Seven years after Hurricane Katrina leveled much of the Gulf Coast and set off a legal tempest that matched the magnitude of the fury of the storm itself, Katrina continues to leave its mark on insurance coverage court decisions on the wind vs. water debate.
The massive destruction of Katrina resulted in nearly 1 million property insurance claims, and in the year following Katrina’s landfall, insurance payments made up 11 percent of the state income of Louisiana and 10 percent of Mississippi. Yet many were unwilling to settle for the payments offered, and thousands of policyholders challenged the fact finding and coverage determinations of insurers in court.
Not only the scope but also the unusual nature of Katrina damage led to a particularly virulent set of controversies. Katrina featured extremely high winds that preceded by up to several hours a massive storm surge of water that inundated or flattened many homes. Wind damage, of course, was covered by most property policies but water damage was mostly excluded, except for rain that entered through some breach in the roof, windows, doors or walls.
Because challenges flood or water damage exclusions have been upheld by almost a century of case law, the most intense legal challenges were not those that sought to declare flood exclusions ambiguous and unenforceable, or that storm surge driven by high winds was not actually water damage but wind damage. Instead, the toughest battles were over the so-called anti-concurrent cause, or ACC, provisions of property policies. Still, seven years later there is a spectrum of court opinion as to how to apply these clauses.
ACC provisions were created in the 1980s and 1990s to prevent court decisions where judges said coverage existed because the damage resulted, at least in part, from some cause that was covered, such as human negligence, even if other causes such as flood or earthquake were specifically excluded. This type of analysis of causation is usually referred to as “efficient proximate cause,” which cause was the efficient, or moving, cause that set the others in motion. Sometimes, the analysis is even broader than the main cause — some courts said that even if the covered cause were not the main cause, but just a tiny part of the result, then the damage was covered. These types of analyses are merely “default rules” in the field of insurance coverage, meaning they are the analysis courts will use unless the insurance contract says something else. So insurers inserted ACC clauses in property policies to overturn the default rules.
ACC clauses say that property loss caused by an excluded cause is not covered, even if the loss was also caused “concurrently or in any sequence.” The original idea behind these clauses was to prevent extravagantly generous analyses of insurance policies, not to take away coverage when property damage was caused by a separate covered cause, even if an excluded cause also caused some loss.
The key to understanding this is to realize that any variation of analysis of causation — ACC, efficient proximate cause or something else — is used only when two or more forces cause the same loss. When only one thing causes a loss, there is nothing to analyze, it is either covered or not. And because property has multiple components, a loss caused by, for example, wind from a hurricane, is a separate loss with a separate cause that is distinct from a later flood surge that sweeps away the house. The first covered loss happened and did not un-happen merely because some greater loss later happened to both damaged and previously undamaged property.
The different approaches by courts can be seen in decisions by the U.S. Fifth Circuit Court of Appeals and by the Mississippi Supreme Court. The two courts have had widely divergent views of how to analyze ACC language for years, and they are not coming any closer together.
Earlier this year, in Robichaux v. Nationwide Mutual Fire Insurance Co., the Mississippi high court continued its line of cases that analyze ACC provisions as not applicable where there is a distinct, single cause of divisible damage. In Robichaux the court said that the Katrina storm surge to a home was excluded, but any prior damage from wind that could be proven would be covered.
This approach is at odds with the Fifth Circuit, which oversees federal courts in Mississippi, Louisiana and Texas.
One of the more recent Fifth Circuit wind-water cases was ARM Properties Management Group v. RSUI Indemnity Co., a 2010 Katrina case, where the court upheld its previous analysis that “concurrent,” excluded damage includes all hurricane damage to a building as long as an uncovered cause, such as flood, contributed to the loss.
One district court in Texas in 2012, in Harrison v. International Catastrophe Insurance Managers, LLC, reached a different conclusion when considering damage from Hurricane Ike. The court said that any part of the damage caused directly by a covered cause must be paid. However, ACC language was not discussed in Harrison, and it is not clear if the policy did not contain such language or the court used another analysis for a different reason.
It is clear that there is no one accepted version of how to interpret ACC clauses or what constitutes one loss from multiple causes.
Rossmiller is a partner at Dunn Carney Allen Higgins & Tongue LLP in Portland, Ore, where he specializes in insurance coverage litigation and advice. He has written extensively about insurance disputes relating to hurricane damage.