Insurance Law Hawaii

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.

Damages For Mental Anguish Awardable for Delay in Adjusting Katrina Claim

    In a recent post, we discussed Dickerson v. Lexington Ins. Co., 2008 U.S. App. LEXIS 26504 (5th Cir. Dec. 22, 2008) where the Fifth Circuit determined damages for mental anguish were properly granted based on the insurer's bad faith delay in paying a claim after Hurricane Katrina.  Dickerson controlled a subsequent decision by the Federal District Court in Louisiana when State Farm's motion for summary judgment as to plaintiffs' claims for mental anguish was denied.  See Fasone v. State Farm Fire and Cas. Co., 2009 U.S. Dist. LEXIS 3027 (E.D. La. Jan. 9, 2009).

    In Fasone, plaintiffs sought coverage under their State Farm policy for damages sustained to their home during Hurricane Katrina.  Although coverage for their dwelling was $166,300, State Farm paid only $22,491.17.  The District Court noted in Dickerson, the Fifth Circuit had decided as a matter of law that plaintiffs may seek damages for mental anguish based on an insurer's bad faith failure to timely adjust a claim.  State Farm also challenged the sufficiency of plaintiffs' evidence on mental anguish because no expert testimony was offered.  Again relying on Dickerson, the District Court determined the plaintiff's affidavit describing his mental state and linking specific feelings, such as frustration, anger, and humiliation, to specific acts by State Farm was sufficient to create a genuine issue of material fact.

Fifth Circuit Again Holds in Favor of Policy Holder in Katrina-Related Dispute

    A prior post addressed Dickerson v. Lexington Ins. Co., 2008 U.S. App. LEXIS 26504 (5th Cir. Dec. 22, 2008), wherein the Fifth Circuit reversed its trend by issuing a Katrina-related decision in favor of the policy-holder.  The Fifth Circuit recently upheld another decision in favor of policy-holders after Hurricane Katrina destroyed their home.  See  Grilletta v. Lexington Ins. Co., 2009 U.S. App. LEXIS 276 (5th Cir. Jan. 8, 2009).

    The insured's policy covered damage from wind but excluded "water damage."  On November 13, 2005, Lexington's adjuster determined the damage was wind related and not caused by flood.  Consequently, he recommended Lexington pay the policy limits of $400,000 for the dwelling. 

    Lexington took no action until January 26, 2006, when it hired an engineering company to do a damage causation analysis.  The engineering company, in turn, hired a meteorologist who determined the storm surge was the proximate cause of the destruction, not wind.  Thereafter, Lexington paid only $191,674 for damage to the dwelling.

    Plaintiffs sued.  Plaintiffs' expert, an engineer, asserted that either a tornado or high winds destroyed the house, and that there was a small storm surge of ten to twelve feet.  On the other hand, Lexington's experts, the meteorologist and an engineer, stated there was no evidence of a tornado or winds strong enough to destroy the house.  Instead, a storm surge of at least fifteen feet caused the destruction.  The trial court determined Lexington had not met its burden to demonstrate the water damage exclusion applied.  Therefore, the court ruled the full $400,000 payment for loss of the house was appropriate.

    The Fifth Circuit affirmed.  Lexington's experts conceded that a tornado or high winds could have damaged the house.  The district court did not find conclusive Lexington's meteorological data suggesting water was the proximate cause of the damage.  Given the battle of experts, the trial court was free to choose among the competing explanations in rendering its decision. 

    The Fifth Circuit also affirmed an award of statutory penalties for arbitrarily failing to pay a claim within thirty days.  After receiving the first adjuster's report concluding that the wind caused the damage, Lexington took no action for over sixty days. 

    Hawaii's Unfair Claim Settlement Practices Act lists as an unfair practice the failure to offer payment within thirty days of affirmation of liability if the amount of the claim has been determined and it is not in dispute, Haw. Rev. Stat. 431:13-103 (a)(11)(F), but there is no statutory penalty for such delay.

Katrina Canal Breaches Litigation Continues

    In one of the major Hurricane Katrina-related decisions, In Re Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007), the Fifth Circuit overturned the district court’s decision that flood exclusion is ambiguous.  Hundreds of claims are still being litigated in the district court where an order was recently entered dismissing duplicate claims.  See In Re Katrina Canal Breaches Litigation, 2009 U.S. Dist. LEXIS 1148 (E.D. La. Jan. 7, 2009).

