Monthly Archives: August 2007

Landry v. Citizens Property: Louisiana Court of Appeals sows confusion, messes up causation analysis in Hurricane Rita case

The Louisiana Court of Appeals handed down a decision yesterday in a Hurricane Rita case — one of my Louisiana friends called it "causation Cajun style."  I hope not: the court’s opinion is very confused on several causation issues, and this opinion, despite lingering for 29 pages, is remarkably opaque and seems to have some kind of allergic reaction to getting to the point.  

Here’s a pdf of the case, Landry v. Citizens Property Ins. Co.  Here is a pdf of the dissent, which is more to the point but makes just as little sense.  I spent much of last night writing about the Leonard v. Nationwide decision from the U.S. Fifth Circuit, and was going to leave this case for another day, but since I won’t be posting until Tuesday, I may as well say what I have to say today.

The case is about whether the Louisiana Valued Policy Law requires an insurer to pay the whole value of a house when a covered cause contributes to the total loss of the home, or whether the insurer must pay only the portion of the loss attributable to the covered cause.  Things start off badly in this decision and don’t get much better, and honestly, I’m not quite sure how the court answered the question.

Here are some things I see wrong with this case.  

  • The first sentence of the opinion contains several conceptual errors in discussing causation.  It poses the issue of whether the law requires full payment "when concurrent perils (covered and non-covered) combine, during the course of a single climatic event, to render the home a total loss."

 1.  The first error is that merely because a house is destroyed by two or more forces does not make the forces concurrent.  Property insurance does not insure against destruction of a house, it insures against direct physical loss to property.  Multiple forces can each cause separate damage to property.  In fact, in the overwhelming majority of Katrina and Rita cases involving multiple forces — wind and flood — they created separate damage and were therefore single causes creating single damage.  Concurrent forces are those that each contribute to the same damage, which would not have occurred but for one of the forces. 

2.  It talks of concurrent causes without ever again mentioning in the opinion that the policy at issue contained an anti-concurrent cause provision.  That’s like writing War and Peace and forgetting to talk about war. 

3.  The sentence talks of the perils "combine."  What if they didn’t combine, but instead acted separately, and the house was still destroyed? Does that make any difference?

4.   The sentence mentions "a single climatic event" as if that has anything to do with the causal analysis.  It doesn’t.  For one thing, concurrent perils by their nature are considered independent in origin and force, working together only to cause certain damage, which would not have occurred in the absence of each.  For another, sequential perils also need not stem from a single "climatic event." 

5.  There is no hint in this sentence or elsewhere that the court considered the possibility that the causes of damage to the house were independent of each other and caused separate, distinguishable damage.  The fact that I steal $10 from you and my brother steals $20 from you means you have lost $30, but it does not mean either that we worked together or that we caused the same damage. 

  • The court apparently did not want to say the Valued Policy Law requires a payout when a total loss involves a covered loss that is responsible for only a small part of the total loss. On the other hand, it didn’t want to say that where the covered loss is not completely responsible, the payout should be in proportion to the extent of the damage attributable to the covered cause.  So it came up with an absurd formulation involving efficient proximate cause.  The best I can figure this out, if there are multiple causes, the court is supposed to search for the dominant one and if that one is covered, the total value must be paid out.  Good Lord! Don’t they realize that the damage to the house was most likely two single causes of separate damage?  With single causation you don’t use the efficient proximate cause doctrine, which is only for multiple causes of the same damage.  Ah, you say, but the Valued Policy Law talks of total loss, so that creates a different causation matrix: the loss is, by statute, considered indivisible when it is total.  To which I say, even this court admits the statute is not a causation statute, it is only a value statute.  So that argument cuts no ice.
  • If the court is going to view the damage a unitary whole caused by multiple forces, what role does the policy’s anti-concurrent language play?  Does the statute overturn it? This would have been a question to ask and answer, but it is not mentioned in the opinion?
  • Did the court consider this absurdity? Consider this example: a house is 99 percent destroyed, one-tenth of the damage caused by covered wind and 90 percent by excluded flood.  The loss payout would be only 10 percent.  However, if the property is 1 percent more destroyed, so that the loss is total, the insurer will owe all the value of the house if the wind, apparently, is determined to be the efficient proximate cause.  Huh? Efficient proximate cause of what? The 10 percent, the 100 percent?  The formula suggests that if the wind is the dominant cause of loss, or in other words accounts for more than 50 percent of the damage, the total value should be paid out. But don’t they realize that saying that distinct damage occurred from a separate cause is incompatible with an efficient proximate cause analysis?
  • The court said the purpose of the Valued Policy Law was "to prevent insurers from placing  clauses and exclusions in the insurance contract which, in effect, would reduce or nullify their contractual responsibility to fully indemnify insureds for losses caused by specified perils."  (Emphasis in original).  No authority for this statement is given.  How does that square with the U.S. Fifth Circuit’s recent Chauvin decision, another Valued Policy Law case, where the court quoted another Louisiana court of appeal, the Fourth Circuit, as follows:

