The ACC Bee Is Still In My Bonnet

ACC, the anti-concurrent cause issue, is burning up my head again. With health care insurance all the rage, it don’t hurt to remind ourselves how Big Insurance grew to be cracked-out body slammers. Most people don’t know that way back in 1945 the McCarran-Ferguson Act exempted Big Insurance (“Big-I”) from federal anti-trust law so long as long as the states “regulated” insurance. What a farce. Big-I and ISO hand out cash Tootsee Rolls to puppet commissioners and presto, before you know it, we’ve got regional, full-blown monopolies. Take health coverage: Wellpoint controls 71% of the Maine market; Blue Cross controls 90% of the North Dakota market and 100% of the Alabama market. All that said, keep your fingers crossed, the House Judiciary Committee (Senator Leahy) introduced an amendment to the health bill which would strip Big-I’s anti-trust exemption.

George Dale
George Dale

But, let’s revisit the magnolia ACC a minute. In prior posts, I talked about how Nationwide (probably with ISO’s help) quietly slipped the ACC into Mississippi in the ’80’s. By “slipped,” I mean they submitted a new policy form to the Commissioner for approval. Natch, it was instantly accepted. Recall, Mr Commissioner was indicted in ’94 for taking bribes from Big-I, but never went to trial. Undaunted, a mere 5 years later the legislative PEER committee caught him approving rate requests for State Farm, Allstate, Nationwide et al without any actuarial review. Over 380 rate requests, 59% of all, weren’t even looked at by actuaries.

MID Peer Report

Lee Harrell

  Some of you may recall that Dale’s deputy commissioner was the one who incessantly chatted with sycophantic law clerks overseeing Katrina, and probably caused the so-called “MID mediation plan” to be crammed down the throats of Katrina homeowners. Using Dale to the fullest, State Farm employed this sham mediation procedure to defraud hundreds and perhaps thousands of insureds. Evidence was produced showing State Farm staged the mediations in advance and actively concealed material evidence from homeowners during the “mediation” process. Nonetheless, the federal court eventually ruled the settlements were mutually consented to, and binding. Bam Bam readers en garde! You don’t need a law degree to see through this nonsense. A person can’t consent to something he doesn’t know exists. When one party withholds material evidence from another, there is never mutual consent. Don’t ever let anyone tell you different.

So, given this refresher on Big-I, ISO and the puppet commissioners, no one should be surprised that Dale rubber stamped the ACC policy form. And, I just bet ya’ if you went digging you’d find there was no rate reduction when the first ACC policy form was approved.

Second, we all know the story of why Big-I came up with the ACC – to nullify the efficient proximate cause (“EPC”) rule, and overwrite state law. Mississippi, like most states, followed the EPC rule. Now, if you or I tried to write a contract that violated Mississippi law, like making the statute of limitations a single year instead of 3, it would be struck down as violating public policy. The ACC policy form should never have been approved because its sole purpose was to overwrite Mississippi law, a clear violation of public policy.

With no actual state regulation, and 100% anti-trust exemption, the 900 lb. body slamming gorilla was about to come of age. Once Big-I realized it could manipulate puppet commissioners through ISO, and hijack legislatures with boatloads of lobbyist cash, there was simply no reason to let a carload of state court judges “rule” the day. Big-I reasoned: “look, just because the courts in a particular state claim “x” is the law, doesn’t mean we have to follow it. We control the market place, not them. With the stroke of a pen, we can put 15,000 contracts in the in the market tomorrow, saying whatever we want them to say. So, why should we cower to a gaggle of state court geezers just because they say “x” is the law? Hey, maybe we think it ought to be “y”. . . and guess what Yo Honors . . . we write the policies.”

Now to be sure, there was a calculated risk in this because those days intellectually honest courts were the norm, and America hadn’t yet succumbed to the third world practice of “purchasing” judges. (This really upticked in the Bush/Rove reign). But when Big-I considered the odds that a single case would reach the supreme court on an ACC issue, and also result in a bad ruling, vs. putting thousands of ACC policies in the market before anyone even noticed . . . hell, this risk was well worth taking.