    In the current proceedings, Allstate filed a Motion to Dismiss Duplicate Claims, seeking to dismiss without prejudice those claims that are duplicative of other lawsuits filed within In Re Katrina Canal Breaches Litigation.  Allstate argued the earlier-filed lawsuit for each plaintiff should proceed and the later-filed lawsuit should be dismissed.

    The court noted that under the "first to file" rule, where a party has filed multiple lawsuits concerning the same facts, the district court can dismiss the later-filed action.  This eliminates wasteful duplicative litigation, avoids rulings that may offend a sister court's authority, and avoids piecemeal resolution of issues calling for a uniform result.  The "first to file" rule is discretionary, however.

    Here, seven of the cases addressed in Allstate's motion had a settlement pending in the later-filed suit.  Therefore, in these cases, the court found it prudent to dismiss the earlier-filed suits to allow the settlement discussions to continue in the later-filed suits.  Otherwise, Allstate's motion was granted.

More on Corban Case and Anti-Concurrent Causation Clause

    Our post last week (here) discussed Corban v. USAA, a case before Mississippi Supreme Court presenting an opportunity for the court to address the validity of the anti-concurrent causation clause under state law.  Subsequently, slabbed.com, a Mississippi based-blog, put up a post (here) with additional background on the Corban case, including some of the the dialog between our blog and their blog regarding Corban and the anti-concurrent causation clause.

Mississippi Supreme Court to Decide Validity of Anti-Concurrent Causation Clause

    A case before the Mississippi Supreme Court asks whether the anti-concurrent causation clause in homeowners policies is ambiguous.  See  Corban v. United Services Automobile Association, No. 2008-M-645 (Miss.).  The appeal criticizes and asks the Mississippi court to depart from holdings in the trio of Hurricane Katrina cases decided by the Fifth Circuit: Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346 (5th Cir. 2007)(reviewed here); and Broussard v. State Farm Fire & Cas. Co., 523 F.3d 618 (5th Cir. 2008)(reviewed here).  An Amicus Brief was recently filed by the United Policyholders in support of the Petitioner policyholders.  The Amicus Brief appears to misunderstand the criteria for implementing the anti-concurrent causation clause. 

     Initially, the Amicus Brief summarizes the history of the all risk policy.  The industry offered this policy to cover all risks except for those specifically excluded.  United Policyholders criticizes Broussard for suggesting that in a personal property claim, the policyholder must separate wind from water damage.  The passage under attack from Broussard reads, "Likewise, a stipulation that the [policyholders'] personal property was destroyed by Hurricane Katrina is insufficient to establish that it was destroyed by a windstorm, since Hurricane Katrine unleashed both wind and water forces."  Id., 523 F.3d 618.  Amicus contends this statement places an onerous burden on the policyholder that was never intended by the all risk policy.  Instead, the burden to prove a specific exclusion applies under an all risk policy should be on the insurer.  So far, I agree with Amicus that the burden of demonstrating an exclusion applies to bar coverage is on the insurer.

     I disagree, however, with portions of the brief's analysis of the anti-concurrent causation clause.  Although the Amicus Brief never quotes the anti-concurrent causation clause at issue, such a clause typically provides, " We do not cover loss to any property resulting directly or indirectly from any of the following.  Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss."  (emphasis added).  The policy then lists excluded perils, such as flood.

    The Amicus Brief argues Leonard "wrongly found that damage caused by a covered peril will not be paid by the insurer if a subsequent excluded event followed damaging the property again."  (emphasis added).  If the excluded event was subsequent, it was not concurrent.  Therefore, the anti-concurrent causation clause would come into play only if the excluded event was in sequence with the covered risk. 

    Amicus further submits, "If [the anti-concurrent causation clause is] unambiguous, rather than determining that covered wind and rain damage is placed into the 'excluded' category because some type of 'flood' event may have followed the wind and rain damage, this Court should . . . find that wind and water damage are separate and only the 'flood' damage is subject to the exclusion." (emphasis added).  Analyzing this statement, we first note rain damage caused by the rain entering an opening due to wind would be covered under a typical homeowner's policy despite the anti-concurrent causation clause.  Further, if the flood "follows the wind and rain damage," the anti-concurrent causation clause would not be implicated because the flood and wind would not be concurrent.  Finally, if the wind and water damage are separate and not concurrent, again the anti-concurrent causation clause would not apply.  Damage caused by wind would be covered, while flood damage would not be covered under the all risk policy, just as requested by Amicus.