The legislative intent of these laws was to prevent over-insurance and other abuses, that is, to keep insurers and their representatives from writing insurance on property for more than it was actually worth.

A second reason for valued policy laws is to encourage insurers and producers to inspect risks and assist prospective insured in determining insurable value of properties  . . . . It follows that failure of an insurer to inspect a risk for valuation purposes can lead to over-insurance and can product a moral hazard as well.  In other words, if a building is insured for more than its actual worth, an insured might be indifferent about loss prevention.  This situation might even give an insured incentive to intentionally cause damage to his structure. 

(I’ve written about the Chauvin case on this blog, for more analysis and a pdf of the decision, just use the blog’s search feature).

That is not at all like the justification for the law given by the Louisiana Third Circuit in Landry.  Which do you think comes closer to the actual reason for such a law? 

Much more could be said, and maybe next week I will have additional points to make. 

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Nationwide v. Leonard: Fifth Circuit upholds anti-concurrent cause provision as unambiguous

The Fifth Circuit yesterday, in the Nationwide v. Leonard appeal, reversed Judge Senter’s ruling that the anti-concurrent cause language in the Nationwide homeowners policy was ambiguous. Here is a pdf of the opinion.  Here’s an Associated Press story about the decision.

The Fifth Circuit reached the result I agree with, but the court said too much.  Its reading of the contract language was right, but its causation analysis was not entirely correct.  The court unnecessarily spent time talking about storm surge as involving concurrent causes — covered wind and uncovered flood.   In saying this, it was as if the court didn’t pay any attention to its later analysis of the flood exclusion, which clearly classifies "flood, surface water, waves . . .  whether driven by wind or not" as excluded water damage.  As the court said, storm surge has been held by many courts to fall within this exclusion, and all things within the definition of the exclusion are water damage, or if you prefer, flood.  All these things, therefore, are one cause.

So we can see the court is dead wrong when it analyzes storm surge as being the product of concurrent causes.  Perhaps in a philosophic sense it is correct, perhaps not, that wind that drives waves is two forces or two causes.  In this philosophic sense, I still see flood as flood, whether it human negligence, earthquake, wind or some other factor can be said to be in the causal chain, but I can see the argument for the other side.  But we are not talking about philosophy with this case, we are talking about the contract language.  There is absolutely no need to discuss storm surge as involving concurrent forces once you accept that it is flood.  By definition, it becomes one force, one peril, one cause.  It will only confuse others, and perhaps the court itself, by trying to get fancy with a causation analysis that can’t lead anywhere. 

Before looking more closely at this causation analysis, let’s recap the underlying case and its reasoning. The Mississippi home of Paul and Julie Leonard was extensively damaged by high winds and then by storm surge flooding during Hurricane Katrina.  Nationwide paid the Leonards some $1,667 for wind damage, and said the rest of the property damage was caused by excluded flood.  In the end, in a bench trial Senter agreed with that formulation with some minor revisions, and he also said the Leonards’ insurance agent was not liable for alleged misrepresentations, which the Leonards would not have been justified in relying upon had he made them, because the policy clearly excluded flood damage.  Senter also got it right that storm surge is just another name for excluded flood, and the fact that wind is involved does not change the fact it is defined as flood — one cause, in other words.  However, where I have differed with his underlying opinion is that he said the anti-concurrent cause language that leads in to the flood exclusion was ambiguous, because, in his view, it would mean that even just an inch of flood would remove coverage for a vast amount of wind damage. 

