More misunderstandings of anti-concurrent cause language

This story from National Underwriter about the Fifth Circuit’s Leonard v. Nationwide decision has some interesting quotes from Brian Martin, policy director for Rep. Gene Taylor, D-Miss., and because when Martin speaks on insurance matters it announces the start of the Silly Season, this stuff is in serious need of an industrial-strength Fisking. I will get to that by and by, but first I need to correct some misunderstandings in one of first paragraphs of the story.  Here is the paragraph: 

The anti-concurrent causation clause is used to override a damage claim from a covered cause such as wind when an event such as flood, which is excluded in the policy language, occurs in the same time period.

A couple things (those of you who have heard all this before can skip down to the Fisking):

I.  Let’s start off with preliminaries so we have a frame of reference.  Now, what follows is a little technical but not all that hard to grasp, and it must be clearly understood or these mistakes will get perpetuated from one generation to another down to the end of time. We owe it to our children and our children’s children to make it stop right here!  Anti-concurrent cause language contractually defines the causation analysis that must be used in evaluating damage.  It alters the causation analysis so that neither efficient proximate cause (the traditional analysis used by courts in property insurance) nor concurrent cause analysis (borrowed from the field of torts, used by a few states regarding property insurance) can be selected as the methodology. 

Anti-concurrent cause methodology is not, strictly speaking, an analysis of the damage claim but rather of the cause of the "property loss."  Property loss is the initial requirement, under the contract, for further analysis.  Once it has been established that property loss occurred, the next step is to see what kind: has more than one type of loss occurred to the property? The inquiry then turns to what is the cause or causes of the loss — does each distinct, separable type of damage have one cause, or does it instead have more than one cause?  If each kind of damage has just one cause, this is called single causation and anti-concurrent cause language is not needed, because it is operable only where multiple causes contributed to the same kind of loss to the property. 

Remember, damage to a house does not necessarily represent just one loss of property — if damage is distinct, there can be two or more property losses, each due to separate causes.  "This must be distinctly understood," as Dickens said of Marley’s death at the beginning of A Christmas Carol, "or nothing wonderful can come of the story I am going to relate."  If this is not understood, all that one says about anti-concurrent cause language is quite possibly going to be seriously wrong.  With all due respect to the judges out there, it has been a bad couple years for judicial analysis of anti-concurrent cause language, and the Fifth Circuit’s Leonard analysis, while not a fiasco, contained elements that were the product of false doctrine, unclear thinking or other error.  Leonard creates problems for future litigants and judges, and I hope the incorrect elements of the case’s causation analysis are not replicated in the Fifth Circuit’s upcoming decision in Tuepker v. State Farm.   Fifth Circuit, you still have a chance to set things right.       

II.  It is not correct to say that anti-concurrent cause language overrides a covered damage claim, as the story says. That makes it sound like the language is some final trapdoor for the insurer to trick the policyholder out of what is rightly his, after he has been lucky enough to escape the insurer’s prior snares.  In this context, it is improper to speak of damage or a claim that is covered until you are done with the causal analysis and damage turns out to be covered.  Instead, at this stage of the analysis we are concerned with whether causes themselves are covered or uncovered.

Obviously, if discreet property loss is caused by multiple covered causes, there is no problem, it gets paid, under any type of analysis. Likewise, if the loss is caused by multiple uncovered causes, the result of the analysis is fairly obvious under any type of causal analysis that could be used.  Also, if loss is due to one single cause, the outcome of the analysis is usually pretty clear.  Under none of these scenarios is there a call to resort to the anti-concurrent cause language.  But when one distinct property loss has two or more causes, at least one covered and at least one uncovered, anti-concurrent cause language defines the causation methodology. 

III.  Losses are not concurrent merely because they happen at the same time or in the same location.  Don’t reach for that  dictionary, it’s not going to help.  In the sense we are talking about — legally significant causes — concurrent refers to losses that result from causes that are independent of each other but combine to create the same damage.  Sequential losses are those that are dependent on one another, like dominoes, in causing the same damage.  Both are often broadly referred to as concurrent causes for purposes of this sort of analysis.

Consider an example: your neighbor, a dump truck driver, accidentally jams his truck in reverse while flooring the gas and caves in the side of your house.  At exactly the same moment, his wife absent-mindedly flips her cigarette into an open 250-gallon tank of gasoline in their back yard, and the explosion sets fire to your roof.  Simultaneously, a nearby dam collapses and the flood sweeps away your home. I cannot stress too strongly, these are not multiple, concurrent causes of the same loss in the sense we are talking about here!  They are single causes of single losses. The fact they occurred at exactly the same time to the same house might present problems of allocating or distributing the damage between the causes, but it does not engage the anti-concurrent cause provision. The fact that the flood destroyed your house does not mean the two other, covered causes of loss stop being covered.   The uncovered cause must be a "but for" cause of the same property loss for the anti-concurrent cause language to be activated.  (Yes, it is true, some might claim the flood itself is a product of concurrent forces and therefore that the flood damage has more than one cause, but let’s be satisfied with making this point and leave that issue for another day). So I repeat, three individual separate causes, leading to three distinct kinds of property loss, two of which are covered and one of which is not.   