So if Big-I could get the ACC policy form approved by Mr Commissioner, the idea was to scatter ACC policies all over creation before anyone caught on that it violated state law. ISO’s job was to shuttle the new ACC policy form to virtually every state, and see how many puppet commissioners they could get to approve it.

Some readers may pause and wonder . . . what was the EFC bugaboo anyway . . . why was Big-I so worked up over “efficient proximate cause?” Suppose heavy snowfall causes a roof collapse, but on inspection, the rafters were rotten too. What “caused” the loss – snow or bad timber? If snow was a covered cause and defective timber an excluded cause, we got ourselves a problem. Courts called this “concurrent cause” and decided if snow was the “efficient cause,” i.e., the one that set everything in motion, the whole loss was covered. McKinsey consultants told insurance execs that killing concurrent cause would singlehandedly result in windfall profits.

So, the ACC was designed to eliminate the concurrent cause rule. As to Katrina, this meant doing away with coverage for water damage. Given that the entire P&C profit model is driven by Cat (catastrophe) cycles – not the number of house fires in Des Moines – excluding water damage would bring massive profits for insurers. There’s no badder ass Cat event than a hurricane. Hurricanes are packaged wind and water cyclones, delivered as a smack down, single loss event. Fire is another single loss event made up of flame and smoke. McKinsey had a red hot idea: “who says a hurricane can’t be split up into multiple loss events . . . he who wields the pen, rules all.” With the ACC working to exclude water damage, a hurricane could be artificially cut into two losses, one wind, one water. And, by excluding water damage, a huge part of the loss could be sloughed off on somebody else. (Either the insured pays from his own pocket, or, if he has federal flood coverage, the US Treasury takes the hit). Wait, there’s more . . . guess who decides the payment of flood coverage?

I think Bam Bam is done here, my bonnet’s clear, but you gotten be awestruck by all this. Just we consider the societal cost of ignoring a kept man and herd of free ranging predators running a risk transference racket . . . oh crap, there goes my head again.

16 thoughts on “The ACC Bee Is Still In My Bonnet”

  1. Great post once again Bam Bam…this one I’m going to have to read twice just to capture that big picture.

  2. “Now, if you or I tried to write a contract that violated Mississippi law, like making the statute of limitations a single year instead of 3, it would be struck down as violating public policy. The ACC policy form should never have been approved because its sole purpose was to overwrite Mississippi law, a clear violation of public policy.”

    I’m hung up on your conclusion that the EPC doctrine is “Mississippi law.” I thought that In Mississippi the EPC doctrine is just a judicial doctrine, and not a statutory law. If that is the case, as I think it is, then the legislature has not determined that the EPC is a matter of public policy. Accordingly, since judges don’t make law — they interpret them — the EPC is nothing more than a doctrine used in causation analysis.

    And the reason you can’t contract around the statute of limitations in Mississippi is because there is a statute expressly forbidding it. In other states, in the absence of such a legislative pronouncement, you can contract around the statute of limitations. Just like in other states you cannot contract around the EPC doctrine because it is a matter of statutory law as opposed to a judicial doctrine. See California for instance (i think).

  3. Curious raises a good question: can a corporation ignore judge made law (as opposed to statutory law) and contract around Mississippi decisions by dumping thousands of adhesion contracts in the market place? I think I recall how the state of Washington answered that question in Hirshman v. Safeco, and it sounded like a cannon going off below the Mason Dixon line – not just no, but hell no! Why would it be okay for a corporation to ignore our court decisions but not okay for them to ignore statutes. It’s not. As to the limitations issue, a state doesn’t need a statute saying “you can’t contract around our statute.” That’s the very essence of the public policy doctrine – private contracts are enforceable so long as they are not based on something illegal (like gambling) and don’t violate public policy. The state of Mississippi damn sure has a vested interest in seeing that corporate vampires don’t ignore its laws and decisions. Curious, I commend you to read the UM line of cases where time and time again insurers were struck down when they tried to contract around stacking decisions that held if you paid a premium, you’re entitled to coverage. Wickline is one that comes to mind.