Here is the anti-concurrent language that precedes the flood exclusion:

1. We do not cover loss to any property resulting directly or

indirectly from any of the following. Such a loss is excluded even if

another peril or event contributed concurrently or in any sequence

to cause the loss. . . .

Now, perhaps where Judge Senter went wrong was in not seeing the hypothetical wind damage and the hypothetical flood damage as causing separate "loss to property," as the clause says.  (Remember also that the coverage grant of the policy covers "accidental direct physical loss to property").  If they cause separate damage or loss to property, they obviously have not caused the same damage and each is a single cause of a single property loss.  The overall damage to the house itself is not the loss, in this sense, as long as individual separate forces inflicted unique damage. In the hypothetical that Judge Senter posed, anti-concurrent language would not come into play, nor would the situation he worried about — lack of payment for covered wind damage — have occurred.  Even if it was relevant, the anti-concurrent language merely says that the excluded causes following it are excluded regardless of other causes, it does not say that property damage that is separately caused by a covered cause becomes uncovered merely because it occurred at the same time as the other damage.  Concurrent does not connote proximity in time, it means that two causes combined to create the same damage, and the damage would not have occurred but for each.  In the sense the policy speaks of, concurrent therefore means multiple causes of the same damage.  Where single causes result in single damage, even if they occur at or about the same time, there obviously are no multiple causes and it is not necessary to consider the anti-concurrent cause provision.

I had hoped this would get straightened out by the Fifth Circuit, but the court did not make these observations and furthermore, it also got part of the causation analysis wrong.  Look at this passage from the Fifth Circuit’s decision:

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.

Later in the opinion, the court goes into an extensive analysis of how storm surge has almost always been viewed as flood, and that the language of the flood exclusion encompasses storm surge.  So the court’s use of the term concurrent is loose, inaccurate and not helpful.  By its own logic, flood itself is a cause.  You may say wind and water are the forces that make up one type of flood, storm surge, and I respond that under the contract it is nevertheless defined as one cause.  So it cannot be concurrent with itself, it could be concurrent only with some other cause.  If, on the other hand, storm surge did not fall under the definition of flood, then I could more readily see it falling under the operation of the anti-concurrent language. If you insist on seeing it as two causes, then one is covered wind and one is excluded water, and because they would combine to create the same damage, they could be analyzed as concurrent, except that concurrent is often considered, in the strictest sense, to apply to independent forces that operate together to bring about a result.  Sequential forces are those, in this strict sense, that are dependent on one another, which is probably a better analysis.  But that is all murmuring, because storm surge is defined as water damage and water damage is excluded.

In the end, the court got to the right result: it upheld Senter’s verdict on damages, but corrected his reasoning about the ambiguity of the anti-concurrent language.  Most of the court’s opinion was lucid and admirably direct, however, its explanation of causation was not its shining moment and does little to clear up misconceptions and false doctrine regarding causation analysis.

Both Nationwide and the Leonards appealed from Senter’s verdict, although somewhere along the way the Leonards’ attorney, Dickie Scruggs, apparently decided that chances were pretty good Nationwide would get the ruling on ambiguity of the anti-concurrent language reversed.  The Leonards then dropped their appeal regarding coverage of their homeowners policy, hoping that, without the damages being at issue, Nationwide would have no actual controversy on which to base its appeal.  The Fifth Circuit gave this argument the skunk eye. 

One final thing: the AP story above says that Scruggs vowed the Leonards will appeal. Really? They are going to appeal this thing to the U.S. Supreme Court? You know as well as I do the chances of cert. being granted on this case, an issue of state insurance law, are between slim and none, and slim just left town.


Filed under First Party Insurance

Insurers returning to the middle market ‘killing fields’

As you may know, I’m opposed to boring writing, in part because I have to read so much of it — some days, I feel I would sooner visit a dentist who would anesthetize me and insert fake pig tusks than read one more boring piece of prose.  So I was happy to stumble upon this piece by Matthew Brodsky, in Risk and Insurance Online.  This is some fine insurance writing, both informative and entertaining.

