I blogged earlier this week about this case and thought about it some more. This case has kept pounding in my head like several incessant jackhammers on concrete. No wait, that would be the actual incessant jackhammers that construction crews are using outside my office building as they rip up the street, again and again, to put in yet another light-rail line. Nevertheless, this case has troubled me, so I read it again. And this further reading, I regret to report, has raised more questions than answers. Here’s a pdf of the case if you care to follow along.
- As I mentioned, for some reason the briefing in this case on the court’s CM/ECF electronic system is not accessible, which is contrary to the dictates of Congress. So I am unable to review the arguments the parties made, I have only the judge’s decision. Therefore, there may be a simple explanation why, it appears, Factory Mutual did not assert the anti-concurrent cause language in its excess policy’s flood exclusion, but I don’t know what it is. You may say as follows: California was the choice of law for contract interpretation, and California doesn’t enforce contractual anti-concurrent language — a state statute has been interpreted as mandating the efficient proximate cause analysis instead in property insurance cases. To which I respond by quoting from the opinion: "Factory Mutual does not perceive that a conflict of laws exists between the states of California and Mississippi on the issues presented. . . . Accordingly, the Court will apply the California rules of contract interpretation to these motions." I, on the other hand, perceive a big difference between the two states: the Mississippi Court of Appeals has upheld anti-concurrent language in insurance contracts, while California courts do not. So why give in on the choice of law?
- The decision says that Phase I of the litigation — which was all that was covered by the decision — is limited "to issues regarding contract interpretation, including any purported admissions of the parties." So issues regarding damages and the amount are not present in this phase. But contract interpretation is more than looking at the words of the contract — in first-party property insurance contracts, loss causation is what you are interpreting and the causation methodology selected determines the interpretation of the words. Yet in this decision causation is the dog that didn’t bark, as in the famous Sherlock Holmes story, The Adventure of Silver Blaze:
- Gregory (Scotland Yard detective): "Is there any other point to which you would wish to draw my attention?"
- Holmes: "To the curious incident of the dog in the night-time."
- Gregory: "The dog did nothing in the night-time."
- Holmes: "That was the curious incident."
- Remember that Judge Pregerson found that storm surge was not unambiguously excluded by the excess policy’s flood exclusion because storm surge is a force that is acted upon by wind, and wind is not expressly excluded, because the phrase "whether driven by wind or not," which was contained in the primary policy, was not present in the excess policy. When one says this, one is making an argument regarding the cause of the property damage. The judge, in fact, said this: "Given that a storm surge is a particular type of ‘inundation of water’ — an inundation caused, in part, by wind — this omission creates ambiguity in the Excess Policy’s Flood exclusion." (p. 16). This, in effect, must mean one of four things:
1. There is only one cause of the damage — wind: storm surge is merely a manifestation of wind that does not involve a second force of water/flood. This would be absurd, so it cannot be what the judge intended.
2. There are two causes of the damage — wind and water, acting in concert to create the same damage. Does this sound familiar to you? It might, it is the very definition of concurrent forces. However, anti-concurrent language in a contract nullifies that causation analysis.
3. There is one cause of the damage — wind that acts upon water to create a phenomenon called storm surge, which no matter what its cause, is not excluded. I have called this a reductionist argument, because property coverage for direct physical loss is inherently causal — some causes are covered and some are not. If this was the judge’s reasoning, it is incomplete.
4. Some other darn thing about which I have no clue what the judge is talking about.
Even if Pregerson had rejected anti-concurrent language as unenforceable under California law, one would think that he would have analyzed the policy’s coverage under California’s efficient proximate cause methodology. He could have stated the methodology was not needed because there was only one cause, and therefore no need to choose among multiple causes as to which is the proximate or dominant cause. Or he could have said that there were in fact two causes, and selected wind as the dominant cause. None of this was mentioned. Yet again, the causation dog didn’t bark. More questions than answers, which I don’t like, because it means I won’t be able to rest until I find the answers. And I assure you, I will.