  4. “Evidence was produced showing State Farm staged the mediations in advance and actively concealed material evidence from homeowners during the

  5. I wade into this subject reluctantly as I know I will be castigated for my post. However, there is a reality that must be addressed. The bottom line is if ACC is removed the cost of the product will have to go up to cover the additonal risk of water. The pricing of the current product is not based on that peril being covered.

    In MS this creates another issue as the residents of the MS Gulf Coast are not like most coastal areas. As Sop has pointed out, this area is not populated by affluent, retired residents. Adequate rates present significant challenges for the residents. In addition, the remainder of MS does not present carriers with a positive opportunity for profit. It is rural for the most part and the largest city is a disaster from a political standpoint.

    The bottom line is there is very little positive to attract additional carriers which could increase competition.

  6. Juriscribe, in the question I raise, it is immaterial whether the party seeking to contract around the EPC is a corporation or a live person. Anybody entering into an arms length transaction can contract to any terms they want, subject to some caveats, one of which you point out as the prohibition against contractual terms that violate public policy. Other than in those exceptional circumstances, a court cannot rewrite a contract just because a party does not like its terms in hindsight. I for one am thankful for that protection. Otherwise, a contract would mean nothing. On this much I really think we can agree.

    Now, as I see it — which I grant may not be well at all — the problem you’re really identifying, along with the author of the post, is whether an insurance contract should be treated differently than other contracts in that one party — particularly the insured — should not be held to the terms to which he agreed. Or perhaps your question is even narrower, should Mississippi insurance regulatory scheme be changed. I make no effort to answer those questions. That debate will outlive us all. But, to the extent that you think an insurance company bamboozled you with a sneaky contract, that you just so happened to agree to, and that may go against interpretive judicial doctrine but not state “law” or public policy, then we will just have to agree to disagree.

    As to the apparent controversy over judge made law and statutory law, nobody “ignored” judge made law — whatever that is. In this scenario, both parties agreed to contract to something other than the EPC doctrine. It is contract law, not criminal law. As for the statute of limitations, I think you will find that just about every case to have considered the issue has ruled that parties may contract to a different statute of limitations so long as the contract terms express a clear intention of the parties to do so and the legislature of the state of jurisdiction has not prohibited the modification of statutes of limitations by contract.

  7. Curious, it’s a source of endless wonder to me why people feel they need to defend the indefensible, but I surmise that’s a question for other professionals to answer, not lawyers. To show that insurance is exempt from every regulation known to man, predatory beyond anyone’s imagination, in effect capitalism on crack, should be enough. Somehow though, as the Glen Beck’s of the world so amply prove, it isn’t.

    Curious stated: “Anybody entering into an arms length transaction can contract to any terms they want, subject to some caveats . . . a court cannot rewrite a contract just because a party does not like its terms in hindsight. I for one am thankful for that protection.”

    I must say I’m “curious” as to why Curious resorts to the sanctity of contract, “arms length” bargaining, to defend an insurance policy never agreed to by anyone. First, people who “contract” with insurance companies don’t have arms at length. Their arms and hands are in their pockets, holding fast to their wallet when they’re handed a 25 page junk contract, which often they had no choice in purchasing. They haven’t negotiated a single word, or even signed the junk document.

    Curious has my curiosity up. I bet if we peeled back the mask, my money says Curious would argue its okay to embed an arbitration clause in an adhesion contract and claim people negotiated “at arms length and agreed” to waive their access to court. These same people claim, (God forbid under principles of “equity”), that it’s perfectly legal to bind third parties to an arbitration contract they didn’t even sign.