The middle market — insureds that pay less than $5 million in annual premiums — is where many insurers are returning in a big way, while trying to avoid premium cost-cutting to the extent it endangers financial solvency, as happened with a number of companies in the 1990s. Check out the article — a good read, well worth your time.  Here’s a taste, from the end of the story:

This contest between the copycats who provide cut-rate commoditized products and longer-term players and their added value is telling of the entire middle-market picture, not just the fringes.

In that regard, maybe the market of 2007 is not so different than previous ones. So, then, will we be back in the killing fields in no time?

"We continue to do the stupidest things, we do dumb things all the time," says Mayers.

Others are more confident. "It would take a real true level of ignorance to get as stupid as we have in the last cycles," State Auto’s Williams says.

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More on Northrop Grumman v. Factory Mutual

I blogged earlier this week about this case and thought about it some more.  This case has kept pounding in my head like several incessant jackhammers on concrete.  No wait, that would be the actual incessant jackhammers that construction crews are using outside my office building as they rip up the street, again and again, to put in yet another light-rail line.  Nevertheless, this case has troubled me, so I read it again.  And this further reading, I regret to report, has raised more questions than answers.  Here’s a pdf of the case if you care to follow along.

  • As I mentioned, for some reason the briefing in this case on the court’s CM/ECF electronic system is not accessible, which is contrary to the dictates of Congress.  So I am unable to review the arguments the parties made, I have only the judge’s decision. Therefore, there may be a simple explanation why, it appears, Factory Mutual did not assert the anti-concurrent cause language in its excess policy’s flood exclusion, but I don’t know what it is. You may say as follows: California was the choice of law for contract interpretation, and California doesn’t enforce contractual anti-concurrent language — a state statute has been interpreted as mandating the efficient proximate cause analysis instead in property insurance cases. To which I respond by quoting from the opinion: "Factory Mutual does not perceive that a conflict of laws exists between the states of California and Mississippi on the issues presented. . . . Accordingly, the Court will apply the California rules of contract interpretation to these motions."  I, on the other hand, perceive a big difference between the two states: the Mississippi Court of Appeals has upheld anti-concurrent language in insurance contracts, while California courts do not.  So why give in on the choice of law? 
  • The decision says that Phase I of the litigation — which was all that was covered by the decision — is limited "to issues regarding contract interpretation, including any purported admissions of the parties." So issues regarding damages and the amount are not present in this phase.  But contract interpretation is more than looking at the words of the contract — in first-party property insurance contracts, loss causation is what you are interpreting and the causation methodology selected determines the interpretation of the words.  Yet in this decision causation is the dog that didn’t bark, as in the famous Sherlock Holmes story, The Adventure of Silver Blaze:
Gregory (Scotland Yard detective): "Is there any other point to which you would wish to draw my attention?"
Holmes: "To the curious incident of the dog in the night-time."
Gregory: "The dog did nothing in the night-time."
Holmes: "That was the curious incident."
  • Remember that Judge Pregerson found that storm surge was not unambiguously excluded by the excess policy’s flood exclusion because storm surge is a force that is acted upon by wind, and wind is not expressly excluded, because the phrase "whether driven by wind or not," which was contained in the primary policy, was not present in the excess policy. When one says this, one is making an argument regarding the cause of the property damage.  The judge, in fact, said this: "Given that a storm surge is a particular type of ‘inundation of water’ — an inundation caused, in part, by wind — this omission creates ambiguity in the Excess Policy’s Flood exclusion." (p. 16).  This, in effect, must mean one of four things:

1.  There is only one cause of the damage — wind: storm surge is merely a manifestation of wind that does not involve a second force of water/flood.  This would be absurd, so it cannot be what the judge intended.

2.  There are two causes of the damage — wind and water, acting in concert to create the same damage.  Does this sound familiar to you? It might, it is the very definition of concurrent forces.  However, anti-concurrent language in a contract nullifies that causation analysis.

3.  There is one cause of the damage — wind that acts upon water to create a phenomenon called storm surge, which no matter what its cause, is not excluded.  I have called this a reductionist argument, because property coverage for direct physical loss is inherently causal — some causes are covered and some are not.  If this was the judge’s reasoning, it is incomplete.

