ANTI-CONCURRENT CAUSATION EXCLUSION UPHELD IN KATRINA FLOOD LOSS

Homeowners	Windstorm
Flood	Standard Policy

The Leonards’ Mississippi home, insured by a homeowners policy from Nationwide Insurance Co., was one of many seriously damaged by Hurricane Katrina. Specifically, their home was flooded by a storm surge that was created by the infamous storm.

The Leonards filed a claim and, after inspecting the loss, Nationwide offered a check of less than $2,000. The insurer notified the Leonards that this was the amount of damage that could be attributed solely to windstorm; the rest of the damage involved flooding and was excluded. The Leonards filed suit to recover damages, and Nationwide filed its own request for a summary judgment.

The Leonard’s homeowner policy included wording found in most standard policies, including how the policy responds to loss caused by windstorm. Along with each renewal (over a period of more than 10 years), the Leonards received a statement that notified them that the policy does not cover flood losses and that such coverage (through Nationwide) could be purchased under the National Flood Insurance Program. Further, their policies also included a section titled “Concurrent Action by Wind and Water (ACC Clause). That statement read as follows:

 1. 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....

In the lower court action, the Leonards indicated that their longtime insurance agent led them to believe that no flood insurance was necessary because of their location and that their homeowner policy covered loss for hurricane damage. After reviewing the matter, the court ascertained that the agent did not materially misrepresent coverage. Of particular importance was evidence that the agent actively sold flood insurance coverage to his clients, including to a dozen households in the same neighborhood of the Leonards. In the end, the lower court ruled that the Leonards were due a modest amount (less than $1,300) for damage caused solely by the wind. However, the court upheld the ACC clause used in the policy while issuing the opinion that the clause was ambiguous. Both parties appealed.

The higher court first handled the Leonards’ argument that Nationwide had no standing to appeal since the insurer did not dispute the wind-only damage award. However, the court ruled that Nationwide was made vulnerable by the lower court’s ACC Clause decision, and that fact was a valid reason to ask for higher review.

The higher court focused on making its points known regarding the error it felt was made by the lower court and the acceptance of ACC clauses in various jurisdictions. On the former, the court believed the lower court confused the issues of concurrent causation and efficient proximate cause. The court reasoned that, when a clearly written ACC appears in an insurance contract, and that wording has undergone a forms filing process (via state insurance dept. procedures), its approved wording renders the situation of a contributing cause of loss moot. Per the exclusion, such a loss is still barred from coverage. On the latter point, the court held that the use of an unambiguous ACC provision that does not violate any statute nor which is against public policy is to be read as written.

The higher court also reviewed evidence of the Leonard’s agent in offering advice concerning the need for flood coverage and that agent’s record of sales of that coverage. It held that the agent’s alleged statement concerning hurricane protection did NOT constitute an oral alteration of the homeowner policy coverage. While refuting part of the lower court’s reasoning, the higher court affirmed its decision in favor of Nationwide.

Paul and Julie Leonard, Plaintiffs-Appellees-Cross-Appellants, v. Nationwide Mutual Insurance Company Defendant-Appellee-Cross-Appellee.USCTAPP, Fifth Circuit, No. 06-61130. Filed August 30, 2007. (http://www.car[dot]uscourts.gov/opinions/pub/or/or-61130-CVO.wpd[dot]pdf [Downloaded 5/25/10]