    Curious states: “Now, as I see it

  8. Juriscribe, like I said, we will just have to agree to disagree. I would like to clarify a point however. You say that when a judge rules that a sentence in a particular contract is in violation of public policy or is unenforceable, it is making law that parties are not free to ignore or else they’ll be denied relief in court. You are absolutely correct — and I will allow you your “judge made law” for the purpose of the argument. However, you seem to imply that they are then stuck, they can either accept that ruling or stop contracting in Mississippi. That is not true. What parties can then do — and what they do all of the time — is modify their agreements to remedy the public policy problem, or in the case of ambiguity, express the sentence in clearer terms.

    No court in Mississippi has ever ruled that parties’ circumvention the EPC doctrine violates public policy. Nor has any court declared that the EPC doctrine is the only method for determining causation. Prior to the adoption of ACC clause in contracts, what the courts said — in the absence of any language expressing the parties’ intentions with respect to a causation analysis — is that they will turn to the EPC doctrine. Since that time, parties have decided that they would like to have causation determined by a different method.

    Now, if a court wants to say that the parties should not be allowed to do that, then so be it. It will have to say that the ACC clause violates public policy or tag it with one of the other exceptions to the enforcement of contractual terms. However, no Mississippi court has done this to date, and until they do, the parties are free to agree to whatever they want.

    I don’t care to get into your arguments about an insured’s ability to “agree” to a contract. They pay premiums and get coverage in return. They are also made aware, or given that opportunity, of the contents of their policies. Your problems with the “agreement” goes back to insurance regulation, or perhaps the Mississippi Supreme Court. There may be merit there, but I don’t consider any of that to be the subject of our particular discussion.

    On a final note, it is difficult to have an honest debate with somebody who is obviously very angry. Your emotions seem so high that I don’t trust you will ever be able to see a side to the argument that is contrary to the interests of the insured. I simply posted to point out a principle of contract law. Nothing more. We might disagree on what is should be, but we shouldn’t disagree much on what it actually is.

  9. Curious, as long as we’re dialoguing, as TA pop psychologists would say, I’m ok and you’re ok. I don’t mind a bit that there’s disagreement.

    Your point on “what parties can then do” is well taken. The right to contract means nothing if parties who stepped on public policy can’t regroup, flex their muscles and craft an agreement they perceive as advantageous. This is healthy, robust and legal, and promotes an even higher goal — market competition.

    However, on another point, I must disagree. The fact that no Mississippi court has yet held that the ACC steps on efficient proximate cause, and illegally violates public policy, is not proof of the opposite assertion — that the ACC is legally sound. I think this is called an argument from silence, a recognized fallacy in logic. In the context of our discussion, this simply means that the absence of “x” does not prove the opposite, the existence of “y”.

    On another point, I must also disagree but, I don’t mind a bit that you assert this. You contend it’s hard to debate someone “who is obviously very angry,” and for that reason my arguments must be flawed. This too is a fallacy of logic known as argument ad hominem. When we try to disprove another by attacking the person, the messenger, we’ve strayed from the debate, and confused speaker and issue.

    On the other hand, I can understand your concern that an angry person, assuming I am, may be unable to “see a side to the argument that is contrary” to his interests. I tend to agree with that, but I guess the answer is simply, angry or not, we all have to accept or reject a position based on its merits, not the demeanor of its speaker. We must take our opponent as we find him/her, not as we wish them to be. It’s good to remember this one too, which swings both ways: listen to your enemies, for they will tell you your faults.

  10. Curious, you’ve made me same. I’m not as well versed in the law as you and juriscribe but I’ve read a good bit about causation theory.

    The ACC is a created problem that was intended to be a solution. In some situations, it might be; but, the underlying problem is replacing direct cause analysis with efficient proximate cause analysis.

    The problem created by the ACC appears to be one of practical application. In other words, unlike the EPC, it’s not a “one size fits all” theory as there are certain events that by definition, have current forces at play, hurricane being one – and the practical application of the ACC in that context is exactly what Judge Senter said, illusory coverage.

