Z is for Zurich and the company’s new web site that tells z-truth about the z-weather – a hurricane is a windstorm! The site also contains an excellent must-read publication, Zurich’s six-page Guide to hurricane emergency action plans.
We talk weather in the south. Nowadays, weather-talk is usually just polite conversation. However, for much of our history, ours was a weather-based economy and talking weather was talking money. Even in that context, no one ever thought of lying about the weather; but, somewhere along the way, something happened that gave birth to one of Sop’s favorite sayings – don’t pee on my leg and tell me it’s raining.
Policyholder attorney Chip Merlin briefly explained how Sop’s quip applied to post-Katrina litigation in a recent post about Zurich’s new website and admission:
Some insurance company attorneys have been arguing that a “windstorm” is only the “wind” part of a hurricane and not the entire tropical cyclone that has wind, storm surge, and everything else that causes damage from a tropical windstorm. Their clients know better, but it does not prevent defense attorneys from arguing this unsupported bad faith position.
In a follow-up post yesterday, Merlin explains why defining a hurricane as a windstorm is significant and, in the process, also helps me pull together a few thoughts about the unexpected risk of an all-risk policy following Hurricane Katrina:
Randy Santa Cruz, William Weatherly, and I came up with this idea while working in Mississippi following the devastation of Hurricane Katrina. I’ve attached a draft memorandum of law so others may use this argument with their own facts and policy language. Let me give you the Reader’s Digest version of this analysis.
The relevant policy language is fairly standard in most homeowner policies. The language regarding “collapse” caused by a “windstorm” is significant to this claim. “Collapse” is usually excluded under many insurance policies. However, it is then granted back as an additional coverage because it is “excepted” out of exclusions. This exception to the exclusions only happens if the “collapse” is caused by certain causes. One of those causes is “windstorm.” If a “hurricane” is a “windstorm,” and hurricanes are a combination of wind and flood, the logical reading of the policy is that hurricanes that cause complete destruction will provide coverage because the collapse language excepts the damage out of the “flood” exclusion. (emphasis added)
The text that follows is a rather lengthy discussion that includes the two related sections of a State Farm policy with an explanation of the interrelated provisions – and then it hits a knock-your-eyes-out bottom line:
Essentially, the provisions conflict, creating an ambiguity with respect to the additional “collapse” coverage. Courts routinely hold that conflicting language must be interpreted in the policyholder’s favor…The additional coverage for “collapse” allows coverage for a “windstorm,” not just for “wind.” (emphasis added)
More detail, naturally, is found in the linked memorandum of law, particularly in the section titled Undisputed Factual Background that explains the plaintiff’s property was covered by an all risk policy – a fact that becomes increasingly important as this discussion moves forward.
State Farm’s denial of…[Plaintiff's]…claims following the storm was based on a
cursory review of the insured properties, and was based on the so-called “anti-concurrent causation” clause and “water damage” exclusion of its policy. When State Farm denied coverage for…[Plaintiff's]… losses, she filed the instant lawsuit to recover damages, claiming a breach of the insurance contract, among other related causes of action.
Understandably so, [a]ccording to the estimates, the total replacement cost for the… property is $311,201.68. From there, the discussion moves to background that makes a direct link to Zurich’s a hurricane is a windstorm statement.
During the course of litigation in another Hurricane Katrina lawsuit against State Farm, this insurer’s claim consultant for the Southern Zone, Stephan Hinkle, was deposed (See Deposition of Stephan Hinkle, March 16, 2007, taken in Illing v. State Farm…attached as Exhibit “D”) Mr. Hinkle conceded in his deposition that the State Farm homeowners policy form provides an additional coverage for “collapse” caused by “windstorm”… Mr. Hinkle also conceded that State Farm’s policies and procedures consider “windstorm” and “wind” to be two different things…In addition, according to Mr. Hinkle, a common term for “windstorm” is “hurricane”, such as Hurricane Katrina…(document and link added: SLABBED)
In other Katrina litigation, State Farm has previously stipulated that Hurricane Katrina is a “windstorm”. (See Broussard v. State Farm…opinion on Rule 50 motions for judgment as a matter of law). (document and link added: SLABBED)
During the litigation, Forrest Masters, (“Masters”) an engineering expert for State Farm, was deposed. During the deposition, Masters admitted that during his site visit, there was not much information to work with in attempting to determine damage to the residence caused by wind. (see Excerpts of the Deposition of Forrest Masters…attached as Exhibit “E”.) Therefore, he used aerial imagery to look at the state of damage to other structures above and below the surge rack line. Id. Masters resorts to aerial imagery of surrounding structures to make a “reasonable
estimate” on “what happened.” Id. Further, Masters admitted that he had insufficient data to determine the amount of damage to the Schultz residence that was caused by wind driven rain. (…attached as Exhibit “E”) (document and link added)
The memorandum closes with with a summary paragraph that is quoted in part in the post. When read in total, however, Merlin’s already understandable enthusiastic response to the statement on Zurich’s website is even more understandable.
A “windstorm” typically implicates and involves some type of water damage. This Court previously noted that the use of a “hurricane deductible endorsement” creates an ambiguity when it is viewed in the context of the Policy’s “weather exclusion”, since the hurricane itself is a weather condition that would completely relieve State Farm of any coverage obligations if applied as State Farm sought. See Tuepker supra. Similarly in this instance, the coverage obligation for “windstorm” creates an ambiguity when looking at the exclusionary language at hand.
State Farm chose its words carefully,recognizing that a “windstorm” is different from “wind”. There is no question that the Policy’s confusing and ambiguous provisions require this Court to find in favor of its policyholder. The policy’s “collapse” coverage cannot allow State Farm to rely upon the limitation contained within the policy’s Losses not Insured section relating to “water”, or the policy’s infamous “anti-concurrent causation” clause.
There need be no concern as to what portion of…[Plaintiff's]…total loss and collapse involved storm surge or wind. As a matter of law…[Plaintiff's]…total loss is covered under the Policy.
The Merlin-Santa Cruz-Weatherly memorandum was filed over two years ago (July 23, 2007).
However, the only way I know to find out how many policyholders with an all-risk policy were slabbed by Katrina is to ask State Farm for the data.
According to Hinkle’s testimony, the company coded claims by type of damage.
However, other policyholders also had all-risk coverage. Although their claims would not be subject to the provisions for property that collapsed, the handling of their claims is very much a puzzle.
The missing piece is how so many with property near water had no flood coverage because they allegedly were to by their agent hurricane damage was covered by their all-risk policy. If there had been only one agent or one agency named, it would be less of a puzzle, if one at all.
Over time, cases like that have been reported from one end of the Coast to another; so, it is clearly was not just one agent or a single agency providing that assurance. In fact, it’s not even a single company. The question is why?
Holding the policyholder accountable for reading the policy does not answer the question. In fact, it begs questions: Did the WYO companies consider the NFIP competition to their more expensive policies and discourage sales or did they train their agents correctly only to then subject them to litigation by adopting a legal strategy that conflicted with their marketing strategy?
So many questions large and small remain; yet, only three days remain in the fourth year following the day Hurricane Katrina made landfall.