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.