Commentary on Fifth Circuit's decision in Tuepker v. State Farm
The Fifth Circuit, in an opinion released today in the appeal of Tuepker v. State Farm, reversed a lower court's ruling that State Farm's anti-concurrent cause language was ambiguous. The court also upheld State Farm's flood exclusion as applying to hurricane storm surge, and said that the anti-concurrent cause language in State Farm policies overturns a common law doctrine of property loss causation called "efficient proximate cause." Again, here is a copy of the decision. A huge win for State Farm, and a victory for clear, concise writing and reasoning without the court's saying more than it needed to, as another panel of the Fifth Circuit did in the recent appeal in Leonard v. Nationwide.
As regular readers know, I recently wrote a long article for the New Appleman on Insurance: Current Critical Issues in Insurance Law on anti-concurrent cause provisions in Hurricane Katrina litigation. In the article I said that, contrary to the perceptions of many, anti-concurrent cause language is irrelevant to almost all Katrina cases, and that, also contrary to public perception and the assertions of many lawyers and politicians, insurance companies have not denied Katrina claims based on anti-concurrent cause language. Click here for a copy of the article.
One thing I like about the Fifth Circuit's opinion it expressly acknowledges that State Farm admits that, if Katrina wind damaged a house, this is a covered loss that must be compensated. This has been consistently the position of every insurance company that I can think of in Katrina litigation, and this is a fact that has yet to sink in with the public and the media, with certain significant exceptions. Unlike the Fifth Circuit's Leonard decision, this opinion stayed away from theorizing about how anti-concurrent cause language might work in other circumstances and confined itself to deciding the facts before it. That is a good way for judges to stay out of trouble, and a good way to keep future litigants and lawyers from having to clean up a mess that didn't need to be created.
I don't think, however, it would have been straying too far afield for the court to have briefly discussed that, not only is the anti-concurrent cause language not ambiguous in this circumstance, it is not even relevant because anti-concurrent cause language was created to address when multiple forces cause the exact same loss. For example, think of a garage weakened by excluded wood rot. Maybe this garage would have stood for another 50 years, but in its compromised condition a covered windstorm came along and blew it down. Now, the garage would not have collapsed but for the excluded rot -- the wind and the rot, neither of which were sufficient by themselves to cause the damage, acted concurrently to cause the one indivisible loss. That, friends, is much different from the Katrina losses like those suffered by the Tuepkers. A house that suffers covered wind damage has been damaged by a single force that causes unique property loss as defined by the policy, and when that same house is destroyed by storm surge, it has again suffered another unique property loss from a single force. Neither force acted either concurrently (dependent on one another for the result) or sequentially (occurred one after the other like dominoes) to produce the same damage. Once again, the key: When forces produce different, distinct and divisible damage (heck, let's call them "the Killer D's"), they are merely single forces acting alone to produce single damage. And a single cause of single loss is an easy causation analysis, it's like a one-car accident. Until this is understood and acknowledged by the courts, confusion will continue to arise, like periodic outbursts of the Black Plague.
There is one section of the case I wish to call attention to, to correct something that might be misinterpreted. Read the entire paragraph, but I've bolded the section that concerns me:
As the Leonard opinion directs, any damage caused exclusively by a nonexcluded peril or event such as wind, not concurrently or sequentially with water damage, is covered by the policy, while all damage caused by water or by wind acting concurrently or sequentially with water, is excluded. Id. Thus, the ACC Clause in combination with the Water Damage Exclusion clearly provides that indivisible damage caused by both excluded perils and covered perils or other causes is not covered. However, as State Farm has conceded in its briefs here and below, the ACC Clause by its terms applies only to “any loss which would not have occurred in the absence of one or more of the below listed excluded events”, and thus, for example, if wind blows off the roof of the house, the loss of the roof is not excluded merely because a subsequent storm surge later completely destroys the entire remainder of the structure; such roof loss did occur in the absence of any listed excluded peril.
