ACC not proximate cause of "peace of mind"

When they come up with an on-line 12-step program for bloggers, I’ll be signing in with a my name is nowdoucit and I google – and, suppose I’ll be required to admit that I went on an ACC binge after Proximo post this comment responding to my mention of the ACC clause in a post I put up today.

To win this argument one has to believe the insurer’s “sneaked” this language into the policies when AG Hood and others weren’t looking or that it is sooooo very deceptive that they didn’t know what it REALLY meant…Yeah, ACC is a bitch to understand but it wasn’t put in there the week before the storm hit.

Bitch to understand is right – just check that thread and you’ll see several comments from Brian Martin, including one that, when considered with the text from the State Farm wind/water protocol Proximo posted later, leads me to believe NFIP claims should have a different adjuster when an insured has other policies in place.

One certainty at this point is the ACC is not new. Brian confirmed that and so did Robert Hunter, director of insurance for the Consumer Federation of America, quoted in Home-Insurance Traps published by Consumer Reports.<span

“I knew the clause existed but I did not understand it, in part because it is so illogical. And I am an expert,” Hunter adds. “Imagine what consumers don’t know.”

Rather than imagine, I read Why Are Insurance Contracts Still Incomprehensible? posted on the TPM Cafe.

Much of this litigation and legislation turns on the problem that insurance contracts are filled with incomprehensible language that fails to put consumers and regulators on notice as to what is and is not covered.

Insurers learned of the storm-surge problem decades ago, and had the option of simply modifying their policies to say, “we don’t cover damage caused by hurricane storm surges.” Yet, you won’t find anything so straightforward in their contracts — most do not even mention hurricanes or storm surges in the exclusions at all.

An established legal doctrine called contra proferentum requires that courts resolve any contract ambiguities against those who drafted the contract. Commentators almost unanimously predict that “knowing that ambiguities will be interpreted in favor of the policyholder encourages carriers to use clear language.” Yet, contrary to this prediction, rampant ambiguities persist.

After providing a three-part explanation for the ambiguity, the author makes this noteworthy reference to Mississippi. (citations posted with the article)

As the Mississippi Supreme Court and many commentators agree, consumers buy insurance not just for “risk aversion” but also for “peace of mind”.

We haven’t had much peace of mind since Katrina. Frankly, I’m not certain when we will. I now believe that peace of mind and insurance litigation can not exist concurrently. In fact, insurance litigation may be the proximate cause of a lack of peace of mind.

The concurring cause rule (and efficient proximate cause rule) is a default rule of coverage. And, unlike mandatory rules or rules of interpretation, parties can contract around a default rule.

However, parties can only contract around a default rule of causation if they know there’s a rule and understand it’s meaning – some states actually share my opinion and consider the reasonable expectations of policyholders.

The law of causation is a prime example of the information few people know about and even fewer use when purchasing insurance…The rules of insurance policy interpretation should comport with common sense and the understanding of the parties to the contract. That way, insurers and policyholders are in a much better position to make sound insurance transaction decisions. In the case of causation theory, we would be well served by getting rid of “proximate cause,” “concurrent cause,” “efficient proximate cause,” and other jargon as a prologue to the development of a set of simple and cogent doctrines.

Some think it apparent from the language of the ACCC that the ACCC is intended to exclude not only concurrent causes, but also efficient proximate causes. It certainly feels that way at times and, understandably so, as insurers know that they can always deny that the ambiguity really exists, instead claiming that “logic” and “plain reading” settles the meaning of terms.

I’ve read enough at this point to understand the logic of those who work in the industry is very different from that applied by most policyholders. Since most who write on causation are lawyers that in somewhat equal numbers represent either the industry or policyholders, I have no doubt about the advantage the industry holds in negotiating claims and litigation – and, that insurance is a contract with performance after the fact; so, a risk exists for both the insurer and the insured.

I add to this knowledge the experiences of those on the Coast who were slabbed and the impact the current litigation is having on our courts and our communities.

The Deputy Chairman of Lloyd’s attributes the increase in litigation to “a lack of honour.” He writes that, “using the legal system to reduce a claim that an insurer or reinsurer knows ought to be paid is dishonourable.”

