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.