paragraph P(2) and the prefatory anti-concurrent causation language of the policy.  Paragraph P(3) excluded damage caused by wind only "when occurring concurrently or sequentially with . . . Flood."  Accordingly, the insured could recover for damage caused by wind which did not occur concurrently or sequentially with flood.

    Because the decision involved controlling questions of law, the Court granted the right to an immediate appeal under 28 USC 1292 (b).

Insureds Entitled to Additional Flood Coverage in California

    The insureds' home was damaged by a flood in Ross, California, on December 31, 2005.  See Cook v. USAA General Indemn. Co., No. C-07-4042, 2009 U.S. Dist. LEXIS 45490 (N.D. Cal. June 1, 2009).  The home was insured under a National Flood Insurance Program policy issued by USAA.

    The home was located in a flood zone forty feet from Ross Creek, and valued at $350,000.  After the flood, the kitchen floor began to bulge over the central beam and floor tiles in the kitchen cracked.  Cracks also began to appear in the plaster of certain areas of the house.  Windows and doors became difficult to open and close.  

    USAA's claims adjustor initially concluded the total damage was $13,075.47.   After subtracting the $5,000 deductible, USAA issued a check for $8,057.47.  After a second USAA inspector visited the property, USAA issued another check for $4,180.32 for cleanup costs.  A third check in the amount of $12,126.11 was issued for supplemental repair costs for electrical, furnace and water mitigation expenses.  In total, USA issued $24,381.00 for damages to the house and cleanup, and the $5,000 deductible was exhausted.

    The insureds sought not only to repair the home, but to significantly redesign it, including raising it in order to protect against future flooding.  The insured wrote to USAA on July 24, 2006, notifying the insurer that they planned to begin repairs and renovations around August 4, 2006.  USAA conducted another inspection on August 4, 2006, while renovations were underway.  USAA's structural engineer reported it was highly unlikely that the flood caused any structural damage to the house.

    On December 22, 2006, the insureds completed a proof of loss form, requesting a total of $220,039.73 for flood damage.  USAA denied the proof of loss.  Although additional information was requested, the insureds were unable to respond to many of the requests and they were often slow in their responses.

    The insureds sued for breach of the policy.  The court agreed with insureds' expert that the flood caused the cracking and bulging, and damage to the doors and windows.  

    The court rejected USAA's argument that the insureds failed to cooperate.  The testimony demonstrated the insureds kept frequent contact with USAA and gave sufficient notice of their intent to work on the house.  Moreover, the December 22, 2006 proof of loss sufficiently described which portions of the house were damaged by flood. Because USAA had not issued any money to cover the floor, windows, doors and walls of the house, USAA was in breach of the flood policy.

    Meticulously combing through the record and considering competing estimates submitted by the parties, the court determined USAA was obligated to issue an additional payment of $52,690.24 for damage to the house caused directly by flood.

"Hot Topics" Covered at ABA, Insurance Coverage Litigation Committee's Website

    The ABA's Section of Litigation, Insurance Coverage Litigation Committee's website has been building a collection of insurance related articles, labeled "Hot Topics."  Many informative and timely articles appear at the site.  See my article, "Breadth of the Flood Exclusion: A Flood is a Flood, Including Storm Surge," posted on the site [Article] which discusses the Fifth Circuit's recent decision in Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., No. 08-30050, 2009 U.S. App. LEXIS 6900 (5th Cir. April 2, 2009), involving the flood exclusion and the anti-concurrent causation clause.

Mississippi Supreme Court Considers Application of Anti-Concurrent Causation Clause

    Here is a report in today's Insurance Journal regarding oral argument conducted last Tuesday before the Mississippi Supreme Court in Corban v. United Services Automobile Assoc., No. 2008-M-645 (Miss.)  At issue is the application of the anti-concurrent causation clause where the insured's home was allegedly damaged by both wind and flood.  We have previously discussed the Corban case here and here.