17 thoughts on “ACC not proximate cause of "peace of mind"”

  1. Cleaning up my notes and found this- the link is also source for table in the post. Will keep checking as I “clean” to make sure I’m getting everything up.

    In 1983, as a result of adverse court decisions in which insurers were forced to pay flood-related claims that insurers did not believe they were responsible to pay,
    the property and casualty insurance industry revised its policy language in the exclusions in homeowners

  2. Nowdoucit you have hit upon the reason our insurance model is broken. Hurricanes have three main sources of damage(risk) which need to be coveraged in a seamless manner. Those are flood, wind and storm surge. There is also the sub-risk of falling water IE rain.

    The task of the federal government is to ensure their is a seamless policy which allows responsible consumers the opportunity to pre-pay for all these risk needs PRIOR to an event such as a hurricane. The sharing of coverage and the LOW policy limits of the feds flood coverage is the problem.

    The feds are VERY powerfull. It is not wise to share a risk with such a powerfull entity and this is why the industry makes so many attempts to controll the feds actions. For its part the feds don’t take the actions necessary to protect consumers, industry and tax payers.

    So the game if you will is the feds in the form of Congress/White House want to do nothing while the industry wants to ensure its not stuck paying for risks to which it is not responsible or compensated.

    Historically the industry and government agreed to split the coverage of flood and wind in the late 1960’s when industry abandoned flood coverage. The informal agreement which was reflected in policy language was the consumer and tax payers would be protected as the policies were written in a manner that all wind or water damage would be covered.

    The insurance industry became very concerned after Homestead, Florida was wiped off the face of the earth that a hit to Miami could result in widespread bankruptcy for the industry. This risk was reduced by the ACC clause. The industry also didn’t want to be responsible for paying flood claims which is a real possiblity in areas impacted by storm surge–thus its desire to service the flood claims of the feds.

    Consumers need an insurance policy which will allow them to pre-pay their disaster needs thus removing the burden of CAT events from the tax payers, banks and non-paid insurance companeis.

    To his discredit the nations most experienced insurance commissioner didn’t know what the ACC entailed when he allowed its inclusion in policies for Mississippi (George Dale). So yes the concept of selling a wind policy and then excluding wind coverage is hard to understand. Throw in the language of “hurricane policy” and you have a great marketing ploy to ensure consumers don’t get alarmed when a very important part of their coverage is dropped. Of course, the fact the industry then went on to raise premium prices AFTER gutting the policies makes it a fraud to me. If you drop coverage than shouldn’t the policy price drop? If you stop putting engines in cars shouldn’t you sell the car for less? If you start selling milk by the half-gallon instead of the gallon shouldn’t the price be a little lower? Oh well no use crying over spilt milk.

  3. Thanks, guys. It could have been a book! I’m still “cleaning” and finding things I put aside intending to put up.

  4. I agree that a “hurricane policy” that excludes wind and water damage isn’t a “hurricane policy”.

    I guess I’ll never get over the insurance industry calling a hurricane a windstorm – good thing I’m not a judge because to me that’s the “fraud” and not a matter of semantics but a matter of science.

    Hurricanes are clusters of thunderstorms – I’ll find the link to the old post<

    Here’s link to interactive hurricane information on website of University of Illinois at Urbana-Champaign – great site and where I found hurricanes were clustered thunderstorms.

    Try it! New feature there is interactive hurricane tracker – register and follow Katrina.

    However, if policies were scientifically accurate, then it would not be possible to include the water/surge that creates flood-like conditions (not the distinction between flood-like conditions) and flood.

    I found a quote and think I finally let it go so I can’t quote and source it but it went something like this

    If a court won’t accept “the devil made me do it” then the insurance companies should not be able to exclude an act of God.

    (hope these corrections are the last! sorry for the problem)

  5. A few thoughts.

    The policies involved are for the most part residential homeowners policies which are not “hurricane policies” but which cover damages from a variety of causes (not otherwise excluded). I am not aware of any general trend for such policies to exclude damages arising from “wind”. The issue isn’t “whats the defintion of a hurricane” but whether the damage is a result of wind.

    The flood exclusion is intended to eliminate coverage for all flood whether from storm surge, rain runoff collecting on ground, levee breaks or whatever.

    It was not so much an issue of a coverage being dropped as it was an intent not to provide the coverage originally.