This opinion was written by Judge William L. Garwood, and it is well-written. But that bolded sentence could have been said better. What it should say is that all damage caused by water or damage that is caused by water acting concurrently or sequentially with a covered cause, such as wind, is excluded. Why? Because the court said it backwards. Remember what the anti-concurrent language says -- "We do not cover loss to any property resulting directly or indirectly from any of the following." Any of the following includes water damage, but wind is covered. So wind damage is always covered, unless the precise damage, or "accidental direct physical loss to the property," as the policy says, would not have occurred but for the occurrence of an excluded cause. You can dispute me on this, but you will lose, because I am right. The sentence as it reads makes it sound as if covered damage can be undone by the intervention of uncovered causes, and this is not so.
The court made short work of arguments over efficient proximate cause, and said Mississippi law does not mandate use of this analysis when the contract says otherwise. The explanation could have been perhaps a little clearer: efficient proximate cause is the default standard for property insurance loss analysis in almost all states, but it is mostly a common law doctrine that is not a matter of public policy and can be overturned and replaced with a different, contractually based causation analysis.
One final note: the court declined to say who was right on the allocation of the burden of proof for showing wind damage, which in reality is a far more important question in Katrina cases than the anti-concurrent cause language. The court had good reason for refusing: State Farm and the Tuepkers' lawyer, Dickie Scruggs, had entered into a High-Low Agreement with the payment depending on the outcome of the appeal, and the merits of the case therefore never would have been presented to a jury. In light of this, the court said the issue wasn't relevant.
One really final note: I was impressed Judge Garwood covered so much ground in 16 pages.
UPDATE: Here's the word from the Scruggs Katrina Group on the Fifth Circuit's decision from the SKG blog. They make a point, which would be stronger if there was any evidence that insurers had actually used the anti-concurrent cause language to deny claims.
Things are probably pretty jolly around State Farm headquarters these days: nemesis attorney Dickie Scruggs is being prosecuted for alleged criminal contempt, the insurer is suing Mississippi Attorney General Jim Hood, and today the Fifth Circuit hande...
My uninformed opinion is that the burden of proof is very important in deciding if coverage should apply.
The SF policy excludes water damage
regardless of whether other causes[wind] "acted concurrently or in any
sequence with the excluded event [ water] to produce the loss." This
simply means that water damage stays excluded even if concurrent or in
any sequence with wind damage. It does NOT say that wind damage loses its
covered status if concurrent or in any sequence with water. Can you
tell me how the 5th Circuit can read the State Farm policy language to mean that
damage caused by wind acting concurrently or sequentially with
water is excluded?[p12 of opinion]. This would appear to conflict with the
example thereafter given in the same paragraph where The Court opines that
" if wind blows off the roof of the house, the loss is not excluded
merely because a subsequent storm surge later completely destroys the
entire remainder of the structure." Wind and water occur in sequence
[and concurrently] in every Hurricane. Maybe the words " in any
sequence " do not mean what I think they mean. This, like Leonard, is in reality
an advisory opinion. The Court had before it an appeal of the denial of a 12[b] Motion to Dismiss. The trial court ruled that State Farm was not entitled to judgment as a matter of law.The 5th Circuit made no discussion of the facts of this specific case.I thought any determination of whether policy language is or is not ambiguous must be made in factual context , not in the abstract. Will insurers read this opinion to hold that wind damage is no longer covered in any hurricane because wind always "acts concurrently or in any sequence with" water in hurricanes? Sure reads that way.
I agree that this seems conceptually very difficult for people to understand. I myself have at times had a difficult time articulating exactly how it works. The key is to look at what the policy language says -- "the following" are always excluded, and can't become covered because covered causes acted concurrently or sequentially. Whenever the excluded cause is a but for cause of the damage, the loss is excluded. But people don't follow this through because their conception of what a loss is is vague. Some people think if the whole house is destroyed, that is the loss, but this is not necessarily so. Theoretically, it is possible for wind and water to act concurrently or in sequence to produce the exact same damage, but I am still waiting for anyone to come up with a practical example of this. One has to understand that causation analysis requires use of terms of art and acceptance of the reason for the causation analysis, which is multiple causes of the same damage. If there is just one cause of one damage, it's pretty simple. I am going to keep saying this and writing it until everyone gets it -- it seems self-evident to me at this point, but I remember when it wasn't and how much work I had to do to break through the pain threshold and truly understand.