Insured's and Insurer's Prior Acts Constitute Admissions of Wind and Flood Damage

    Senior Judge Senter from the Southern District of Mississippi continues to be on the front lines of the Katrina insurance coverage battles.  In a case headed for trial, Judge Senter recently denied motions by both the insured and insurer attempting to establish estoppel on coverage issues.  See Politz v. Nationwide Mut. Fire Ins. Co., No. 1:08CV18, 2009 U.S. Dist. LEXIS 39857 (S.D. Miss. May 11, 2009).

    After Hurricane Katrina, the insured applied for and received a grant from the Mississippi Development Authority (MDA).  Nationwide's motion argued this was an admission that at least some of the damage to the insured's home was caused by storm surge flooding.  The court held that applying for and accepting the MDA grant was an admission by the insured that property was damaged by storm surge.  But unlike the receipt of benefits from flood insurance, accepting the MDA grant did not indicate that the amount of flood damage was equivalent of the amount of the grant.  Accepting the grant would only be admissible if the insured argued that storm surge flooding played no part in damaging the property.

    The insured's motion sought to determine the payment of benefits by the insurer constituted an admission that the property sustained covered wind damage in the amount of the payment.  The insurer's payment of $30,339.57 was accompanied by a letter stating, "We are enclosing a check for the amount of damages which we believe we owe at this time for damages caused during Hurricane Katrina."  The insurer argued its payment was voluntary.  Based on the insurer's letter, the court disagreed.  Taking the insurer at its word, the payment was a best estimate of the amount owed the insured under the homeowners policy.  If the insurer attempted at trial to assert it owed nothing under the policy, the letter would be admissible for credibility purposes.

    Therefore, while Judge Senter did not find estoppel by either the insured or insurer, both acts were admissions which would be allowed into evidence should either party argue the damage was not caused by both wind and flood.

Fifth Circuit Finds Flood Exclusion Ambiguous in Excess Policy

    A mixed result for the insured and excess insurers was reached in Six Flags Inc. v. Westchester Surplus Lines Ins. Co., No. 08-30476, 2009 U.S. App. LEXIS 8273 (5th Cir. April 21, 2009)[here].  Although the Fifth Circuit determined most insurers had no further coverage obligation, the flood exclusion in one excess policy was found ambiguous.

    Six Flags operated a theme park in New Orleans.  Six Flags had multi-layers, all-risk first-party coverage arranged as follows: (1) a primary layer with $25 million in limits; (2) a first excess layer with $125 million in limits; (3) a second excess layer with $125 million in limits; and (4) a third excess layer with $250 million in limits.  Six Flags paid an annual premium of $5.7 million for this coverage.

     The Excess Insurers covered all risks, subject to certain limits.  The policies' Flood sublimit was "applicable to all loss or damage . . . per occurrence and in the term aggregate as respects Flood at any location in a Flood Zone A or V" as designated by FEMA.  The provision limited coverage for the first-layer excess policies to $2,500,000.  Six Flags' theme park was located in a Flood Zone A. 

    Finally, the polices lumped together all loss within a 72-hour window within a Weather Cat Occurrence which was defined as "All loss or damage occurring during a period of 72 hours which is caused by . . . [a storm named by the National Weather Service]."  Further, "storm" included all "weather phenomenon, . . . including, but not limited to Flood, wind, hail, sleet, tornadoes, hurricane or lightning." 

   One excess policy issued by Commonwealth Insurance replaced the definition of Flood with an endorsement defining Flood as "loss or damage caused by waves, tidal water or tidal wave, overflow of . . . bodies of water. . . all whether driven by wind or not." 

    After Hurricane Katrina caused extensive damage to its park, Six Flags submitted losses totaling $150 million to its insurers.  The primary-layer insurers paid $25 million, exhausting this level of coverage.  The Excess Insurers then capped their coverage at $2.5 million pursuant to the Flood sublimit. 