4.  Some other darn thing about which I have no clue what the judge is talking about. 

  • Even if Pregerson had rejected anti-concurrent language as unenforceable under California law, one would think that he would have analyzed the policy’s coverage under California’s efficient proximate cause methodology.  He could have stated the methodology was not needed because there was only one cause, and therefore no need to choose among multiple causes as to which is the proximate or dominant cause.  Or he could have said that there were in fact two causes, and selected wind as the dominant cause.  None of this was mentioned.  Yet again, the causation dog didn’t bark.  More questions than answers, which I don’t like, because it means I won’t be able to rest until I find the answers.  And I assure you, I will. 

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Mississippi AG Hood calls Dickie Scruggs a ‘confidential informant,’ says he shouldn’t be prosecuted

According to Mississippi AG Jim Hood, allegations that attorney Dickie Scruggs engaged in criminal contempt by willfully violating a federal judge’s injunction are all wet.  Scruggs, Hood said in a July letter to U.S. Attorney Alice Martin, should be left alone because he is a crime buster and a "confidential informant." I am not making this up. New slogan for the Scruggs defense team in the criminal contempt case: "Mr. Scruggs does not commit crimes, he fights them." 

This information is contained in a letter Scruggs filed as an an exhibit to supplemental briefing yesterday in the McIntosh v. State Farm Katrina case, where State Farm is seeking to have Scruggs disqualified based on his alleged violation of the injunction and for other reasons having to do with his purported conflicts of interest stemming from his representation of the "whistleblower" Rigsby sisters.   The letter, a pdf of which can be seen here, sounds like a proposal to Marvel for a new superhero comic book: Hood and Scruggs, The Legal Avengers

In the letter, Hood asks Martin take a pass on Judge William Acker’s request that she prosecute Scruggs for criminal contempt.  Martin in fact did decline to prosecute, but I can’t believe this letter had anything to do with her decision unless she is extremely gullible, not a characteristic one usually associates with a U.S. Attorney.  (Following Martin’s decision, Acker appointed special prosecutors who have filed charges against Scruggs and his law firm.  Note to self: if ever in Judge Acker’s court, do nothing to make him angry).

Here’s a taste of the letter:

Mr. Scruggs has functioned as a confidential informant for our investigation [Hood investigated State Farm for allegedly fraudulent actions but closed the investigation as part of a settlement that was later shot down by federal Judge L.T. Senter Jr.] and is protected by state law as a whistle blower.  Using those documents [the 15,000 State Farm claims documents the Rigsbies copied and took from their employer, State Farm contractor E.A. Renfroe], my office has conducted an ongoing investigation into what we believe is State Farm’s fraudulent conduct, not only toward their own policyholders, but also against the National Flood Insurance Program as well.  Our investigation continues and in both of our reports to Congress, it has been our recommendation that federal racketeering charges should be considered.  The prospect of bringing a federal prosecution against an out-of-state whistle blower [Martin is U.S. Attorney for Northern Alabama where the Rigsby sisters were sued by E.A. Renfroe in Acker’s court, Scruggs lives in Mississippi], who has cooperated in state and federal criminal investigations in another state, raises serious comity concerns.

You know the verb "to fisk"? As this word is used in the blogosphere, it refers to a line-by-line debunking of hyped up, incorrect, evasive or deceitful prose, as in: "he subjected the story to a merciless fisking." (The term is derived from Robert Fisk, a reporter for the UK newspaper the Independent, and the repeated dismantling by bloggers of his allegedly slanted and made-up news stories).  Don’t get me wrong, Hood looks like a hard worker, and I like him, but from what I’ve seen of his public assertions, he is very fiskable. For example, in that upcoming anti-concurrent cause article I’ve been talking about, I subjected Hood’s testimony to Congress to a vigorous fisking. I don’t have the time to fisk this entire letter, but if you read it, you will notice sleight-of-hand with verb tenses and so forth, attempts to imply that past actions are taking place in the present, and other lawyer tricks.  

