CORBAN v. USAA – THE 1500 DAY GREEK TRAGEDY
Pardon the obvious patronage, but it’s fitting that Slabbed pay homage to the dedicated lawyers and astute circuit judge who were involved in Corban’s journey to the Mississippi Supreme Court. FOR THE PLAINTIFF: Judy Guice; Clyde Gunn; Richard Phillips; Christopher Van Cleave; Neil Harris; William Corban Gunn. THE CIRCUIT COURT OF HARRISON COUNTY: Honorable Lisa Dodson.
Yesterday, October 8, 2009 – exactly one thousand five hundred (1,500) days after Katrina – the Supreme Court unanimously ruled that the Harrison County Circuit Court erred in applying the Fifth Circuit’s interpretation of an ACC clause. First, when I say “erred,” that doesn’t mean the Judge botched it. She didn’t. As a matter of fact this particular Judge, Lisa Dodson, did exactly what a judge is supposed to do in this situation – defer. Asked to rule on competing summary judgment motions, Judge Dodson was forced to chose between the devil – in this case 5th Circuit Judge Edith Jones – and the deep blue sea – our own Supreme Court. She did the right thing, though it meant walking with the devil a while. More on “Dodson’s dilemma” below.
First, let’s de-bone Corban. The decision says the ACC clause cannot be used to defeat a wind loss, unless the insurer, by a preponderance of the evidence, first proves that wind and water acted indivisibly, and “contemporaneously converged” in causing the loss. Second, the Court trashed the “in any sequence” language in the ACC, finding it “ambiguous.” So, post Corban, “Mississippi Insurance Law for Dummies” might read something like this: “in Mississippi, the ISO-type ACC clause does not apply to all-risk policy losses, and can’t be legitimately invoked, except in one rare instance: when the loss was caused by the indivisible forces of wind and water, and the insurer can prove it.” In a word, Corban says “you get the loss you bought.” But, as astute Bam Bam readers will see, there’s still a problem.
The heart and soul of Corban is on page 22 of the opinion: “The ACC clause applies only if and when covered and excluded perils contemporaneously converge, operating in conjunction, to cause damage resulting in loss to the insured property.” See the problem yet? Let me re-write the quoted part putting “wind” and “water” where they belong:
“The ACC clause applies only if and when [wind] and [water] perils contemporaneously converge, operating in conjunction, to cause damage resulting in loss to the insured property.”
A bedrock principle of all insurance law is the concept “coverage follows premium.” It means you must get what you paid for. Underwriting, rate making and to an extent, actuarial science are inextricably tied to this premise. So if you bought coverage for the peril of wind, the insurer has to pay you for wind losses, no matter how they occur. When the Court holds that the insurer can exclude a loss caused by the convergence of wind and water, they’re throwing away part of your premium, and coverage you paid for. Always, always, coverage follows premium, for to hold otherwise is to say your premium bought nothing. Coverage follows premium may have been what the Corban Judges were subconsciously thinking when they talked about wind losses “vesting,” and the duty to indemnify:
“The insured’s right to be indemnified for a covered loss vests at the time of loss.”
(Corban, p. 17)
“Therefore, this Court concludes that the ‘in any sequence’ language in the policy may not be used to devest [sic] the insureds of their right to be indemnified for covered losses.” (Corban, p. 21). [NB – “devest” is a word, albeit archaic. I’m assuming but not sure they meant to say “divest”].
Corban should have taken the “vesting” concept one step further: coverage follows premium, and vests when premium is paid. Neither party is disadvantaged when the policyholder gets exactly what he paid for and no more, and the insurer excludes only what the policyholder didn’t pay for. Because the insurer sold coverage for the peril of wind, and collected premium for the peril of wind, they must pay for losses caused by the peril of wind, even if it “indivisibly” combined with another peril. The insurer cannot exclude what they’ve taken money for. If they purposefully wrote a convoluted exclusion wherein covered peril losses combine with and can’t be separated from excluded peril losses, it’s a problem of their own making. They still must pay.