    The “scientific accuracy” argument also has the disadvantage that all the coverage language is going to be interpreted by courts, who’s strong points are not necessarily scientific accuracy or determination. I suspect having courts determine “scientific accuracy” would not be a good thing overall.

    Also, keep in mind that ACC doesn’t apply just to floods. I recall the issue arising after earthquakes in, as I recall, Northridge, Ca. The carriers wanted to deny coverage based on policy exclusions for damages caused by earthquakes. Seems reasonable to me, but the court decided that where the claim was for damage arising concurrently from earthquakes and other causes, coverage had to apply. For instance, if the building fell down during the earthquake but the insured could identify any other contributing cause (defect in material, design failure etc) then the policy had to provide coverage. There again the response was anti concurrent cause language – trying to restrict coverage to what was intended.

    Finally, if insurance companies can’t exclude floods, earthquakes, mudslides etc., or an natural disaster, I doubt anyone would be able to afford the premiums.

  6. Here’s a brain twister: If you pay a low deductible for wind/fire coverage (i.e. $1,000), then why do you pay a significantly higher deductible (2-5%) as a “named storm deductible” formerly a “hurricane deductible” when the only thing covered relative to a hurricane is wind damage . . . for which you already pay a premium?

    In other words, if your house is valued at $500,000 and is destroyed by a winter-time tornado, your deductible is $1,000. But if your house is destroyed by a tornado spawned by a “named storm,” then you could pay as much as $25,000 before coverage for the same mechanism of loss kicks in. These are “insurance company rules,” and only this industry and its lawyers could try to explain this.

    I’ll give you a better one later.

  7. If insurance excludes all the low frequency, high severity events, what’s the point of buying it? People on the coast want to buy insurance that will cover hurricane damage. If insurers don’t want to offer that then they need to get the hell out of the way and let the government do it.

  8. Richard,
    It doesn’t have to make sense. They do it because they can. After every major diasaster, insurers threaten to leave unless states allow them to shed risk yet raise premiums. First, every state had to form a wind pool or similar plan so that companies could cherry pick. Next, we had to allow higher named storm deductibles. Now, the deductibles are higher, the state pools keep growing, insurers low-ball and delay claims payments, and yet the cry and cry about how victimized they are. This whole thing is scripted. A disaster hits and they all go into “hard market” mode and start shedding risk, raising rates, and threatening to leave markets unless they get their way. This is not a market.

  9. Nowdoucit – I concure with the board sentiment that your post was GREAT. Trahant would love to hear more examples of strange and off the wall insurance policy facts.

    I will add to my post later how the industry wants to address the broken insurance model for CAT hurricane coverage. It really is the whole ball of wax in terms of what the industry is doing post-katrina.

    All the claims and legal posturing by State Farm, Allstate etc. post-katrina are really just a dance with Washington, as in DC, designed to make things happen on the Hill. The dance began in earnest when the industry could not get their self-serving legislation through Congress prior to Katrina. The HO providers noticed that 911 sparked a very favorable “solution” to the commerical industries need for goverment help without government supervision.

    I think it would be helpfull to see exactly what the industry has proposed as the insurance model post-katrina. Luckily the III has a good handle on the proposal by Ed Liddy made at their annual convention held after Katrina.

    Remember the dance is how to get the Fed’s to formally take the risk, while the industry takes the premiums to the bank or the Bahama’s. There is also the aspect of getting federal help without federal supervision thrown in for good measure. The plan as articulated by Ed Liddy at the III’s convention press release was brilliant and cunning. It seems so brilliant infact that it could have only come from the mind of Hank Greenberg in my opinion but I have absolutely no proof of that opinion. I think it would be helpfull to see exactly what the industry has proposed as the insurance model post-katrina. Controll of the post-disaster political impact (blowback from the ACC)
    is the most important thing for the industry.

