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).

Bad Faith Claims Based on Insurer's Lack of Concern Denied

    Bad faith and coverage for looting were at issue in Spears v. State Farm Ins. Co., No. 08-3183, 2009 U.S. Dist. LEXIS 49554 (E. D. La. June 12, 2009).  The insureds' home was damaged by Hurricane Katrina on August 29, 2005.  A homeowner's policy issued by State Farm provided coverage of up to $179,700 for dwelling and up to $134,775 for contents and loss of use. 

    In September 2005, State Farm opened a claims file and advanced $2500.  In November 2005, State Farm inspected the property.  On November 25, 2005, State Farm paid $55,205,87 for dwelling loss and $21,096 for contents and loss of use.  State Farm also opened a separate claims file for the alleged looting, but the claim was never paid. 

    The insureds filed suit in 2008, arguing State Farm had not paid full benefits.  Insureds included a claim for bad faith.  After suit was filed, State Farm made an unsolicited tender of $18,960 after an expert evaluation found additional uncompensated damages.

    State Farm moved for partial summary judgment on the bad faith and looting claims.  The Louisiana statues did not penalize insurance companies for failing to pay claims, but for failing to pay claims in a manner that was arbitrary, capricious, or without probable cause.  If the insurer had a reasonable basis to defend the claim and acted in good-faith reliance on that defense, the statutory penalties for bad faith were inappropriate.  Here, the insureds offered no evidence to suggest that State Farm acted in bad faith.  The basis of the claim appeared to be that State Farm was not sufficiently concerned about the insureds' family's welfare after the hurricane.  While there was a dispute about coverage, the insurer had not acted in bad faith.

    State Farm also moved for summary judgment to dismiss the looting claim because the insureds had not pled the claim in the complaint.  The insureds had moved to amend their complaint to add a claim for damage from failure to pay the looting claim, but the motion had been denied.  State Farm further argued the statutory extension of the prescription period for Katrina claims did not apply.  Because there was no looting claim in the suit, State Farm's motion for summary judgment was denied as moot.  It would be inappropriate for the court to address the applicability of the statute extending the prescription period for Katrina claims when the looting claim was not properly before the court.  The parties were free to file motions in limine on the relevance of evidence of looting in regard to State Farm's alleged liability for underpayment of the claim.

"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.

Bad Faith Claim For Delayed Payment Fails

    The insured's property was damaged during Hurricane Katrina by wind, wind driven rain, flooding, storm surge and water in Jupiter v. Automobile Club Inter-Insurance Exchange, No. 07-1689, 2009 U.S. Dist. LEXIS 44083 May 26, 2009). Plaintiff recovered $225,500 from Allstate, its flood insurance carrier.  The insured also held a homeowner's policy with Automobile Club, who paid a total of $106,079.47.  The insured argued this was insufficient because its property was a total loss.  Auto Club submitted the wind and rain damage was not substantial.  Further, Auto Club contended water damage, a flood exclusion, power failure exclusions, and neglect exclusions precluded further liability under the policy.

    Auto Club moved for summary judgment on the issues of bad faith and whether the insured had been fully compensated.  On the bad faith issue, the insured contended a factual issue existed regarding Auto Club's failure to timely pay the claim despite evidence of damage being provided.

    The Court granted Auto Club's motion on the bad faith issue.  Louisiana law provided statutory penalties against insurers for failure to timely resolve claims or pay settlement awards.  But the insured had to prove that the insurer knowingly committed actions which were completely unjustified, without reasonable or probable cause or excuse. 

    Here, Auto Club did not act arbitrarily, capriciously, or without probable cause in resolving the insured's claims.  Although the insured asserted there was a factual dispute as to the timeliness of payments, there was no evidence that the payments were not timely made.  Further, the contents list provided by the insured did not include receipts, and there remained a dispute as to the extent to which the insured's property was damaged by wind as opposed to flood.  The parties dispute over the total coast of repairs caused by a covered peril did not warrant the imposition of statutory penalties for bad faith.

    The court denied Auto Club's motion regarding whether the insured had been fully compensated, however, because a factual issue was presented.

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. 

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. 

Fifth Circuit Again Finds in Favor of Policy-Holder

    Continuing its recent trend in post-Katrina cases to find for the policy-holder (see Dickerson v. Lexington Ins. Co., 2008 WL 5295389 (5th Cir. Dec. 22, 2008)[ reviewed here]; Grilletta v. Lexington Ins. Co. 2009 U.S. App. LEXIS 276 (5th Cir. Jan. 8, 2009)[reviewed here]), the Fifth Circuit reversed an award of summary judgment in favor of the insured in Campo v. Allstate Ins. Co., No. 07-31165, 2009 U.S. App. LEXIS 5460 (5th Cir. March 17, 2009).  

    Prior to August 2005, and for over twenty years, the insured held a Standard Flood Insurance Policy ("SFIP") through Allstate, which issued the policy as a Write-Your-Own ("WYO") carrier.  The insured's policy expired on August 12, 2005, when a premium of $1,237 was due to reinstate coverage for 2005-2006.   Hurricane Katrina struck on August 29, 2005, destroying the insured's home.  The policy included a 30-day grace period, so that if the insured paid the premium by September 13, he would have avoided a gap in coverage.  After Hurricane Katrina, FEMA extended the 30-day grace period for an additional ninety days. 

    Shortly after the hurricane, the insured filed a claim under the expired policy.  Allstate processed the claim and sent an advance check of $2,500 to the insured.  Allstate never informed the insured that these payments were conditional on receipt of the $1,237 premium.

    On December 12, 2005, the extended grace period expired without the insured having submitted his premium.  In late December, Allstate informed the insured that it must repay the $2,500 it had advanced. 

    The insured sued, alleging Allstate made negligent misrepresentations that prevented the insured from renewing his policy.  The District Court noted FEMA regulations governed the methods by which WYO carriers adjust and pay claims.  The Court granted Allstate's motion for summary judgment, holding that the insured's claims were handling-related and thus preempted by federal law.

    The Fifth Circuit reversed.  Although federal law preempted state law tort claims arising from claims handling by a WYO, claims related to procurement of insurance were not preempted.  Here, the insured's policy had expired subject to restoration if he paid the premium within the extended grace period.  Allstate was thus incapable of handling any new claims based on post-expiration occurrences.  As a former policy-holder, the insured would have had to procure flood insurance. 

    Next, the Fifth Circuit determined federal law did not preempt state-law procurement-based claims.  First, Congress, through its delegation of regulatory power to FEMA over flood claims, had expressly preempted state law only as to handling-related claims.  Second, unlike handling-based cases, prosecution of procurement-related state-law tort suits did not impede the full purposes and objectives of Congress.  Therefore, state-law tort claims related to procurement did not interfere with Congress's objectives.

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.