    In an attempt to what would be out and out fraud – selling coverage for a hurricane with the ACC clause controlling – the insurance industry attempted to define its way out of the box by calling a hurricane a windstorm. A hurricane, however, is a cluster of thunderstorms and you can’t contract out that reality without creating the legal nightmare we have today.

    Katrina proved that when you develop problem-focused solutions, you create more problems. McKenzie was given the task of creating problem-focused solutions; hence, the expected outcome could only be more problems.

    As an alternative, I’m a big believer in futurist strategies – solutions that transcend problems and create a new and better reality.

    In that light, the question in my mind is: if our goal was an insurance industry that was profitable to operate while providing its customers with the property protection necessary to maintain personal and public economic security, what would it look like and how do we get from here to there?

  11. Juriscribe,

    Regarding the ACC clause and public policy, I agree that the absence of evidence is not evidence of absence. But that is not what I meant. I may have worded it poorly, assuming you were aware that Mississippi courts have considered the State Farm ACC clause, found it to be unambiguous, and given that opportunity and examination, did not rule that it violates public policy. See Boteler, 876 So.2d 1060 (dealing with the earthquake and not flood exclusion, but addressing the operative language of ACC).

    Further, I wasn’t making an ad hominem attack. I was addressing your credibility, not the validity of your arguments. In other words, I questioned your sincerity in a real, honest debate, because I was under the impression that you are not interested in a real, honest debate but are rather interested in seeing one side succeed at any cost. Ad hominem attack would be me attacking the substance of your arguments (as opposed to your credibility as the arguer) by pointing out some perceived and irrelevant flaw in some other character trait of yours. In any event, I hope you do not take that personally. I really was only ever referring to my perception of the tone of your comments.

  12. supsalemgr: To me, your comment is a market based argument and it brings to mind some of the intrinsic problems with monopolies. If I may paraphrase, your point is something like this: “we can’t get (or afford) coverage as it is, so what’s the point in castigating insurers for writing concurrent causation out of our state law.” You point out: “The bottom line is if ACC is removed the cost of the product will have to go up to cover the additonal risk of water.”

    I’m going to offer a different way of looking at this, but no offense intended. When you say the “product will have to go up to cover the additional risk,” that’s making an assumption. Frankly, it’s an assumption I’ve never bought into. Why is the insurance industry — but no other industry in the US (other than dairy farmers maybe) — entitled to a guaranteed profit? Under free market rules the insurance industry like any other enterprise must profit or fail based on meritocracy, not monopoly. Big insurance tells us “now if you want full coverage, well now, that’s different, we can provide it, but not at this cost.” Isn’t that kind of like a car dealer saying: “Charlie I’ve already sold you a car . . . but now you say it needs a steering wheel . . . hey, that’s different, we’re gonna have to go back through this deal.”

    The whole purpose of insurance is “risk transference.” If that’s missing, the contract is illusory, and no one’s societal interest is served. Here’s a constructive suggestion: repeal the anti-trust exemption and you’ll be amazed to see what risks big insurance can cover, and at costs you never thought possible.

  13. Curious, I understand the tone of my comments may offend some people. I have sorta reached a tipping point in public debate. I happen to think slang, mild profanity and even scatological verbiage beats the hell out of stick-in-the-mud pretense, which so far has failed to advance humanity an inch. I accept this with full knowledge that some people, including intelligent ones, may for reasons of acculturation be offended, and driven away. I suppose it’s the cost of doing business.

    Nota Bene: I’m aware of Boteler but find it narrow in application, constrained, and very poorly reasoned. Unless something’s changed since I looked, Boteler got no airplay when when the ACC was held to be ambiguous by Judge Senter’s Katrina rulings.

  14. State Farm also has a contract with NFIP in which it accepts a fiduciary responsibility to US taxpayers. Using ACC to bill taxpayers for all losses caused by the combination of wind and flood violates the contract.

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