All right, that’s enough of that for now.  I certainly don’t want to pick on the National Underwriter reporter, who does a fine job and wrote a good story.  I’m just sayin’.  If I were writing the same kind of quick explanation for a newspaper or trade magazine, I probably would write it something like this, but that’s just me:

Anti-concurrent cause language in property insurance policies is intended to prevent property damage that is due to uncovered causes, such as flood or earthquake, from becoming covered when covered causes contributed to the same kind of damage. It does not prevent losses from being paid when covered causes of loss, such as wind, result in different or distinct damage.

Now, on to statements made by Brian Martin. Keep in mind his boss is peddling a bill that would add wind coverage to the National Flood Insurance Program, and a little outrage wouldn’t hurt its chances.  Here’s how the story quotes him from a press release: 

In his comments, Mr. Martin said that in its decision, “the appeals court is saying it is okay for a company to sell a policy that is likely to be worthless for a major hurricane if you also have flood risk.”

 He added, “If the wind insurance does not cover wind damage, that means it is impossible to buy insurance and know that you are covered.”

“The flood policy is not supposed to pay for wind damage,” Mr. Martin added. “Congress should ban any company with an anti-concurrent causation clause from participating in the flood program. I think this also helps our case that the antitrust exemption has to go and the federal government needs to take over regulation of insurance. Consumers and taxpayers need federal intervention.”

All right, where to begin?

  • "Worthless for a major hurricane if you also have flood risk." In the bench trial in the underlying case, Judge Senter awarded the Leonards an additional small amount on top of the roughly $1,600 Nationwide had paid them for wind damage.  The Leonards dropped their appeal of this and all other issues, and so this stood up in the Fifth Circuit’s opinion.  So the policy wasn’t worthless for wind, was it?  It just so happened the trier-of-fact found that little wind damage occurred. Obviously the policy was not worthless for wind coverage where there was also flood risk. 
  • “If the wind insurance does not cover wind damage, that means it is impossible to buy insurance and know that you are covered.”  In Katrina litigation, time and time again, insurance companies have taken the position that wind that is a separate cause of a separate loss is covered.  So this statement is a false hypothesis.
  • “The flood policy is not supposed to pay for wind damage.”  This is a hobby horse Martin, Taylor and some others have been riding for months. According to them, insurance companies failed to pay covered wind damage and instead paid out the damage under federal flood policies they adjusted under the Write Your Own program of the National Flood Insurance Program.  So far the proof has been underwhelming.  According to another story in National Underwriter, an interim report to Congress by the Department of Homeland Security found no evidence in support of these assertions. Note that the story says Martin claims to know of "dozens" of cases where this happened.  Is that all?  He’s been claiming for months this was widespread, pervasive, all-encompassing.  Dozens doesn’t even make a rounding error in the thousands upon thousands of Katrina flood claims adjusted. 
  • “Congress should ban any company with an anti-concurrent causation clause from participating in the flood program."  Since anti-concurrent cause language has not in fact been used to deny wind coverage in the overwhelming majority of Katrina claims, this statement makes zero sense.  In addition, if you banned the companies with anti-concurrent cause language from the flood program, you’d be left with one or two companies.  Is that smart public policy?  They are not going to rewrite their property insurance policies merely to be able to participate in the flood program.
  • "I think this also helps our case that the antitrust exemption has to go and the federal government needs to take over regulation of insurance. Consumers and taxpayers need federal intervention.”  Right.  He thinks this, and some other people think that a spaceship is coming to pick them up to rendezvous with a magic comet.  What has anti-concurrent cause language got to do with the limited antitrust exemption?  What aspects of insurance regulation is the federal government going to take over?  Approving policy language?  Approving rates?  Would the federal government overturn the acts of 50 legislatures and insurance commissioners?  What about the common law precedent in each jurisdiction, would that just be done away with? As I said, the Silly Season is once again upon us. One final point: doesn’t Martin work for Taylor?  Why is he putting out a press release in his own name instead of in Taylor’s name?

I might also note that I don’t fully agree with the Robert Hartwig quote in the story either.  Here’s what he said:

But Robert P. Hartwig, president of the Insurance Information Institute, disagreed. “The decision does not back Mr. Martin,” Mr. Hartwig said. “It contradicts his conclusion and backs the insurance industry’s position that ‘purchase of a flood insurance policy along with a homeowners’ insurance policy will provide complete protection to homeowners in the event of a catastrophic event.’”

