From the archives: The Absurdity of Judge Jones’ Reasoning Manifested – New Wind-Water Developments (Corrected)

This morning I rose to see Anita Lee at the Sun Herald has a well written story concerning the involvement of the Mississippi Supreme Court in the Wind-Water controversy. The case in question is Corban vs. USAA which is before Judge Lisa Dodson in Harrison County Circuit Court. Judge Dodson recognizes a bad case precedent when she sees it as the Fifth Circuit Court of Appeals, specifically Judge Edith Jones, struck out into an area they clearly did not understand in their various interpretations of the anti-concurrent clause. The conflict involves the Fifth Circuit itself and their decisions in Leonard V Nationwide and Tuepker V State Farm. First I’ll excerpt Ms Lee’s story then we’ll provide some additional analysis.

The Mississippi Supreme Court is being asked to decide whether Katrina’s wind damage is covered when tidal surge contributes to the loss.

Attorneys filed the appeal Thursday in Corban vs. USAA Insurance Agency. USAA covered only $39,972 of damage to the Long Beach home of Magruder S. and Margaret Corban, whose policy exceeded $1 million in total coverage. Their home near the waterfront was a near-total loss, although portions remained standing.

The insurance agency cited policy language, called an “anti-concurrent cause clause,” that is interpreted to say wind damage is not covered when excluded tidal surge contributes “concurrently or in any sequence to the loss.”

In denying coverage, the insurance agency cited policy language, called an “anti-concurrent cause clause,” that says water is excluded from coverage “regardless of any other cause or event contributing concurrently or in any sequence to the loss.” The homeowners maintain wind damage that occurred hours before the tide surged ashore should be covered.

The Fifth U.S. Circuit Court of Appeals has upheld anti-concurrent language in Nationwide and State Farm policies, based on how the appellate court believes the state Supreme Court would rule. Because insurance contracts are governed by states, the state Supreme Court has authority over how the contract is interpreted.

“The court finds that such review will resolve issues of general importance in the administration of justice relative to critical legal issues present in Hurricane Katrina litigation,” Circuit Court Judge Lisa Dodson wrote in approving the appeal, which will be decided before the case proceeds.

Attorneys Judy Guice and Richard T. “Flip” Phillips, and the law firm of Corban, Gunn & Van Cleave, filed the lawsuit and appeal on behalf of the policyholders.

Our out of town readers will not recognize the importance of Ms Guice’s name. She has been an active part of the insurance story here on the coast, from speaking out against the second Scruggs-State farm global settlement which would have netted some policy holders less than the relative peanuts they were offered in George Dale’s mediation program to filing her own suit when a year of negotiations with her insurer failed to bring resolution to her claim. From the sound of Ms Lee’s story it appears the Guice-Phillips-Corban legal team is taking no short cuts in their approach to this case.

To understand the legalities behind the story we turn once again to Chip Merlin’s blog, where he provided real time insight into the problems with the Leonard decision.

In their rationale for upholding Judge Senter’s verdict, the 5th Circuit provides a less than stellar (okay really absurd) example of non-coverage that virtually all insurance companies issuing an all-risk policy would heretofore pay. After finding that the anti-concurrent causation language was not ambiguous, Judge Edith Jones went too far and provided the following:

“If, for example, a policyholder’s roof is blown off in a storm, and rain enters through the opening, the damage is covered. Only if storm-surge flooding – an excluded peril – then inundates the same area that the rain damaged is the ensuing loss excluded because the loss was caused concurrently or in sequence by the action of a covered and an excluded peril. The district court’s unsupported conclusions that the ACC clause is ambiguous and that the policyholder can parse out the portion of the concurrently caused damage that is attributable to wind contradict the policy language.”

Where did that come from? Virtually every adjuster and claims manager I have ever deposed with that similar hypothetical situation in a Katrina loss has said coverage would be granted under the all-risk policy for the full amount of the loss. Maybe Judge Jones and her colleagues know more about how to deny insurance claims than the people that could profit from doing so.

