Insurance Law Hawaii

Corban Presents Well-Reasoned Analysis of Anti-Concurrent Causation Clause

   Having now read the full Corban decision, I am impressed with the clarity of the analysis set forth in the opinion.  See Corban v. United Services Automobile Assoc., 2009 Miss LEXIS 481 (Miss. Sup. Ct. Oct. 8, 2009).  The Mississippi Supreme Court carefully considered the facts, offered a common sense analysis to the anti-concurrent causation clause, and determined the provision had no application to the facts at hand.  The case has implications for Hawai`i because homeowners' policies issued here typically include an anti-concurrent causation clause.

    The Corban's home suffered significant damage from Hurricane Katrina.  They held both homeowner's and flood policies with USAA, and submitted a claim for $1,607,926.  USAA hired an engineer who determined all of the first floor damage was caused by flood.  Therefore, coverage was limited to replacing the roof and repairing some of the damage around the house.  The Corbans eventually received $433,903.77 from USAA (the maximum payment of $350,000 under the flood policy and $83,903.77 under the homeowner's policy), leaving $1,174,022 in claimed losses unsatisfied.

   When the Corbans sued, USAA's motion for partial summary judgment was granted.  The trial court judge found "storm surge" was within the definition of "water damage" and therefore an excluded peril.  The anti-concurrent causation clause was unambiguous, but barred coverage for any damage caused by water or caused concurrently or sequentially by wind and water in combination.

    The Corbans filed an interlocutory appeal.  The Mississippi Supreme Court considered three issues: (1) did the trial court err in finding that "storm surge" was included in the "water damage" exclusion; (2) did the trial court err in finding that the anti-concurrent causation clause was applicable; (3) which party bore the burden of proof?

   The Supreme Court rejected the Corban's argument that "storm surge" was a covered peril because it was not included in the definition of "water damage."  "Storm surge" was plainly encompassed within the "flood" or "overflow of a body of water" portions of the policy's "water damage" exclusion.

   The Court next focused on the anti-concurrent causation clause, which excludes listed categories of loss "regardless of any other cause or event contributing concurrently or in any sequence to the loss."  The terms analyzed by the Court were "loss," "concurrently," and "in any sequence."

   Regarding "loss," the Court criticized other courts, including the Fifth Circuit Court of Appeals, for conflating the terms "loss" and "damage."  "Loss" typically follows "damage" to property.  Policies do not cover or exclude "damage," but focus on coverage or exclusion of "loss."  The insured's right to be indemnified for a covered loss vests at the time of loss.  Here, the Corbans were entitled to recover for all covered "direct, physical losses" to the property, unless excluded.

   The Mississippi Supreme Court shined in its analysis of the term "concurrently."  The Court reasoned the anti-concurrent causation clause only applied when perils acted in conjunction, as an indivisible force, occurring at the same time, to cause direct physical damage resulting in loss.  Under such circumstances, the Court accepted the Fifth Circuit's interpretation of the clause to exclude coverage.  The facts presented in the Corban case, however, did not include an "indivisible" force (wind and flood), occurring at the same time, causing direct physical damage resulting in simultaneous loss to the property.  Here the perils (wind and flood) acted in sequence, not concurrently, i.e., at different times, causing different damage, resulting in separate losses.

   Next, the Court found the phrase "in any sequence" in the policy troubling.  Because loss occurred when the insured suffered deprivation of physical damage to property, the phrase "in any sequence" could not divest an insured's right to indemnity for a covered loss.  This interpretation was consistent with other provisions in the policy which clearly stated indemnity to the insured was established at the time of the loss.

    Considering all of these key terms in the anti-concurrent causation clause together, the provision did not apply here.  The same loss with multiple causes, some covered (wind) and some not (flood), was simply not at issue.  