Complete, unless your house is worth more than $250,000, which is the policy limit for federal flood insurance. 

8 Comments

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8 Responses to More misunderstandings of anti-concurrent cause language

  1. Brian Martin

    David, I know you taunted me because you missed my contributions to your blog. I was ignoring your lectures on ACC because your interepretation does not matter. Mississippians are dealing with the way that State Farm and the 5th Circuit interpret it, and their interpretation is that ACC relieves the insurance company of the burden of proving the cause of damage. All they have to show is that flooding contributed to the damage in order to deny wind coverage. They do not have to prove how much damage was caused by flooding or figure out how to apportion damage that was caused by both wind and flooding or even prove that the causes happened at the same time. That is the way State Farm operated for 17 months until Judge Senter ruled against the ACC clause. Without that ruling, and the Broussard punitive damage award for paying $0 even while acknowledging that they did not prove that all the damage was due to flooding, State Farm would not have settled thousands of cases since then.
    I hope Hartwig knows better and is just being his usual intentionally misleading self. Thousands of people bought flood insurance and paid high premiums to State Farm or Allstate or Nationwide or some other company with the same empty assurances Hartwig gives here, “You are fully covered for a hurricane.” The insurers handed those people a flood payment in full from the federal government and then told the insureds that they would have to prove wind damage in order to collect. They had evacuated. Their houses are scattered all over the neighborhood. They cannot prove what the 5 hours of winds did before the surge, so they get nothing.
    This is not a hypothesis. This is what happened and will happen again under the 5th Circuit’s ruling.
    As for the flood overpayments, what I said is that dozens of cases have been reported in the Sun Herald and Times Picayune that show how the system was rigged. You have refused to look at the evidence – the rigged engineering reports rewritten by guys who never saw the property, the emails showing State Farm forced one firm to rewrite all the reports that found wind damage, the adjusters’ depositions relating how they were trained to assume flooding and deny evidence of wind, the claims where the same drywall is estimated at $3/ft when figuring the flood check and 77 cents for the Allstate check, the upstairs contents that the adjuster added to the downstairs flood claim. But generally, just the application of ACC to deny wind coverage wherever the cause was in doubt while assigning all possible damage to NFIP which has no ACC clause. It is all there where anyone not on the industry payroll can understand it. The practical effect of ACC is to take all the benefit of the doubt in the insurer’s favor. Wind is paid only where the cause is black and white. Anything in the gray area is flooding. Again, not hypothetical. That is what happened.
    Homes like the Leonard’s are not the problem. The Leonard house was still standing and Nationwide paid only for the damage above the water line that could not possibly be blamed on flooding. Judge Senter agreed that in that case the wind and flood damage could be distinguished. But there are thousands of homes that were destroyed by the combination of wind and flooding, but where an honest assessment would conclude that it is not possible to determine how much damage is due to flooding and how much to wind. Those are the cases where homeowners and taxpayers were cheated by ACC.
    As for the IG, the interim report found no evidence so far BECAUSE THE INSURANCE COMPANIES ARE NOT COOPERATING WITH THE INVESTIGATION. The NFIP files only show that there was some flooding where flood payments were made. The files have nothing about any corresponding wind claims or about the rationale or methodology for distinguishing wind and flood damage. The IG has had to subpoena records from 15 companies in order to investigate their wind/water methods. Read the documents in the RICO suit on the Scruggs site. Read the deposition of the adjuster on Sen. Lott’s case. Read the State Farm Wind/Water Claims Handling Protocol. Read the False Claims Act filing in Louisiana. The evidence is all there, but the Justice Dept. will not take it up.
    Also, for the record, I did not send out a press release. I was out of the office when I heard about the 5th Circuit ruling, and the Congressman was unavailable, so I emailed comments to a few reporters who were working on the story.

  2. You read my mind, the blog has not been the same without you.
    You posit that insurance companies acted as if the anti-concurrent language was in force and acted accordingly, but this doesn’t make sense because in pleadings to the court they took a contrary view. It would be remarkable for a litigant to enforce a position while publicly repudiating it to the very entity that will decide its fate. So this does not seem to be correct.
    As for the press release, it seems I was in error and I apologize now that I have a fuller understanding.
    As for what policy holders and others believe, a belief that does not square with observable facts is one that is incorrect. My interpretation of the anti-concurrent cause language is correct.
    I don’t ignore the evidence you have supplied, I simply believe that, to date, it has not shown what you say it does. Anecdotal evidence is not evidence of the scope of the problem you have outlined. I’m familiar with all the records you cite, and they are not persuasive.