    Six Flags sued, arguing the Flood sublimit did not apply because of a separate peril of a Named Storm.  The district court granted summary judgment to the insurers, concluding the Flood sublimit was unambiguous and excluded excess coverage. 

    On appeal, the Fifth Circuit first analyzed the non-Commonwealth Excess policies.  Six Flags argued the Flood sublimit did not apply to Flood loss in a Weather Cat Occurrence because a Named Storm was a distinct peril not subject to the Flood sublimit.  In other words, the Weather Cat Occurrence subsumed all of the other perils defined and was subject only to sublimits expressly addressed to it.  The Fifth Circuit disagreed. The Flood sublimit clearly capped the liability of the Excess Insurers at $2.5 million for all loss or damage per occurrence, including a Weather Cat Occurrence, as respected Flood.     

    Turning to the Commonweatlh Policy, Six Flags argued the "Flood" definition endorsement clarified for the Commonwealth Policy and the other Excess Policies that Flood caused by the peril of a Named Storm was not considered in the application of the Flood sublimit.  The Fifth Circuit determined the Flood definition endorsement ambiguous.  A reasonable reading of the Commonwealth endorsement meant it excluded the applicability of the Flood sublimit to Flood that was caused by the peril of a Named Storm.  Therefore, the district court's order granting summary judgment to Commonwealth was reversed.

    Finally, Six Flags argued the definition of Flood in the non-Commonwealth policies should be read in light of the definition contained in the Commonwealth Flood definition endorsement.  The Fifth Circuit declined to modify the non-Commonwealth Policies to find an ambiguity. Under Louisiana law, the policies had to be reviewed as independent units. 

Gavelston Revisited - Seven Months After Hurricane Ike

    My wife and I were in Houston again last week.  Over the weekend, we drove to Galveston, continuing a chain of visits from both before and after Hurricane Ike.  [See prior posts here and here].  The Gulf Coast was in the Houston news last week because of former President George H.W. Bush's Saturday visit to Gilchrist on the Bolivar Peninsula, ground zero for Hurricane Ike and across the channel from Galveston.

    Seven months after Hurricane Ike struck, a visitor would notice little, if any, lingering Hurricane Ike-related damage in Houston.  Galveston is a different story.  Although restaurants and shops are open in the historic district along the Strand, many buildings remain dilapidated and uninhabited.  Apparently, several days of flood and a night of hurricane force winds caused serious damage to most trees, which have no leaves and give the appearance of a cold day in winter.  Many beach front homes appear unharmed, but they resemble a ghost town, as they are empty with boarded doors and windows, probably damaged internally from the storm surge.  Galveston Island State Park, which lost an administrative building to the hurricane on the beach side of the highway, is reopened on the marsh side.  Bird life through the marsh seems relatively normal, as we saw great white egrets, lesser terns, and two pink Roseate Spoonbills flying overhead.

    Along Interstate 45 to Galveston are billboards where law firms unabashedly advertise their ability to assist hurricane victims in recovering insurance proceeds.  But with many areas still devastated seven months after Hurricane Ike, one must assume many Galveston residents never had the insurance coverage they needed.

    

Anti-Assignment Clause Does Not Bar Post-Loss Assignment

    It's now late April.  Posting on a decision rendered in March, early March at that, breaches a blogger's protocol.  And In Re: Katrina Canal Breaches Consolidated Litigation; Pertains to: Road Home, Louisiana State, No. 05-4182, 2009 U.S. Dist. LEXIS 30406 (E.D. La. March 5, 2009), received press when issued.  The case allowed individual claims of homeowners to proceed with a class action suit even if they did not file individual suits by the deadline.  Nevertheless, because it involves hurricanes, flood damage and anti-assignment provisions, issues we follow with interest at this site, the latest installment of Katrina Canal Breaches deserves another look. 

