Hurricane Katrina – Anticoncurrent Causation Clause Enforced

March 14, 2008

In a case arising from Hurricane Katrina, the Fifth Circuit upheld an anticoncurrent -causation ("ACC") clause, finding that it was not ambiguous. Leonard v. Nationwide Mut. Ins. Co., 499 F. 3d 419 (5th Cir. 2007). An ACC clause denies insurance coverage whenever an excluded peril and a covered peril combine to cause the damage to the insured.

The Leonards have a home in Pascagoula, Mississippi. Hurricane Katrina's storm surge flooded the ground floor of the Leonard's two-story home. The Leonards were insured under a standard homeowner's policy issued by Nationwide.

The Leonards sued Nationwide over a coverage dispute. At issue was the scope of coverage for damage caused by (1) wind, (2) water, and (3) concurrent action of wind and water. The trial court held that the water-damages exclusion was enforceable and that no claims for damages caused by water were covered. Disagreeing with the trial court, the Fifth Circuit found that the ACC clause unambiguously excludes coverage for water damage, even if another peril, such as wind, "contributed concurrently or in any sequence to cause the loss." But the district court struck down the ACC clause as ambiguous and unenforceable.

The Nationwide policy was a "comprehensive" or "all-risk" policy that covered all damage to dwellings and personal property that was not otherwise excluded under the terms of the policy. Nationwide's policy covered only damage caused by the "perils" listed in the policy. It excluded damage caused by any other "perils."

The ACC clause read: "We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss . . . ."

The Fifth Circuit found that the flooding of the Leonards' home was a concurrently caused peril - i.e., a tidal wave or storm surge that was pushed ashore by Hurricane Katrina's winds.

The Court of Appeal also examined whether the efficient proximate cause doctrine in Mississippi prohibited enforcement of the ACC clause. Under that doctrine, where an excluded peril and a covered peril concurrently cause the damage, the insured may recover if it shows that the covered peril was the dominant and efficient cause of the loss. The appellate court concluded that nothing in Mississippi case or statutory law regarding the efficient proximate cause doctrine prohibited enforcement of the ACC clause.

The Leonards argued that the water damage exclusion was not enforceable because it did not use the words "storm surge." The Fifth Circuit found that "courts have interpreted water-damage exclusions like the one found in the Leonards' policy to encompass the peril of wind-driven inundation by water, or storm surge, for ages." The failure to expressly use the words "storm surge" did not make the exclusion ambiguous.

The Leonards final argument was that there was coverage because the agent misrepresented the terms of the policy, and the agent's statements modified the policy. The Fifth Circuit rejected the misrepresentation argument for two reasons. First, Nationwide did not authorize the agent to modify the policy. Second, reliance of the agent's representations was objectively unreasonable because the policy language clearly excluded water damage, including damage caused by flood. Moreover, there could be no modification because the policy's integration clause precluded oral changes to the policy.

For more information, please contact Jim Shelson.