So, to get back to the McIntosh case, in a prior post I linked to State Farm’s memorandum in support of its motion to disqualify Scruggs.  I thought the brief was well-written. Scruggs’ response brief was also well-done, and like the State Farm brief, it had a supporting declaration by a heavy-hitting legal ethics expert. Scruggs hired Geoffrey Hazard, one of the best known experts on ethics and procedure in the country — I read his textbook on civil procedure when I was in law school. (Still, all in all, Hazard’s declaration was not as strong as the one written by Charles Wolfram, State Farm’s expert).  You can see Prof. Hazard’s declaration here.  The Wolfram declaration can be viewed at the link in the first sentence of this paragraph.

In contrast to the Scruggs response brief, which was filed in June, the three-page supplemental briefing filed yesterday was weak — its only purpose was to introduce the Hood letter as evidence. Why did they bother? Someone might mistake the Hood letter for one of the spoofs I’ve written on this blog.  Introducing it as evidence is like calling an office meeting to announce that when you came to work this morning you forgot to wear any pants.

By the way, I noticed on the court docket two interesting entries at the end: State Farm has sent notices for the video depositions of Dickie Scruggs and his son and law partner, Zach Scruggs.  Is there going to be a fight over whether those depositions happen?  You better believe it.  Take a look at the documents State Farm wants them to produce.  Are Dickie and Zach Scruggs going to fight that?  You can bet the ranch on it.   


Filed under Industry Developments

Louisiana deadline for filing Katrina cases is today, or tomorrow, or some other day

No one is quite sure, according to this Mike Kunzelman story.  The advice from policyholder attorneys? File early and file often.

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California U.S. District Court says Katrina storm surge is not excluded by excess policy’s flood exclusion

A correspondent sent me the pdf of August 16 decision in Northrop Grumman v. Factory Mutual Ins. Co., a $1.2 billion lawsuit by Northrop alleging breach of contract for Factory Mutual’s failure to pay for Katrina losses at Northrop’s various shipbuilding facilities in Louisiana and Mississippi.  Northrop is based in Los Angeles, and this lawsuit was filed in California state court and removed by the insurer to federal district court.  For some strange reason, almost none of the entries shown on the district court’s electronic docket are available, so I’m hindered in reviewing the pleadings.  But from what I can determine from press reports, Northrop press releases and other sources, including debate in Congress over whether the federal government should advance money to Northrop to cover property damage and business interruption losses insurers haven’t paid for, it appears the amount being sought from Factory Mutual is actually about $350 million.  Those who have followed this case more closely may be able to enlighten me.    

Northrop purchased a $100 million primary policy that basically covered everything — no flood exclusion, no earthquake exclusion.  Factory Mutual had 15 percent of the coverage of the primary layer, and paid it.  Let’s keep in mind the layers of coverage here.  The primary layer of coverage was shared by some 30 insurers including Factory Mutual.  A second layer of Factory Mutual coverage began at $500 million in losses and continued up to $19 billion.

The key issue, as explained by federal judge Dean Pregerson, was whether the Factory Mutual excess policy clearly excluded Katrina storm surge under its flood exclusion. Pregerson said it didn’t, and because the exclusion was ambiguous, granted summary judgment to Northrop, a decision that is sure to be appealed to the Ninth Circuit.  Here is the language of the excess policy’s flood exclusion:

 Flood; surface waters; rising waters; waves; tide or tidal water; the release of water, the rising, overflowing or breaking of boundaries of natural on man-made bodies of water; of the spray therefrom; or sewer back-up resulting from any of the foregoing; regardless of any other cause or event contributing concurrently or in any other sequence of loss.

Now, you may remember that in other Katrina litigation, flood exclusions in homeowners policies have been upheld, and judges have said that storm surge — ocean water pushed ashore by hurricane winds — is a flood.  Those policies, however, have included the phrase "whether driven by wind or not," a phrase that was in the definition of flood in the Northrop primary policy but is not in the excess policy’s definition. (Remember, the flood definition didn’t apply to the level of damage under the primary policy because Northrop purchased coverage with no primary flood exclusion).  Judge Pregerson therefore saw the difference between the two policies as highly significant, and he also placed great importance on past policies Factory Mutual had sold Northrop that defined flood to include storm surge, and that Factory Mutual has sold other policies including "whether driven by wind or not." While both constructions of the policy — Northrop’s and Factory Mutual’s — he said, where there are two reasonable constructions the policy is construed against the insurer, black letter coverage law. 