    The Louisiana Road Home program was funded by a HUD grant to provide disaster relief to victims of Hurricanes Katrina and Rita.  Road Home grants were designed to compensate homeowners up to $150,000 for structural damage.  The Road Home program prohibited providing any relief funds that would duplicate payments from other sources.  Accordingly, recipients had to reimburse the State if they subsequently received any insurance payments from losses covered by their Road Home grants.  To facilitate reimbursement, the Road Home program required recipients to execute a Subrogation/Assignment, assigning the right to such duplicate funds to the State. 

    Approximately 90,000 Agreements were executed, making in excess of eight billion dollars of federal funds available to hurricane victims through the Road Home program.  The State filed a class action suit to recover those funds from Insurers to which Road Home recipients were entitled and which had been assigned to the State.

    The Insurers moved to dismiss on various grounds.  First, the Insurers argued the State had no standing because the assignments from the homeowners were invalid based on the policies anti-assignment clauses.  Louisiana law permitted the enforcement of anti-assignment clauses.  But here the Court was faced with a post-loss assignment, i.e., the homeowners assigned their rights under the policies to the State after loss from the hurricanes.  

    The Court decided that assignments were permitted under Louisiana law, despite anti-assignment clauses.  In other jurisdictions, courts generally permitted the assignment of an insurance claim despite an anti-assignment clause if the assignment occurred post-loss.  After the loss occurred, assignment of the claim did not modify the risk.  Therefore, there was no reason to limit the assignment of a claim, regardless of an anti-assignment clause.  Recall that in Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007), the Hawai`i Supreme Court held that transfer of a policy in disregard of an anti-assignment provision was invalid.  Del Monte dealt with a post-loss assignment loss, but an assignment made prior to the successor's entry of a Consent Decree under CERCLA with the EPA.

    The Katrina Canal Breaches court next agreed with the Insurers that any claims outside the contract, such as allegations of bad faith and breach of fiduciary duty, were barred because these claims had not been assigned to the State.

    Finally, the Court  dismissed the State's Valued Policy Law claims.  The State argued under Louisiana law, if any insurer placed a valuation on the property and used such valuation to determined the premium, the insurer had to indemnify the covered loss at such valuation without deduction or offset.  The Court agreed with the Insurers that Louisiana law only applied the Valued Policy Law to claims brought under fire insurance policies. 

Hurricane Damage Not Covered under Alaska Native Corporation's All Risk Policy

    I can't resist reading a decision regarding a dispute over hurricane coverage for property owned by an Alaska Native Corporation.  See Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., No. 08-30050, 2009 U.S. App. LEXIS 6900 (5th Cir. April 2, 2009).  The Arctic Slope Regional Corporation, one of the few lucrative Native Corporations formed under the Alaska Native Claims Settlement Act of 1971, is based in Barrow, Alaska, the northern most city in the United States.  I was in Barrow one December, the time of year when the sun does not crack the horizon for two solid months.  But I digress. There are interesting insurance issues in Arctic Slope.

    One of Arctic Slope's ventures, an office and construction yard on the coast of Louisiana, was inundated by water after Hurricane Rita's storm surge in September 2005.  Coverage was denied under Arctic Slope's all risk policy. The policy covered damage caused by "wind and hail," but not by "flood" in the form of storm surge. 

    The policy defined "flood" as "surface water; tidal or seismic sea waive; rising (including overflowing or breaking of boundaries) of any body of water  . . . whether driven by wind or not . . . ."  "Wind/hail" was defined as "direct and/or indirect action of wind and all loss or damage resulting therefrom whether caused by wind, by hail or by an other peril . . . when water . . . is carried, blown, driven, or otherwise transported by wind onto or into said location."  Therefore, storm surge was arguably covered by the wind/hail provision, but excluded by the flood provision.