    Here are the main goals and objectives of the industry for a new insurance model as articulated by Ed Liddy
    at the III’s annual convention—

    1- Retain customer base.
    2- Limit risk assumed by industry to a known amount.
    3- Have the fed’s assume the “unknown risk” over a
    certain dollar amount.
    4- Have no additional federal regulation.
    5- By-pass the US Treasury thus escaping the one
    real vehicle Congress holds for investigating the
    industry—IE the US Constitution.
    6- Raise rates even though the risk has been
    reduced.
    7- Retain ACC as it is a nice political tool to bash over
    the heads of political types who might want to
    challenge the industry post-disaster.
    8- Take money held in more liquid (and
    historically less PROFITABLE) investments.
    Remember those retained earnings must be
    kept liquid to ensure the ability to rapidly pay
    claims post-disaster.
    9- Remove the risk of bankruptcy and earnings
    swings. This helps attrack more money to the
    stock due to the aging baby boomers. Baby
    boomers are less risk adversive and more
    dependant upon steady stock dividends thus the
    need to reduce the more cyclical earnings style
    of CAT insurance. Ever notice how low Allstates
    P/E ratio is?
    10- In the case of Liddy the industry wanted to have
    the entire country pay for the RE windpool without
    actually getting any real benefit from the payment.
    If you split the person who pays for something off
    from the person who benefits from the paying you
    have a ripe atmosphere for corruption in my book.

    There are probably more goals but those are main ones I’ve been able to figure out. Really the key road block to political movement in Congress is in, my opinion, the industries desires to retain its fed free lifestyle while getting the feds to pick up the tab for insurance. The proposals are not to pick up the risk held by consumers but instead to pick up the risk held by insurance companies who write policies for consumers. Key point to note as none of the industry proposals, except the most recent one by Travelers, actually assumes risk currently not covered by insurers but held by consumers and tax payers.

    Its just darn near impossible to get a politician to pay for something they don’t regulate. The fact the industry was able to do so after 911 is amazing in my book.

    What does all this have to do with the ACC? The ACC was the main “fix” the industry crafted to address the problems our currrent insurance model holds. If you understand how one-sided and damaging this fix is you are well on your way to understanding what needs to be done for tax payers, consumers and the industry.

  10. Written By:george dale
    On August 7, 2008 11:28 AM

    This misinformation by the Attorney General is unfortunate.

    The fact you couldn’t tell what the ACC was when you agreed to allow it in my insurance policy is even more unfortunate Mr. George Dale. You once were from the Coast, what happened?

  11. justme, good points and good reminder that I need to explain mine better.

    quote here: “reasonable expectations” of insurance coverage lie at the core of insurance contract interpretation

    IMO, a good case can be made that people on the coast who purchased hurricane coverage by that name or as a windstorm policy would have had a “reasonable expectation” they were covered for damage from wind, water, and surge – the three parts of a hurricane.

    Unless it was specifically pointed out that “surge” was considered a flood and required additional coverage, then the “reasonable expectation” of some number of them will exceed actual coverage – regardless of what the policy says.

    It has to do with reading comprehension – I had some data showing the very small percentage literal reading is of actual comprehension – will try and find it on thread here or in my files.

    That’s why it matters what a hurricane is called – a windstorm is a windstorm but a hurricane is that and more. Telling someone with a hurricane policy that only wind is covered is like telling them black is green – it’s incomprehensible.

    You’re definitely correct in saying ACC applies to more than just hurricane coverage – I believe it’s all property coverage, and not just weather related damage

    Insurance has to be specfic – so exclusions are expected.

    The problem is we’re fast getting to the point where a policy provides more risk than coverage for the policyholder.

    If the industry can’t provide the coverage people want at a price they can afford and are willing to pay, then what does it offer and how is it a viable business?

  12. Thank you Steve. It’s a real challenge when insurance is not your native language, so to speak.

    You’ve got an interesting perspective – the ACC as a political strategy – a bleed ’em and they’ll beg for more, huh. stranger things have happened but it’s a little kinky for a bunch of suits.

  13. Steve:

    Real good stuff. The political undercurrent of all of this, as discussed by you and Brian Martin, is lost on schleppy lawyers like me who spend their days making claims adjusters read the ACC, then the Wind/Water protocol, and then trying to make sense of their confounding testigarble.

    In the last Katrina case I tried, I truly believe the ACC, as freely argued by Lafayette Ins.Co. to the jury, resulted in the small recovery my clients were awarded. They truly took the position, “If flood water touched it, no matter what happened before, it is not covered.” From the industry’s perspective, that’s how the ACC is supposed to work.

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