From a practical standpoint, where is there going to be any coverage if the flood policy has the typical exclusions regarding pre-existing loss or “roof leaks or wind-driven rain” as found in the National Flood Policy? Policyholders withall-risk and flood coverage under separate policies are left with the absurd result of having no coverage at all under this wrongly reasoned opinion. This has been the point of Representative Gene Taylor’s criticism of just such an interpretation and the reason why he so strongly believes that wind and flood need to be in the same policy and has so vehemently advocates the passage of, the Multiperil Insurance Act of 2007.  People will have no coverage whatsoever and that would be unconscionable when you buy insurance coverage that is supposed to cover a hurricane.

In finding that the anti-concurrent causation language  is not ambiguous, the Court completely missed a proper causation analysis…..

I also find the affirmation of the verdict to be correct and have stated so despite grumblings from other consumer advocates that argue that the flood caused by wind pushing the water, i.e. storm surge–was not excluded. But this opinion is simply wrong because it overstates how even the insurance industry contemplated the use of its anti-concurrent causation clause.

At an American Bar Association National Institute on Coverage, I delivered a paper entitled “Does this Insurance Policy Cover Anything? An Insured’s Perspective of the Late Twentieth Century All-Risk Policy“, American Bar Association, National Institute On Insurance Coverage, Orlando, FL, 1994.  I suggested that the anti-concurrent causation language rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the anti-concurrent causation language adopted by many insurance companies invited creative findings of excluded causes “directly, indirectly, in any sequence, or as part of or a result of a loss” so that a loss would be denied or threatened to be denied. This is exactly the type of decision and practical result I feared and predicted may occur from ignorant jurists not fully versed in the nuances of insurance coverage lore and history……..

Senter made the point that the Fifth Circuit missed, the insurance industry has heretofore no problem with paying for what damage wind does, despite a literal reading possibly giving rise to an absurd result. The example provided by Judge Edith Jones is an absurd result.

However, Judge Jones may have seen the error of her ways in Tuepker where a reasonable interpretation of anti-concurrent was found in the opinion.  However, the damage was done as Nationwide took the gift of Leonard and ran with it in Dickinson, denying coverage out of hand in a wind water dispute. Anita Lee again covered the case which was roundly ignored on the industry blogs as it represented a setback for the insurance industry. Here is an excerpt from Ms Lee’s story:

Nationwide insurance companies have gone too far in claiming they owe a Gulfport couple no more money for Katrina’s wind damage because their loss also involved flooding, U.S. District Court Judge L.T. Senter Jr. has ruled.

Senter ruled that Katrina’s wind and water acted separately and can’t be considered concurrent causes of damage excluded from coverage under “anti-concurrent cause” language in Nationwide’s policy.

“Nationwide has taken the position – for the first time in any litigation concerning damage sustained in Hurricane Katrina – that the anti-concurrent cause provision in its homeowners policy prevents any recovery for wind damage when the insured property also sustains substantial flood damage,” Senter wrote.

He said Nationwide’s interpretation is too broad. The 5th U.S. Circuit Court of Appeals upheld the policy’s anti-concurrent cause language in the case Leonard vs. Nationwide, Senter noted, but also found the Leonards could recover for damage caused by wind and wind-driven debris.

Senter’sopinion clarified why he believes wind damage is covered, even if tidal surge inundates a policyholder’s property: “In this situation, the anti-concurrent cause provision is not applicable and does not come into play because each force causes its own separate damage independent of the damage caused by the other even when the same item of property is damaged by both forces acting separately and sequentially.

“Wind and water are separate and not concurrent causes of the damage to the insured property.”

Senter’s opinion came in Dickinson vs. Nationwide. The Dickinsons, represented by Corban, Gunn and Van Cleave in Biloxi, are suing Nationwide for breach of contract and gross negligence. They are seeking policy limits, recovery for emotional distress and punitive damages.

Notice the legal representation overlap between Corban V USAA and Dickinson V Nationwide. What we are beginning to see is a well conceived legal strategy to roll back the terrible reasoning in the Fifth Circuit’s Leonard decision. For those interested we have the Dickinson ruling by Judge Senter here.

