The Fifth Circuit yesterday, in the Nationwide v. Leonard appeal, reversed Judge Senter's ruling that the anti-concurrent cause language in the Nationwide homeowners policy was ambiguous. Here's an .
The Fifth Circuit reached the result I agree with, but the court said too much. Its reading of the contract language was right, but its causation analysis was not entirely correct. The court unnecessarily spent time talking about storm surge as involving concurrent causes -- covered wind and uncovered flood. In saying this, it was as if the court didn't pay any attention to its later analysis of the flood exclusion, which clearly classifies "flood, surface water, waves . . . whether driven by wind or not" as excluded water damage. As the court said, storm surge has been held by many courts to fall within this exclusion, and all things within the definition of the exclusion are water damage, or if you prefer, flood. All these things, therefore, are one cause.
So we can see the court is dead wrong when it analyzes storm surge as being the product of concurrent causes. Perhaps in a philosophic sense it is correct, perhaps not, that wind that drives waves is two forces or two causes. In this philosophic sense, I still see flood as flood, whether it human negligence, earthquake, wind or some other factor can be said to be in the causal chain, but I can see the argument for the other side. But we are not talking about philosophy with this case, we are talking about the contract language. There is absolutely no need to discuss storm surge as involving concurrent forces once you accept that it is flood. By definition, it becomes one force, one peril, one cause. It will only confuse others, and perhaps the court itself, by trying to get fancy with a causation analysis that can't lead anywhere.
Before looking more closely at this causation analysis, let's recap the underlying case and its reasoning. The Mississippi home of Paul and Julie Leonard was extensively damaged by high winds and then by storm surge flooding during Hurricane Katrina. Nationwide paid the Leonards some $1,667 for wind damage, and said the rest of the property damage was caused by excluded flood. In the end, in a bench trial Senter agreed with that formulation with some minor revisions, and he also said the Leonards' insurance agent was not liable for alleged misrepresentations, which the Leonards would not have been justified in relying upon had he made them, because the policy clearly excluded flood damage. Senter also got it right that storm surge is just another name for excluded flood, and the fact that wind is involved does not change the fact it is defined as flood -- one cause, in other words. However, where I have differed with his underlying opinion is that he said the anti-concurrent cause language that leads in to the flood exclusion was ambiguous, because, in his view, it would mean that even just an inch of flood would remove coverage for a vast amount of wind damage.
Here is the anti-concurrent language that precedes the flood exclusion:
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. . . .
Now, perhaps where Judge Senter went wrong was in not seeing the hypothetical wind damage and the hypothetical flood damage as causing separate "loss to property," as the clause says. (Remember also that the coverage grant of the policy covers "accidental direct physical loss to property"). If they cause separate damage or loss to property, they obviously have not caused the same damage and each is a single cause of a single property loss. The overall damage to the house itself is not the loss, in this sense, as long as individual separate forces inflicted unique damage. In the hypothetical that Judge Senter posed, anti-concurrent language would not come into play, nor would the situation he worried about -- lack of payment for covered wind damage -- have occurred. Even if it was relevant, the anti-concurrent language merely says that the excluded causes following it are excluded regardless of other causes, it does not say that property damage that is separately caused by a covered cause becomes uncovered merely because it occurred at the same time as the other damage. Concurrent does not connote proximity in time, it means that two causes combined to create the same damage, and the damage would not have occurred but for each. In the sense the policy speaks of, concurrent therefore means multiple causes of the same damage. Where single causes result in single damage, even if they occur at or about the same time, there obviously are no multiple causes and it is not necessary to consider the anti-concurrent cause provision.
I had hoped this would get straightened out by the Fifth Circuit, but the court did not make these observations and furthermore, it also got part of the causation analysis wrong. Look at this passage from the Fifth Circuit's decision:
The inundation of the Leonards’ home was caused by a concurrently caused peril, i.e.,
a tidal wave, or storm surge — essentially a massive wall of water — pushed ashore by Hurricane Katrina’s winds.
Later in the opinion, the court goes into an extensive analysis of how storm surge has almost always been viewed as flood, and that the language of the flood exclusion encompasses storm surge. So the court's use of the term concurrent is loose, inaccurate and not helpful. By its own logic, flood itself is a cause. You may say wind and water are the forces that make up one type of flood, storm surge, and I respond that under the contract it is nevertheless defined as one cause. So it cannot be concurrent with itself, it could be concurrent only with some other cause. If, on the other hand, storm surge did not fall under the definition of flood, then I could more readily see it falling under the operation of the anti-concurrent language. If you insist on seeing it as two causes, then one is covered wind and one is excluded water, and because they would combine to create the same damage, they could be analyzed as concurrent, except that concurrent is often considered, in the strictest sense, to apply to independent forces that operate together to bring about a result. Sequential forces are those, in this strict sense, that are dependent on one another, which is probably a better analysis. But that is all murmuring, because storm surge is defined as water damage and water damage is excluded.
In the end, the court got to the right result: it upheld Senter's verdict on damages, but corrected his reasoning about the ambiguity of the anti-concurrent language. Most of the court's opinion was lucid and admirably direct, however, its explanation of causation was not its shining moment and does little to clear up misconceptions and false doctrine regarding causation analysis.
Both Nationwide and the Leonards appealed from Senter's verdict, although somewhere along the way the Leonards' attorney, Dickie Scruggs, apparently decided that chances were pretty good Nationwide would get the ruling on ambiguity of the anti-concurrent language reversed. The Leonards then dropped their appeal regarding coverage of their homeowners policy, hoping that, without the damages being at issue, Nationwide would have no actual controversy on which to base its appeal. The Fifth Circuit gave this argument the skunk eye.
One final thing: the AP story above says that Scruggs vowed the Leonards will appeal. Really? They are going to appeal this thing to the U.S. Supreme Court? You know as well as I do the chances of cert. being granted on this case, an issue of state insurance law, are between slim and none, and slim just left town.
As you may know, I'm opposed to boring writing, in part because I have to read so much of it -- some days, I feel I would sooner visit a than read one more boring piece of prose. So I was happy to stumble upon this , in Risk and Insurance Online. This is some fine insurance writing, both informative and entertaining.
The middle market -- insureds that pay less than $5 million in annual premiums -- is where many insurers are returning in a big way, while trying to avoid premium cost-cutting to the extent it endangers financial solvency, as happened with a number of companies in the 1990s. Check out the article -- a good read, well worth your time. Here's a taste, from the end of the story:
This contest between the copycats who provide cut-rate commoditized products and longer-term players and their added value is telling of the entire middle-market picture, not just the fringes.
In that regard, maybe the market of 2007 is not so different than previous ones. So, then, will we be back in the killing fields in no time?
"We continue to do the stupidest things, we do dumb things all the time," says Mayers.
Others are more confident. "It would take a real true level of ignorance to get as stupid as we have in the last cycles," State Auto's Williams says.