    The district court held the wind/hail provision had to be read in light of the entire policy.  Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., No. 07-0476, 2007 U.S. Dist. LEXIS 64850 (W.D. La. Aug. 30, 2007).  When read in conjunction with the definition of "flood," it was apparent that storm surge was not encompassed by the definition of wind/hail.

    The Fifth Circuit affirmed, although on slightly different grounds.  Arctic Slope's first argument that the policy was ambiguous because it excluded coverage for storm surge damage within the flood definition while it authorized coverage for the same damage in the wind/hail provision, was rejected.  The policy covered all risks of direct physical loss or damage "except as excluded under this policy."   Therefore, the exclusion of storm surge as a flood event could not be reversed by its possible inclusion as a wind/hail event.

    Arctic Slope also argued there was an ambiguity under the policy's anti-concurrent causation clause preceding the excluded perils:

    This policy does not insure against loss or damage caused directly or indirectly or resulting from any of the following.  Loss or damage is excluded regardless of any other cause or event whether or not insured under this policy that contributes concurrently or in any sequence to the loss or damage.

    Arctic Slope argued the clause was ambiguous because there was only one cause of damage - storm surge - and not separate causes defined as separate perils in the policy.  Perhaps the correct analysis at this point would have been to simply state the anti-concurrent causation provision does not come into play until there are two separate causes of the same, identical damage.  If two or more forces cause different, distinct damage, only single causation exists and the anti-concurrent causation clause does not apply.  Here, as noted by the court, there was one cause of damage - storm surge.

    Nevertheless, the court addressed Arctic Slope's argument by determining the anti-concurrent causation clause was unequivocal and unyielding.  The storm surge, "whether driven by wind or not," was not covered by the policy.  Consequently, the anti-concurrent causation clause precluded coverage of the loss or damages under the wind/hail provision as water "carried, blown, driven or otherwise transported by wind."  Although only one peril was in play, the court determined the clause operated exactly as it was intended and was not ambiguous.

Insured's Motion for Summary Judgment on Bad Faith Denied

    The insured moved for summary judgment on bad faith because of the insurer's alleged delayed and incomplete payments after Hurricane Katrina destroyed property.  See Plaquemines Parish School Bd v. Indus. Risk Insurers, No. 06-7213, 2009 U.S. Dist. LEXIS 20004 (E.D. La. March 11, 2009). 

    School buildings operated by the insured School Board were damages by Hurricane Katrina in August 2005.  Policy limits were $15 million, and the School Board was paid $11.7 million.  The School Board filed suit against the insurer for additional proceeds under an "all risk" policy.  The suit sought the remainder of the policy limits and damages for bad faith.

    The insurer's adjusters had inspected the properties in September and October 2005, and provided detailed reports regarding the damage.  Substantial payments were made.  Nevertheless, the School Board argued the insurer failed to make timely payments once it had a sufficient proof of loss.  The School Board further argued payments for wind damage were insufficient and untimely. 

    Noting the Fifth Circuit's decision in Dickerson v. Lexington Ins. Co., 2009 U.S. App. LEXIS 2902 (5th Cir. 2009) [reviewed here], the District Court noted whether the insurer acted in good faith required a factual determination.  The School Board's evidence raised questions of material fact as to the timing and sufficiency of proof of loss in the insurer's possession and whether the insurer acted in good faith in delaying payment.  Therefore, the School Board's motion for summary judgment was denied.

    The court also considered whether the School Board's recovery from the insurer should be offset by amounts received from FEMA or in flood insurance proceeds to prevent a double recovery.  By statute, duplicate funding received from FEMA had to be returned.  The court held, however, that the School Board's receipt of FEMA funds had no bearing on the ability to recover from the insurer.  Nevertheless, the insurer would be entitled to an offset for any flood proceeds received by the School Board which the insurer proved was excluded from coverage.  At trail, the School Board would have the burden of proving the amount of damage caused by the covered peril of wind while the insurer would have the burden of proving the applicability of the exclusion for flood damage.