  3. Brian Martin

    State Farm’s Wind/Water Claims Handling Protocol
    http://www.house.gov/genetaylor/SFprotocol.pdf
    allowed coverage only for damage to separate portions of the property that could be attributed to windstorm alone (i.e. could not possibly be blamed on flooding). Any loss to any portion of the property that involved any amount of flooding in any sequence was excluded. The language in all the denial letters was similar.
    That means that where damage was caused by both wind and flooding, the portion that should have been attributable to wind either went on the flood claim or was not covered.
    It was that way until Judge Senter knocked down ACC and State Farm started negotiating settlements.
    Coastal property owners need a policy that covers both wind and flood damage without all the weasel words.

  4. There was a big lag time between the ruling in Tuepker and the settlements, I don’t necessarily see a correlation there. The Scruggs p.r. and litigation offensive and the result of the Broussard case may have played a bigger role.
    I’ve seen the denial letters, they don’t say the claim is not being paid because of the anti-concurrent cause language. The fact that the lead-in anti-concurrent language is cited in the denial letter is not surprising, when I write a denial letter I am always going to put the section head and the lead-in language to an exclusion, doesn’t mean that is the reason for the denial of the claim. It would hardly make sense for them to say one thing in a denial letter and then take a position less advantageous to themselves in court. So I have to reject that as evidence.
    Questions regarding allocation of damage between wind damage and water damage are not the same as the anti-concurrent cause language.

  5. Brian Martin

    ACC is what State Farm relied on to say they do not have the burden of proof. That is the issue. Does the insurer have to prove that damage was caused by flooding in order to deny wind coverage or does the insured have to prove that damage was caused by wind? Without ACC, the insurer definitely has the burden of proof. With ACC under the 5th Circuit’s broad interpretation, the burden shifts to the insured. There are billions of dollars at stake in the gray area where proof is problematic. SF trained their adjusters to deny wind coverage where there was any flooding and to place the burden on homeowners to prove wind alone caused damage. It is all there in the adjusters’ depositions. SF’s lawyers may have had the good sense to make different arguments, but on the ground ACC was the basis for shifting the burden of proof to policyholders.

  6. That is incorrect, I have seen no evidence in the pleadings in any case that any insurer has asserted that the anti-concurrent language shifts the burden of proof. If that is your grounds for opposing anti-concurrent language it is mistaken. As I’ve said, it merely abrogates efficient proximate cause as the causation methodology and substitutes a new methodology, allocation of proof is a common law doctrine not an issue of contract.

  7. Brian Martin

    You are giving me legal mumbo-jumbo with no relation to the facts on the ground and the way that claims were handled. I am telling you the practical effect of the ruling. This is all about denying wind coverage where wind and water both caused damage but it is difficult to distinguish the wind damage from the flood damage. The adjusters in their depositions say they were trained that the insured has the burden of proof. They say they did not have to prove how much damage was caused by flooding to deny all wind. That instruction came from State Farm’s interpretation of ACC.
    Look at what you wrote above – Hartwig is implying that only the flood policy will pay when flooding is one cause but not the only cause of the damage. You agree with him and simply point out that NFIP is limited to $250K. Call it by whatever legal doctrine you care to use, but it still means the wind policy does not pay wherever flooding contributed to the damage. That is why I say this interpretation of ACC makes the wind policy likely to be worthless in a major hurricane for people with flood risk. That practice also violates the contract between the insurer and NFIP in which the insurer has a fiduciary responsibility to taxpayers and is obligated to perform a proper adjustment of combined wind and water losses. NFIP does not give the insurer authority to bill all combined wind/water losses to the taxpayers alone.
    Just open your mind for a minute and think about what you are saying and the insurance companies have said. Of course they did not plead in court that they do not have the burden of proof – but they did argue that they only have to pay for wind damage that is separate from flood damage. The practical effect of that is that the insured has to prove that damage was caused by wind in order to collect and the insurer only has to show that flooding contributed to the damage in order to deny. That is shifting the burden of proof.

  8. If you are going to discuss insurance coverage, you have to be prepared to deal with a certain number of terms of art, or as you prefer to call them, “mumbo-jumbo.” I’m not making this stuff up, it’s in the pleadings and I’ve read it time and time again. I have myself written hundreds upon hundreds of denial letters, reservations of rights letters and so forth, and I know how to read them and how to write them. So to say that placing a section’s lead-in language in a denial letter means that the company relied on anti-concurrent cause language in denying it is simply incorrect. Also, it would be both stupid and suicidal for a company to admit in its pleadings that wind is covered if it did not actually believe that.
    My mind if entirely open, but I draw on my own experience as well as the observations I am able to make by investigating. Allocation of damage between wind and flood is as different from the anti-concurrent cause language as ice tea is from ICE-T.