Of course this brings us back to Leonard and the manifest fallacy of the decision when compared to the opinion in Tuepker.  Once again Chip Merlin hits the nail on the head well in advance of the eventual ruling with his blog entry on Tuepker which I now excerpt:

Our firm filed an amicus brief in this case on behalf of Untied Policyholders. We have followed this case quite closely and I, along with several of our attorneys, decided to attend the oral arguments on Thursday, September 6th. Watching and listening to law being argued is a difficult task when you are used to being a player rather than a spectator. I found myself shaking my head and muttering. It is a grueling exercise to not answer questions when you have the feeling that the participants, especially the jurists, do not fully understand the law of a very specialized area with so much at stake. Neither Dickie or Zach Scruggs argued on behalf of their client, but I felt their selection of Chip Robertson was a great one. He correctly pointed out that Judge Jones’ example from Leonard is clearly wrong. He stated that ‘flood cannot be an ensuing damage because there has to be new damage for there to be an ensuing loss.’  Hopefully, this may be a basis for obtaining an en banc review.

The Court was quite concerned with the difference between the anti-concurrent causation language in the Nationwide policy in Leonard and that in the State Farm policy.

Mr Merlin Continues:

There is no fair reading of this exclusionary language that would compel a different result from that reached by the District Court with respect to the burden of proof and the fact that State Farm must provide coverage for damage that is not caused by an excluded event. Indeed, in discussing the lead-in language to the losses not insured section of its policy, State Farm conceded in its brief “(i)t plainly states that ‘any loss which would not have occurred in the absence of’ certain excluded events, including water damage, is not covered under the policy, ‘regardless of’ the operation or effect of other causes of the loss.” Under the Mississippi Supreme Court’s allocation of the burden of proof, State Farm then has the burden of proof to establish what portion of the accidental direct physical “loss which would not have occurred in the absence of” an excluded event.

Respectfully, I just wish this point had been made more forcefully in the oral argument. These Jurists are conservative by nature and do not want to deviate from the recent Leonard precedent. But, State Farm is having its attorneys argue out of a product and burden of proof that I am certain its claims management is well aware of-just to avoid a significant loss. As a student and critic of this clause for a long period of time, I actually think the State Farm clause may come closest to expressing the intent of what the industry wanted to say in the first place. From our perspective, it is a shame they will not honor the benefit of the all risk nature of the policy they sell when they cannot prove the storm surge exclusion.

Mississippi law is pretty clear:

“Where there is doubt as to the meaning of an insurance contract, it is universally construed most strongly against the insurer, and in favor of the insured and a finding of coverage. The basic reason that uncertainty is decided in favor of the insured is that the insurer prepares the policy and should not be allowed by the use of obscure or ambiguous exceptions to defeat the purposes for which the policy was sold. Thus, “in accord with the general standard of giving effect to the purpose of the contract, the rule is that provisos, exceptions, or exemptions, and words of limitation in the nature of an exception, are strictly construed against the insurer, where they are of uncertain import or reasonably susceptible of a double construction.”

It would seem that if the learned Judge Edith Jones cannot provide a correct example about how an anti-concurrent clause is supposed to work, then there is proof that there is some doubt about the meaning of the clause. Policyholders everywhere are praying that the Tuepker court will work hard at their decision and not simply rubber stamp a poorly reasoned decision in Leonard.

Should the Mississippi Supreme Court follow it’s own precedent in Universal Underwriters Insurance Company V Buddy Ford Lincoln-Mercury the result could dramatically differ from Judge Jones’ poorly reasoned Leonard decision. Mr Merlin hits the nail on the head, if the Chief Judge on the Fifth Circuit Court of Appeals can’t get her arms around the anti-concurrent clause then maybe it is truly ambiguous. The damage from Leonard is permanent, however, since the economics of the case mean it will not be appealed to the Supreme Court. (A reader just informed me that the case was appealed and the Supreme Court turned down the Petition for Certiorar this past Monday.)  In any event the defining battle that shapes the remaining litigation may well have begun in Judge Dodson’s courtroom.

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