Fifth Circuit hears oral arguments heard in Broussard v. State Farm

With the continuing drama of the Scruggs scandal unfolding daily, sometimes hourly, I almost forgot to blog about the Katrina case that I have written about perhaps more than any other — Broussard v. State FarmAs this story by Mike Kunzelman of the AP says, oral arguments were held before the Fifth Circuit in New Orleans on State Farm’s appeal of the $1 million punitive damage award — reduced by Judge L.T. Senter Jr. from $2.5 million awarded by the jury.

Broussard is not about the anti-concurrent cause provisions of policies, as some of the other well-known cases have been, it is about who is allocated the burden of proof of damages, and it is about whether bad faith punitive damages are justified when an insurer fails to pay when some small amount of covered damage may have occurred, but the insurer believes the evidence indicates that almost all if not all the damage was caused by an excluded force.  As I mentioned, I have written a great deal about the case, and if you have more interest you can go to my blog’s search bar on the right, type "Broussard" and hit the enter key. (Frequent readers may tire of me explaining how to do this, but this is far and away the number one question I get asked — how do I find something on your blog).

The Broussards were Mississippi Gulf Coast residents whose home was destroyed by Katrina, one of the so-called "slab" cases where nothing was left.  State Farm was their homeowners insurer, and at the time of trial had paid nothing, saying there was substantial evidence of flood destruction and that the Broussards had failed to present sufficient evidence of wind damage (their expert said the home was destroyed by a tornado). In case you are wondering, the Broussards were represented by William Walker, not the Scruggs Katrina Group. 

In the case, Judge Senter directed a bad faith verdict against State Farm, saying no reasonable juror could have found otherwise.  He based his decision on the fact that State Farm’s expert testified that there was a 75 percent chance there was zero to 35 percent damage to the Broussard’s roof.  With all due respect to Judge Senter, I’m skeptical that this means the verdict must be directed.  Why couldn’t the jury have been allowed to decide? When you multiply a 75 percent chance times zero, you still get zero damage, so in my mind a reasonable juror could have decided State Farm was correct.  They could also have decided the other way.      

Most of the time with other big Katrina cases, I would have already read the briefs at this point.  But to tell the truth, Broussard slipped right out of my mind on Scruggs Nation: Day One, and even if I had remembered, I wouldn’t have had any time to read the briefs.  However, reading the tea leaves of the Fifth Circuit’s recent Katrina decisions, seeing who is on the judicial panel (notably, Edith Jones) tand seeing some of the comments by Judge Jones in the story, I’d say there is a pretty good chance this one will be reversed.   See what you think after reading this excerpt from the story:

State Farm attorney Clarke Holland said Senter made "numerous errors" in evaluating evidence in the case and shouldn’t have allowed jurors to weigh punitive damages.

"There was clearly an arguable basis for State Farm’s position regarding coverage," Holland told Judges Edith Jones, Jacques Wiener Jr. and Edith Brown Clement.

William Walker, a lawyer for the Broussards, defended Senter’s rulings.

"He viewed this in a very rational and careful way," Walker said.

Senter concluded State Farm acted in a "grossly negligent way" by denying the Broussards’ claim. The judge also said the company denied policyholders’ Katrina claims based on a new "wind-water" protocol that is "at odds with other express terms of the insurance contract."

State Farm claims Senter erred when he ruled the company had to prove that the Broussards’ home didn’t sustain any wind damage or that it had to segregate wind and water damage to the residence.

Jones, the 5th Circuit’s chief judge, questioned why Senter didn’t let a jury decide whether Katrina’s wind or water was responsible for destroying the Broussards’ home.

"All (State Farm) had to prove is that storm surge was a cause, and then a jury had to prove how much was storm surge and how much was wind," Jones said while questioning Walker.

The exchange between Jones and Walker grew testy, as the judge accused the lawyer of "playing with words."

When Walker punctuated one of his points by saying, "I don’t mean to be flip," Jones responded by saying, "Most of your argument has been flip."