His decision came down to the reasonable expectations of Northrop at the time it purchased the policy, and evidence was presented that went both ways.  Read the decision and you will see.  The case presents two curiosities for me, however: why Factory Mutual gave in to the choice of law as California, rather than Mississippi, which has case law stating that storm surge is flood, and why the decision makes no mention of the anti-concurrent cause language in the excess policy’s flood exclusion. 

Based on the limited record I’m able to review, these are my guesses. First, if the issue is one of reasonable expectations of the parties — what they believed the coverage was based on their negotiations before the policy was issued — Mississippi case law does not form a part of that calculus.  Second, if the issue is whether storm surge is defined as flood and whether it is flood, there is not a concurrent cause issue, because a loss involving analysis of concurrent or sequential losses requires, of course, more than one cause, one of which is not covered.  If all possible causes of the loss are covered, anti-concurrent, anti-sequential language is inoperable.  That’s my first, quick take on the case.  Your views, as always, may differ, and they may persuade me if you let me know of them.  Policy language controls, as always, and if a policy is interpreted to include wind-driven storm surge as flood, someone can interpret it as wind (it appears that 1998 damage to Northrop facilities by Hurricane Georges was in fact adjusted by Factory Mutual as wind damage). Is it in fact wind damage? I think no, merely because a catastrophe involves wind does not mean wind itself was the physical force that caused the loss.  However, because direct loss from wind does not appear to have been an issue with the excess layer of coverage, the door is open to a reductionist analysis that wind and water are not separate forces and are defined by implication as one force by the policy, in the context of the reasonable expectations of the parties.

One final point: many have made the observation that the rule of contra proferentem is justified by the disparity in bargaining power between insureds and insurers, a justification that does not hold true when the insured is a sophisticated corporation like Northrop, one of the biggest companies in the nation with gross revenues far in excess of Factory Mutual, and one that has extremely good friends like Sens. Thad Cochrane and Trent Lott, who pushed for Congressional earmarks benefitting Northrop to the tune of many millions of dollars. What do you think, should contra proferentem apply in a case like this? If not, how does a court draw the line and tell where an actual disparity in bargaining power exists and where it does not?  Should there be a per se rule that any coverage involving actual bargaining does not warrant the application of contra proferentem?


Filed under First Party Insurance

11th Circuit affirms Judge Acker’s preliminary injunction in Renfroe v. Rigsby “whistleblower” case

The "whistleblower" Rigsby sisters were rebuffed today in their appeal of a December 2006 preliminary injunction by federal district court Judge William Acker, who had ordered them to return thousands of pages of claims files they took from a E.A. Renfroe, a State Farm contractor.  The U.S. Eleventh Circuit Court of Appeals affirmed Acker’s injunction in an opinion that, as these things go, was bluntly worded in places.  Most judicial opinions are not blunt and judges are usually quite gentle in saying why they prefer one argument over another — however, they do not like their time to be wasted. So when judges openly label an argument "illogical," as happened in this opinion, they really didn’t think much of it at all.    Read a pdf of the opinion, and you will note that the Eleventh Circuit had little patience for this appeal.

A couple things to remember here.  One, the standard of review here is abuse of the judge’s discretion, a pretty hard standard to meet on appeal.  This standard presumes the judge at Ground Zero is in the best position to make the call.  Second, although Dickie Scruggs claims an attorney-client relationship with the Rigsby sisters, neither he nor his firm are representing them as defense counsel in Renfroe’s lawsuit against the Rigsbies or this appeal (some write "Rigsbys," but I don’t agree that is the correct plural).  Third, Scruggs is in hot water because of an alleged willful violation of the injunction — Acker appointed special prosecutors who have filed charges of criminal contempt against Scruggs and his firm — so if the appellate court had found the injunction was an abuse of discretion, it could have provided hope to Scruggs.  However, I’m not sure at all that would have meant he gets a free pass here.  Again, I’m not a specialist on criminal law, I’ll have to wait for the new season of Boston Legal and see if this issue comes up and how they deal with it. 