   Finally, the court considered the burden of proof.  Under "Coverage-A - Dwelling" and "Coverage B - Other Structures," the Corbans were required to prove a "direct, physical loss to property."  Thereafter, USAA had the burden to prove, by a preponderance of the evidence, that the causes of the losses were excluded by the policy, i.e., flood damage.  USAA had to indemnify the Corbans for all losses which USAA could not establish, by a preponderance of the evidence, to have been caused or concurrently contributed to by flood damage.

   With these straight-forward interpretations of the policy provisions, the case was remanded for trial.  It is not surprising that the Mississippi Supreme Court repeatedly referred to and complimented another well-reasoned decision interpreting the anti-concurrent causation clause, Judge Senter's decision in Dickinson v. Nationwide Mut. First Ins. Co., 2008 WL 1913957 (S.D. Miss. 2009) [reviewed here].  Together, the Corban and Dickinson decisions suggest it will be a rare case in which the anti-concurrent causation clause actually applies to deny coverage.   It is difficult to imagine circumstances under which multiple perils (wind and flood) act concurrently to cause the same property damage. 

Mississippi Supreme Court Rules Anti-Concurrent Causation Clause Inapplicable

   The Biloxi Sun Herald reports here that the Mississippi Supreme Court reversed today the trial court in Corban v. United Serv. Auto., No. 2008-IA-00645-SCT (Miss. Sup. Ct. Oct. 8, 2009).  We previously reviewed the Corbin case here, here and here.  The unanimous decision of the Mississippi Supreme Court is here. 

   One important issue before the Court was the impact on the anti-concurrent causation clause.  The trial court had ruled the anti-concurrent causation clause was to be applied as interpreted by the Fifth Circuit Court of Appeals, thereby barring coverage for damage caused by water or caused concurrently or sequentially by wind and water.  The Mississippi Supreme Court reversed, holding the anti-concurrent causation clause was inapplicable in Corban because the wind and water losses were separate or in sequence, not one indivisible force.  The case now goes back to the trial court.

   More to follow on Corban after an opportunity to review the opinion.   

Galveston One Year After Hurricane Ike

   You first notice the trees.  Approaching Galveston on its main thoroughfare, Broadway Avenue, the trees still stand bare, stripped of all foliage after being seared all night one year ago by Ike's hurricane force winds.

    Another thing my wife and I observed driving through Galveston this past Labor Day was the number of houses, seemingly on every block, that appear uninhabitable a full year after Ike.  The commercial areas, especially the tourist shops in the historic Strand area, have recovered.  But progress in the residential areas, compose of stately homes with small yards, looks less encouraging.  The absence of property insurance, or delays in securing policy benefits, are undoubtedly factors.  Hundreds of Ike-related coverage lawsuits have been filed throughout southeastern Texas.  The outcome of these suits will be both interesting and educational.

    This story from Sunday's Houston Chronicle further captures the current situation on Galveston Island. 

Flood Damage Not Covered Where Insured Fails to File Proof of Loss

   In Schubert v. Chertoff, No. 07-5075, 2009 U.S. Dist. LEXIS 75835 (E.D. La. Aug. 26, 2009), the court considered whether the insured's failure to file a proof of loss for flood damage should be excused because two previous, untimely proofs of loss were accepted.

   The insured had a Standard Flood Insurance Policy through Hartford Fire Insurance Company on his New Orleans home.  Coverage limits were $250,000.  The insured's home suffered flood damage from Hurricane Katrina.  An independent adjuster estimated damages to be $91,059.58.  Hartford issued a check for this amount to the insured.

   Thereafter, the insured sought additional coverage for structural damage to the property.   The structural damage was not covered because it was not flood related, but an additional payment of $20,369.30 was recommended by the adjuster for damages overlooked in the first estimate.  FEMA waived the policy's 60-day proof of loss provision, but limited the waiver to only the amount of the loss stated.  Hartford then approved this additional payment.  Subsequently, a third payment was recommended by the adjuster for an additional $40,432.92.  FEMA again granted a waiver of the 60-day period, but limited the waiver for only the amount of loss outlined in the request.  Thereafter, Hartford paid an additional  $40,432.92 to the insured.