"Thank you, ma’am," Walker said. "I hope it was sincere."

"It was sincere," the judge said.

State Farm also argues that Senter shouldn’t have allowed jurors to consider punitive damages and that he abused his discretion in refusing to transfer the case from Gulfport, Miss., to northern Mississippi.

State Farm’s lawyers say the company couldn’t get a fair and impartial jury on the Gulf Coast due to "pervasive and extreme negative publicity regarding Katrina insurance claims."

State Farm is asking the 5th Circuit to throw out the verdict and either rule in the company’s favor or order a new trial, preferably in north Mississippi.

I’m not sure if I follow the nuances of the flip/sincere dichotomy posited here.  Can one be flip, yet still sincere?  I would have thought not — for example, I have never heard the phrase, "he was flipply sincere," nor have I heard "he was sincerely flip" — but apparently William Walker and Judge Jones disagree with me.   



Filed under First Party Insurance

10 Responses to Fifth Circuit hears oral arguments heard in Broussard v. State Farm

  1. Brian Martin

    Do you agree with Edith Jones that State Farm does not have to prove how much damage was caused by flooding or that specific damage was caused by flooding in order to deny all wind coverage?
    Judge Senter cited precedents in his ruling that the insurer has the burden to prove the exclusion.
    Where are the precedents that support State Farm’s position?
    Also, Senter was not endorsing the absurdly low range of wind damage given by State Farm’s expert Kurt Gurley. He merely stated that even their own guy said there probably was wind damage.

  2. David Rossmiller

    Brian, I don’t read Judge Jones comments as saying what you are saying. We will see when the opinion comes out. I think it is more likely she is saying that when they offer substantial evidence that flooding is a major if not the total force in the property loss, that is a jury question and not bad faith. If that is what she is saying, it’s the same as what I have said before. I suspect the jury would have hammered State Farm anyway, but I don’t think Judge Senter should have directed the verdict. He is a great judge and a great legal writer, but I just happen to disagree with the reasoning of some of his rulings. I agree with many others, as I have said on my blog.

  3. Curious

    OT – Do you know anything about what is going in in the In re Canal Breaches litigation in La.? Judge Duval in the E.D. of La. recently stayed proceedings because of the Sher decision in the La. 4th Cir. and some of the parties in In re Canal Breaches (Chehardy and Xavier U.) just filed petitions for cert. with the US Supreme Court for review of the U.S. 5th Circuit’s decision against them. Any idea what this all means? On what basis might they seek certiorari?

