Open mind, now – Hood’s September 2005 lawsuit against State Farm and others is the underlying legal action of discussions here and elsewhere about his recent recent settlement with State Farm.
Common perception seems to be Hood was grandstanding in 2005 and his recent settlement announcement was just his taking another bow.
Evidence suggests otherwise, however, and makes the case that Hood was standing on the law when he filed suit; but, take a look – first at the allegations Hood made in the lawsuit as summarized by the Insurance Information Institute.
Adam Scales, Washington and Lee law professor and U-Conn visiting professorformer chair of the AALS section on insurance (American Association of Law Schools), provided commentary: How Will Homeowners Insurance Litigation After Hurricane Katrina Play Out?The Key Dynamics, the Mississippi Lawsuit, and the Courts’ Likely Views.
Over a century ago, an insurance executive observed that, “the insurer proposes, but the court disposes.” As the nation reels from Hurricane Katrina and its aftermath, insurance companies and policyholders now living in shelters would do well to reflect on this fundamental characteristic of insurance law…
On its face, the Mississippi complaint is rather broad. In response to it, insurers suggest the suit is nothing less than an attempt to rewrite contracts after the fact. They note the irony that Mississippi regulators earlier approved the very agreements now claimed to be “unconscionable.”
Although it is unlikely that all of its claims will be upheld, Mississippi has a strong chance to blunt the force of the flood exclusion. For at the core of this dispute is the legal doctrine of “proximate cause.”
Proximate cause has long been the bane of law students required to learn it, and lawyers and judges required to apply it. Needless to say, it is an object of singular delight to law professors.
Proximate cause describes a relationship between events sufficient to trigger a legal consequence. So suppose a car accident leads to a rather unusual injury. The driver (and his insurer) may be liable if a court finds the injury to have been “proximately caused” by the driver’s negligence. Or suppose the “proximate cause” of a loss is something firmly excluded from insurance coverage; then the insurer is not liable…
Hoods lawsuit was filed September 15, 2005 and Scales commentary published four days later on the 19th. Almost a year later, August 2006, a New York times column, Katrina: Small Clause, Big Problem, suggests the proximate cause of problems Hood experienced with his lawsuit was the now all too familiar ACC clause.
Since at least the mid-1980’s, insurers have been putting into their home insurance policies “anti-concurrent causation’’ clauses that effectively eliminate coverage that insurers promise to provide when selling their policies. But most people skip over the legalistic language — if they read their policies at all. And until Katrina, there had never been such an outpouring of challenges.
“There’s no question that the anti-concurrent clause is bad for policyholders,’’ said Adam F. Scales, an associate professor who teaches insurance law at the Washington and Lee University School of Law, in Lexington, Va. “It’s not fair because it defeats policyholders’ reasonable expectations.’’
Insurers counter that they need the clause to protect themselves from being drawn into paying for floods, earthquakes or mudslides and other widespread calamities that are beyond their scope and that they specifically refuse to cover…
Robert P. Hartwig, the chief economist at the Insurance Information Institute, a trade group in New York, said the insurers priced their policies in the expectation that they would not be paying for damage in combination with flooding. Otherwise, Mr. Hartwig said, premiums would be much higher and some insurers might decide not to offer coverage on homes at all in certain areas…
The insurers say they spell out their terms of coverage in their policies. But even lawyers representing insurance companies say customers do not always understand the limits of their coverage.
“When you look at anti-causation language, it just doesn’t look that important,’’ said Randy J. Maniloff, a lawyer at White & Williams in Philadelphia who represents commercial insurance companies but is following insurance developments along the Gulf Coast. “They don’t appear to be words of substance. But they’re actually enormously important.’’
The insurers point out that in most states, insurance regulators approve the language in their policies. (emphasis mine)
That certainly was the case in Mississippi – and one of the reason’s then Commissioner George Dale’s close relationship with the industry became a major issue in his campaign for re-election and subsequent loss in the primary.
“The regulators look a lot more carefully at rates than they do at policy terms,’’ said Gary S. Thompson, a lawyer at Reed Smith in Washington who represents commercial policyholders but also follows home insurance issues. “It’s really the courts that cause insurance companies to go back and re-examine their coverage terms.’’
Obviously, Mr. Thompson was unfamiliar with the 5th Circuit! We haven’t seen companies re-examining their coverage terms – or their preference for the regulatory system quoted in my earlier post on Hood and the record.
While Hood’s ethics have been consistently questioned since he filed suit, what little mention I found of the the ethics of the ACC came from the highly respected Sam Friedman:
Litigation and policy debates among state and federal lawmakers have exploded over the controversial anti-concurrent-causation clauses in homeowners policies–which deny coverage for most, if not all windstorm losses when excluded flood-related damage is also involved.
Consumer advocates call the clause confusing at best, and at worst a “trap door” to deny insureds their legitimate coverage.
• Is the ACC clause ethical on its face?
• Has it been ethically-implemented by the industry in the wake of Hurricane Katrina?
• Is there anything that can be done to more fairly exclude flood damages without leaving policyholders high and dry after a windstorm catastrophe?
Have those questions been answered? I think not. Neither has the issue of regulatory change that changes law and goes undetected until a state’s chief law enforcement officer attempts to enforce the law.
UPDATE: Here’s a document that supports claims that Hood has been doing his job as the state’s chief law enforcement officer.