   The insured then sued Hartford, seeking damages for various additional items including fees paid, depreciation and "other items not yet determined."  No proof of loss was submitted for these items, but after suit was filed the insured sent Hartford an estimate for $13,570.90 for repairs to the home.   Hartford moved for summary judgment, arguing the insured was not entitled to additional damages sought because she had failed to provide a proof of loss.

   The district court granted Hartford's motion.  Under the National Flood Insurance Program, a policyholder seeking payment under a flood policy had to submit a proof of loss within 60 days of the loss.  Failure to provide the proof of loss statement relieved the federal insurer's obligation to cover the loss.  Here, the insured had not proof of filing a third proof of loss for the damages for which she sued.  The two requests for waiver of the 60-day period which were granted were limited to the specific amounts recommended for payment by the adjuster .  Therefore, the insured failed to submit evidence establishing a genuine issue of material fact concerning whether she filed a proof of loss for damages sought in the suit.

Insured's Complaint Against Agent Survives Motion to Dismiss

    Plaintiffs thought their agent, Scott Management Team, had secured flood insurance under their Allstate policy.  See Demouy v. Allstate Ins. Co., No. 06-9629, 2009 U.S. Dist. LEXIS 66254 (E.D. La., July 20, 2009).  After Hurricane Katrina struck plaintiffs' home, Allstate denied coverage because plaintiffs did not have a flood insurance policy.

    Plaintiffs sued Allstate and Scott, alleging Scott breached its fiduciary duty by failing to inform or advise plaintiffs that they were not covered for flood. Scott moved to dismiss, arguing the suit was untimely because it was not filed within one year after the date of discovery "of the alleged act, omission or neglect" by the insurance agent, as required by statute.  Without supporting evidence, Scott maintained that the limitations period began to run when plaintiff first attempted to make a claim shortly after Hurricane Katrina hit.

    Scott's motion was denied without prejudice.  Nothing in the record showed plaintiffs had constructive or actual knowledge of the agent's alleged act or omission.  Construing the facts in favor of plaintiffs, it was possible that plaintiffs could still come within the statute of limitations period. 

What if Mortgagor Fails to Pay Flood Insurance Premiums?

    If you assume your mortgage company will pay your flood insurance premiums, is the mortgage company liable for damage to property after failing to pay such premiums?  In Burks v. Prudential Ins. Co. of North Am., 2009 U.S. Dist. LEXIS 65451 (E.D. La. July 29, 2009), the court answered "no."

    Burks purchased her property in June 2003 and entered a mortgage agreement with Principal Mortgage, Inc.  Burks also purchased a Standard Flood Insurance Policy pursuant to the National Flood Insurance Program.  Prudential was the "Write Your Own" private insurance carrier for the flood policy.  The mortgage agreement provided for Burks to insure the property against certain losses.  Burks alleged she arranged for her flood insurance premium to be paid through her mortgage company, Principal Mortgage.

    Burks' property was damaged by Hurricane Katrina.  She thereafter learned that Principal Mortgage and its successor, CitiMortgage, failed to insure that her mortgaged property against flood.  Although CitiMortgage had been previously dismissed, Principal Mortgage had not.  Burks now argued Principal violated its fiduciary duty to her by altering and/or abandoning the policy and failing to procure flood insurance.

    CitiMortgage moved for summary judgment, arguing the undisputed facts established that Principal, like its successor-in-interest CitiMortgage, had no duty to Burks to procure or maintain flood insurance.  The mortgage agreement did not require flood insurance and made the home- buyer responsible for any policies issued.     

    The district court granted CitiMortgage's motion.  The rights, duties and obligations were defined by the mortgage agreement.  The mortgage agreement did not require flood insurance because the property was not in a special flood hazard area as defined by statute.  Therefore, the mortgage company had no duty to procure or pay for flood insurance.  Instead, the mortgage agreement placed responsibility for procuring flood insurance on Burks.  The court's prior dismissal of all flood related claims against CitiMortgage was dispositive of any attempted claims against Principal as predecessor-in-interest.

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.