Fourth, the Renfroe lawsuit against the sisters goes on — the basis is their alleged violation of their confidentiality agreement, a fairly standard thing in the industry (confidentiality agreements are standard, I mean, not violations). Fifth, I keep putting "whistleblower" in quotes because I’m still waiting for someone to explain exactly what they blew the whistle on. Just because you call yourself the Green Lantern doesn’t mean I have to.  I know, I know, fraudulent practices and blah blah blah, but there’s more talk than action here, and so far, these documents sound like a lot of sound and fury signifying, well, you know the rest of the quote.  


Filed under Industry Developments

Coverage by admission

There are probably three things from my first year of law school I could do without having to think about again.  One is the Rule Against Perpetuities.  The second is the Statute of Frauds.  The third is the parol evidence rule.  I’m pretty safe on the first one, and seldom have to worry about the second.  But the third lurks around insurance coverage law like some kind of heavy-breathing beast at the edge of the firelight.  It may not go by its rightful name, but questions dealing with the admissibility of extrinsic evidence to prove the meaning of terms in an insurance contract are in fact parol evidence rule questions. 

In contract law, the parol evidence rule states that extrinsic evidence, usually of prior negotiations, is not admissible in interpreting a fully integrated contract unless the language of the contract is ambiguous.  Everyone agrees on that. However, the meaning of the word "ambiguous" is subject to debate — you could say the word ambiguous is itself ambiguous — and has produced two main viewpoints. 

The traditional view, of Prof. Samuel Williston, is that an ambiguity must appear on the face of the document before extrinsic evidence is admitted.  This is sometimes called the "plain meaning" approach.  The competing point of view, associated with Prof. Arthur Corbin, is that it is not necessary for an ambiguity to appear on a document’s face: instead, extrinsic evidence can be used to show the existence of an ambiguity.  One more thing: even under the Williston approach, extrinsic evidence is allowed to resolve ambiguity once it is found.  A stricter view of contract interpretation exists, referred to as the "four corners" approach, which says that only what is within the four corners of the document should be used — no extrinsic evidence at all.  Insurance law, which Prof. Michelle Boardman has cogently referred to as "the odd but brilliant prodigy" of the contract law family, has significant differences from regular contract law when it comes to interpretation, particularly the use of the doctrine of contra proferentem. However, because I recently had to research and write a ton on this subject, I don’t feel like going into it in great depth here.  Suffice it to say that many jurisdictions use some version of the Williston or Corbin approach for the initial stages of insurance contract interpretation, and many instead use the four corners approach, including Oregon.  (By the way, I’m going to single Prof. Boardman out for praise for writing one of the relatively few law review articles I can honestly say I have enjoyed reading:  Boilerplate Versus Contract — Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 Mich. L. Rev. 1105 (March 2006).  This article was not only informative, but entertainingly written). 

All of this is a long lead-in to a useful article in the GenRe Research publication Policy Wording Matters written by Randy Maniloff, who has a certain Forrest Gump ubiquitousness — he’s in nearly every publication there is. I wouldn’t be surprised to open up my church bulletin at Mass and find an article by Maniloff in there.  The article is on coverage by admission — examination of changes in policy wording, or perhaps the lack of change, to either show or decide ambiguity. Take a read on the article here — it’s on page 5. I was also impressed by the quality of the entire GenRe publication — and as you know, I don’t hand out praise for writing lightly, I struggle and suffer too much over writing to give anyone else a free pass. 


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Filed under Duty to Indemnify

A whole new meaning to ‘fire insurance’

This story was pretty amazing to me — AIG sent a firetruck to protect from Idaho wildfires some expensive homes that it insures. I hate to be the one to mention this, but does a proactive measure like this create the possibility of extra-contractual insurer liability if any of the following occur?

  • a home that is both insured by AIG and is within the area protected by the firetruck burns down;
  • a home that is insured by AIG but outside the area protected by the firetruck burns down;
  • a home that is not insured by AIG but is inside the area protected by the firetruck burns down;
  • AIG-insured homes burn down in some future wildfire where a firetruck is not dispatched.

I know what some will say — spoken like a lawyer!  Remember, however, I grew up in a small town and have also been a journalist, two other ways you learn about the dark side of human conduct. 

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Filed under First Party Insurance