The Fifth Circuit, in an opinion released today in the appeal of Tuepker v. State Farm, reversed a lower court’s ruling that State Farm’s anti-concurrent cause language was ambiguous. The court also upheld State Farm’s flood exclusion as applying to hurricane storm surge, and said that the anti-concurrent cause language in State Farm policies overturns a common law doctrine of property loss causation called "efficient proximate cause." Again, here is a copy of the decision. A huge win for State Farm, and a victory for clear, concise writing and reasoning without the court’s saying more than it needed to, as another panel of the Fifth Circuit did in the recent appeal in Leonard v. Nationwide.
As regular readers know, I recently wrote a long article for the New Appleman on Insurance: Current Critical Issues in Insurance Law on anti-concurrent cause provisions in Hurricane Katrina litigation. In the article I said that, contrary to the perceptions of many, anti-concurrent cause language is irrelevant to almost all Katrina cases, and that, also contrary to public perception and the assertions of many lawyers and politicians, insurance companies have not denied Katrina claims based on anti-concurrent cause language. Click here for a copy of the article.
One thing I like about the Fifth Circuit’s opinion it expressly acknowledges that State Farm admits that, if Katrina wind damaged a house, this is a covered loss that must be compensated. This has been consistently the position of every insurance company that I can think of in Katrina litigation, and this is a fact that has yet to sink in with the public and the media, with certain significant exceptions. Unlike the Fifth Circuit’s Leonard decision, this opinion stayed away from theorizing about how anti-concurrent cause language might work in other circumstances and confined itself to deciding the facts before it. That is a good way for judges to stay out of trouble, and a good way to keep future litigants and lawyers from having to clean up a mess that didn’t need to be created.
I don’t think, however, it would have been straying too far afield for the court to have briefly discussed that, not only is the anti-concurrent cause language not ambiguous in this circumstance, it is not even relevant because anti-concurrent cause language was created to address when multiple forces cause the exact same loss. For example, think of a garage weakened by excluded wood rot. Maybe this garage would have stood for another 50 years, but in its compromised condition a covered windstorm came along and blew it down. Now, the garage would not have collapsed but for the excluded rot — the wind and the rot, neither of which were sufficient by themselves to cause the damage, acted concurrently to cause the one indivisible loss. That, friends, is much different from the Katrina losses like those suffered by the Tuepkers. A house that suffers covered wind damage has been damaged by a single force that causes unique property loss as defined by the policy, and when that same house is destroyed by storm surge, it has again suffered another unique property loss from a single force. Neither force acted either concurrently (dependent on one another for the result) or sequentially (occurred one after the other like dominoes) to produce the same damage. Once again, the key: When forces produce different, distinct and divisible damage (heck, let’s call them "the Killer D’s"), they are merely single forces acting alone to produce single damage. And a single cause of single loss is an easy causation analysis, it’s like a one-car accident. Until this is understood and acknowledged by the courts, confusion will continue to arise, like periodic outbursts of the Black Plague.
There is one section of the case I wish to call attention to, to correct something that might be misinterpreted. Read the entire paragraph, but I’ve bolded the section that concerns me:
As the Leonard opinion directs, any damage caused exclusively by a nonexcluded peril or event such as wind, not concurrently or sequentially with water damage, is covered by the policy, while all damage caused by water or by wind acting concurrently or sequentially with water, is excluded. Id. Thus, the ACC Clause in combination with the Water Damage Exclusion clearly provides that indivisible damage caused by both excluded perils and covered perils or other causes is not covered. However, as State Farm has conceded in its briefs here and below, the ACC Clause by its terms applies only to “any loss which would not have occurred in the absence of one or more of the below listed excluded events”, and thus, for example, if wind blows off the roof of the house, the loss of the roof is not excluded merely because a subsequent storm surge later completely destroys the entire remainder of the structure; such roof loss did occur in the absence of any listed excluded peril.
This opinion was written by Judge William L. Garwood, and it is well-written. But that bolded sentence could have been said better. What it should say is that all damage caused by water or damage that is caused by water acting concurrently or sequentially with a covered cause, such as wind, is excluded. Why? Because the court said it backwards. Remember what the anti-concurrent language says — "We do not cover loss to any property resulting directly or indirectly from any of the following." Any of the following includes water damage, but wind is covered. So wind damage is always covered, unless the precise damage, or "accidental direct physical loss to the property," as the policy says, would not have occurred but for the occurrence of an excluded cause. You can dispute me on this, but you will lose, because I am right. The sentence as it reads makes it sound as if covered damage can be undone by the intervention of uncovered causes, and this is not so.
The court made short work of arguments over efficient proximate cause, and said Mississippi law does not mandate use of this analysis when the contract says otherwise. The explanation could have been perhaps a little clearer: efficient proximate cause is the default standard for property insurance loss analysis in almost all states, but it is mostly a common law doctrine that is not a matter of public policy and can be overturned and replaced with a different, contractually based causation analysis.
One final note: the court declined to say who was right on the allocation of the burden of proof for showing wind damage, which in reality is a far more important question in Katrina cases than the anti-concurrent cause language. The court had good reason for refusing: State Farm and the Tuepkers’ lawyer, Dickie Scruggs, had entered into a High-Low Agreement with the payment depending on the outcome of the appeal, and the merits of the case therefore never would have been presented to a jury. In light of this, the court said the issue wasn’t relevant.
One really final note: I was impressed Judge Garwood covered so much ground in 16 pages.
UPDATE: Here’s the word from the Scruggs Katrina Group on the Fifth Circuit’s decision from the SKG blog. They make a point, which would be stronger if there was any evidence that insurers had actually used the anti-concurrent cause language to deny claims.