Key Mississippi Katrina ‘Wind v. Water’ Case Settled Out of Court

April 15, 2010

A Mississippi couple and the insurer they were suing over hurricane damage to their coastal home from Hurricane Katrina have settled their closely-watched case out of court. The terms were not disclosed.

The case, Corban v. USAA, dealt with what hurricane damage is covered by an “all risk” homeowners insurance policy with an “anti-concurrent” clause.

One of the Corbans’ attorneys, Judy Guice, confirmed to Insurance Journal that the case has been settled but declined to provide any additional information. “I have nothing to add,” she said.

The lawsuit by Long Beach policyholders Magruder and Margaret Corban had been scheduled to go to trial in circuit court next Monday. The circuit court had asked the state’s high court to clarify application of the “anti-concurrent” clause (ACC) in the Corbans’ policy in cases where both wind and water are factors.

USAA, which markets insurance to military families, and other insurers had argued that the policy covers damage caused by wind only, and that the ACC wording excludes coverage for damage caused by a combination of wind and water. Thus the policy, which covers wind only damage, would not cover damage caused by wind that was later affected by water from storm surge.

A federal court, the 5th U.S. Circuit Court of Appeals, had sided with insurers in a 2007 ruling that found the ACC wording excludes wind damage from coverage when storm surge contributes to the loss.

But in a 9-0 decision last October, the Mississippi Supreme Court gave the Corbans some hope. The state high court found that a policy may exclude hurricane damage when it is caused by a combination of wind and water acting together. But the court said that the ACC exclusion does not apply to the Corbans’ situation because wind and water had acted separately. The court said a jury must decide whether the damage to the Corbans’ home was caused by wind or water.

The Mississippi court ruling was significant because property insurance is governed by state, not federal, law. The upcoming trial would have applied the state ruling to the Corbans’ situation.

While the state court affirmed the flood exclusion provision found in most homeowners’ insurance policies, which expressly excludes coverage for hurricane driven water (or storm surge), it raised issues for insurers in cases where damage caused by wind versus water can be distinguished.

Under most “all risk” policies, a peril that causes damage is covered unless it is specifically excluded by language. Wind damage from a hurricane is typically covered while damage from flood or rising water, as opposed to rain water, in a hurricane is generally excluded by private policies but is covered under separate flood insurance policies issued by the federal government.

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