  4. Brian Martin

    But State Farm did not “offer substantial evidence that flooding is a major if not the total force in the property loss.”
    State Farm assumed the damage was due to flooding and asked the Broussards to prove otherwise. The point about Dr. Gurley is that State Farm’s expert said there probably was wind damage, yet State Farm had not attempted to prove what damage was caused by flooding.
    Judge Senter did not send the case to the jury because State Farm had not presented any facts for the finders of facts to sort through to distinguish the wind damage from the flood damage.
    Excerpts from Senter’s decision:
    “The evidence establishes, conclusively, that the plaintiffs’ dwelling sustained wind damage during Hurricane Katrina and that ultimately the dwelling was a total loss.
    …[T]he force of the storm surge was sufficient to destroy the dwelling if it were undamaged at the time the water reached it, and it was sufficient to remove the debris of the property if the dwelling had collapsed or suffered extensive damage from the force of the wind before the storm surge arrived. The key issue is how much damage had occurred as a result of wind before the storm surge arrived. That preceding wind damage would be covered, and any additional damage caused by the arrival of the flood would be excluded.
    In these circumstances, it is the allocation of the burden of proof that is critical, for one party or the other must bear this total loss in the absence of evidence by which the two types of losses may be reasonably identified and separated.
    Because the plaintiffs have met their burden of proof under the policy, via the stipulations in the pre-trial order, the burden of proof was and is on State Farm to establish, by a preponderance of the evidence, that portion of the total loss that was attributable to excluded flooding and rising water. State Farm is obliged under its policy to pay all of the loss that it does not establish, by a preponderance of the evidence, to have been caused by flooding.
    No evidence has been introduced from which any finder of fact could reasonably determine what part of the loss of the Broussards’ property is attributable to water as opposed to wind.
    Accordingly, I find, as a matter of law, that State Farm has not met its burden of proof as to the segregation of this total loss into wind damages, which are covered, and water damages which are excluded from coverage. State Farm has also failed to establish or to offer evidence that would support a finding that the insured property sustained no wind damage.”
    Also, I went back and read the Tuepker ACC ruling by the 5th Circuit. They completely dodged the question of the burden of proof even though State Farm argued that the burden was on the policyholder. The only point of the 5th Circuit ruling is that storm surge damage is excluded damage even though the surge is wind-driven. It does not address wind damage that preceded flood damage, even though State Farm invoked ACC to exclude such damage.
    Judge Senter had ruled that surge damage is excluded by the flood exclusion, no ACC required. The 5th Circuit actually acknowledges wind as a concurrent cause of surge damage. It could be argued that the 5th Circuit ruling means that a policy must have ACC language in order to exclude storm surge damage, unless the flood exclusion has the “whether wind-driven or not” language. Remember that Northrop Grumman won its case in California because the excess coverage policy did not have that language.

  5. I really hope you’re wrong about this one being reversed, though having sat through the arguments on Wednesday I can’t say I disagree with your predicition. It is very difficult to be a bystander when you have a lot riding on the outcome of how well others perform; I found it nearly impossible to patiently watch and say nothing. From my perspective and experience, State Farm is trying to have its very able lawyers argue before relatively inexperienced insurance law jurists, to get it out of its known contractual obligations. I am very concerned that the overstatement in Leonard will be a wrongful basis for claims denials and/or avoidance of accountability for bad faith conduct; the impact of improperly reasoned decisions on future events could be disasterous for consumers.

  6. Anthony

    It is already disastrous for consumers. No matter who prevails it will be the consumers who pay in the long run.

  7. Silas

    Anthony, et al, who do you THINK should pay when an insurance policy or ANY contract is stretched so far out of its intent and what was charged for? The plaintiff’s attorneys and anyone looking for a bailout think the insurers go to the printing presses and print the money they use to pay these bogus and\or inflated claims. Guess what? The only ones that get to do that is Uncle Sugar Daddy. If anyone bought a policy thinking it was going to cover ANY possible loss even though there was certain language (that even if you werent smart enough to understand) sounded like they were taking coverage away from you, they still believe in the tooth fairy.

  8. Justus

    In a word-burdened contract, an insurance policy, if educated, intelligent reasonable minds can differ over the interpretation and application of seemingly innocuous terms, how can the average consumer possibly know what he is purchasing? How can his “expectation interest” be protected – would you have him obtain a legal opinion before he buys the policy? Of course not. But, that is demonstrative of the problem with insurance policies. If an insurance company offered me a simple, straightforward 3-4 page policy in 12-pt. or larger font, I would purchase it over the more complex policy every time. I think every consumer would do that today in the wake of the large-scale denial of Katrina claims.

  9. David Rossmiller

    This responds to Chip Merlin. I know you and I would disagree on several points about the Leonard decision, but we can agree that the causation analysis of Leonard is flawed, and I would agree with your statement of it being overreaching. Many aspects of the analysis of Leonard were relatively unsophisticated, imbued with a false confidence, and thus said more than was necesary to decide the case and made mistakes because of it. The analysis of the Tuepker case was better but had a different panel and they did not apparently feel like taking on Leonard’s mistakes and setting them right. I agree the case will present a problem for the future.

  10. Anthony

    Silas, from the moment that Katrina made her very first little pirouette out in the deep ocean, it was a disaster for consumers.