But let’s go back to “Dodson’s dilemma.” Thanks to some asinine plaintiff lawyering, the first Katrina case to ever reach an appeals court on the ACC issue was the insipid Leonard v. Nationwide fiasco. The 6 day bench trial, an absurd dither over $1,228.16 in wind damage to a Pascagoula policeman’s home, was decided by District Judge L.T. Senter on August 15, 2006. This fubar put in Nationwide’s hands the power to run the ACC issue up to the 5th Circuit before any other appeals court, preferably our own, could examine it.
While Katrina litigation was red hot, with millions in claims being decided every day, there were two appeals courts capable of “final say” on the ACC clause – the corporation loving 5th Circuit run by the notoriously biased Edith Jones, or Mississippi’s Supreme Court, whose judges would one day make eye contact with voters. Pretty easy decision, right? Nope, depends on who’s doing the deciding.
Anyhow, Nationwide races Leonard up to the 5th Circuit and guess where it’s gets assigned? Predictably, the 5th Circuit writes a hideous and preposterous decision finding the ACC shipshape. I hate to think of the thousands who lost their homes and entire net worth when this insidious ruling came down. In effect, it said: “it doesn’t matter that you bought and paid for wind coverage . . . the ACC says even if you had wind damage, if water was involved at all, you have no coverage.” So what in God’s name were the insureds buying . . . air?
Here’s a quote from the 5th Circuit’s Leonard opinion. You be the judge:
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.” [italics added].
A “tidal wave?” A “massive wall of water?” Good God, this is what it had come down to . . . a corporation coddling court that didn’t even grasp the physical facts, yet entrusted with the lifetime earnings of thousands of Mississippi residents?
Now you can see why Sheila Birnbaum says State Farm wanted to get a Katrina case up to the 5th Circuit as fast as possible. The way to avoid the 5th Circuit was of course not to let the tyrants get the first shot at deciding the ACC. So, the smart thing to do was take a case to the Mississippi Supreme Court first. After all, contrary to Edith Jones’ view, it is our state, and we get to make our own law. In fact, there’s a procedure where the 5th Circuit can side step the much ballyhooed “Erie-guess” they so love to crow about, and simply do what’s right and proper: certify the damn question to the court it damn well belongs in. It ain’t like the ACC issue was of minor importance, so how about letting our elected judges decide the fate of their own constituents? Didn’t happen of course so Judge Dodson was faced with a choice: apply the “law” of Leonard – and I use the term “law” loosely – or freelance, make her own ACC interpretation, and risk the Supreme Court’s criticism. She did the judicious and right thing. And our Supreme Court did the judicious and right thing, at least partially. But think about what happened in between.
It’s impossible to accurately calculate the dollar value of claims losses that have been improperly and illegally mishandled from August 29, 2005 to October 8, 2009 – a period of one thousand five hundred (1,500) days. There’s simply no way to total it up, especially when you try to get stats from the abysmal MID website, but I’ll take a stab.
MID’s numbers, which we know are woefully cooked and inaccurate, show that by October 15, 2006, roughly 13 months after Katrina, claims in Jackson, Harrison and Hancock alone reached $4.8 billion. http://www.mid.state.ms.us/disasters_storms/katrina_claims_county.aspx This doesn’t include wind pool, NFIP or even all reporting carriers. Every Coastal property owner who was insured received some version of an ACC denial letter, reciting the ACC clause as a basis for denying wind loss, if water was involved at all. And we know for example State Farm committed institutional fraud by illegally modifying their policy with an extrinsic memo not even part of the policy: the co-called “wind water protocol.” Using only the these numbers for the first year after Katrina, if this $4.8 billion total is 20% off because of false and illegal ACC denials, then $966 million dollars in claims benefits went unpaid.
You see now why I call it the 1,500 day Greek tragedy.