ACC absolves State Farm of the burden of proving that damage was caused by flooding in order to exclude coverage. Showing that flooding acted concurrently with wind is a very simple standard to meet if concurrently simply means 'as part of the same storm' but not 'at the same time.' Without ACC, the courts require SF to prove how much damage was caused by flooding in order to exclude coverage. If they cannot prove it was all flooding, they would have to apportion the loss between flood and wind.
With ACC, they do not have to apportion the loss where proof is problematic. They can shift the burden to the homeowner to prove how much damage was caused by wind. ACC allows SF to take all the gray area, all the benefit of the doubt, in its favor.
There were no houses in Mississippi where 100% of the damage was from flooding. State Farm did not prove in any case that all damage was caused by flooding or that no damage was caused by wind. They paid only where wind was the only possible cause. That excludes billions of dollars of damage caused by some combination of wind and water and it means that it is impossible to buy insurance from State Farm that will cover all your hurricane damage. Flood insurance should only pay for the flood damage, not for any amount of wind damage, regardless of concurrency.
Gulf Coast residents paid high premiums for windstorm coverage with high deductibles specifically to insure their property against a major hurricane. For State Farm to suggest that they did not collect premiums to cover wind damage where there also is flooding is false.
Many of the people who sued State Farm bought all the insurance that was available to them, yet were left with large uncovered losses because their wind policy did not cover all the wind damage. In many cases, it really is not possible to distinguish the wind damage from the flood damage. If insurance companies do not have to apportion damage that was caused by the combination of wind and flooding, then they need to get out of the way and let the federal government offer coverage of wind and flood risk in one policy.
Jeez, Brian, do we have to go through all this again? Anti-concurrent cause language has nothing to do with whether there is proof of covered damage or not. If you take anit-concurrent cause language out of the insurance policy, you would get the exact same result. The insurer would assert the flood exclusion and say that's what caused the damage and there is no evidence of wind damage. Again, single causes, single losses. There is no evidence that what you are saying is true. I've read the depositions, I've read the pleadings, I've read the policies, I've read the history. There is no evidence that insurers have done what you say, in fact, they have taken positions contrary to what you are saying in their court pleadings.
State Farm said that it only covered INDEPENDENT windstorm damage to SEPARATE portions of the property.
There is no way in hell or even in the 5th Circuit they get away with that based only on the flood exclusion. They have to have ACC to make policyholders prove that wind damage is entirely independent and separate from flooding.
The flood exclusion requires proof that the damage was caused by flooding in order to exclude. ACC excludes unless there is proof that damage was caused solely by wind. That is why this was so important to State Farm.
Most of these cases do not have enough physical evidence to prove how much damage was caused by wind and how much by flooding. State Farm concocted scenarios blaming flooding and the homeowners presented scenarios blaming the wind before the flooding, but neither side had anything that could be called proof.
Has State Farm appealed Judge Senter's ruling that the flood exclusion only excludes damage that they prove to have been caused by flooding?
They appealed the ACC ruling because ACC would solve that problem for them.
Brian, second comment first. State Farm didn't need to appeal that, Scruggs appealed the determination that the flood exclusion was enforceable and unambiguous. Why would State Farm appeal something on which they won? They appealed the anti-concurrent cause language ruling because Judge Senter's reasoning was incorrect and because they have invested a great deal of time and money over the last 25 years in getting enforcement of the clause. It's just a business decision.
First comment, "proof" in the popular lexicon means something that is conclusivey established, but in legal circles all it meas is evidence that tends to prove the existence or non-existence of a fact. So proof means the same as evidence. Where there is evidence of severe flooding it is a reasonable presumption to believe that at least some and possibly all damage to a house was caused by flooding.
I am not sure why you have such a difficult time accepting what I say about the anti-concurrent cause language: if you accept it, you can still believe insurers are evil, it requires no reset of that mental view. I am simply describing what is, I am not advocating for anyone. Contrary to what you say, it is quite possible for wind and many other physical forces to cause separate, single property damage. Insurers have repeatedly admitted this.
Here is Judge Senter's ruling about the burden of proof for the flood exlusion. This is from the Broussard case:
Once the plaintiffs established this prima facie case [that the home sustained some wind damage], based on the stipulations in the pre-trial order, the burden shifted to State Farm to prove the merits of its affirmative defense based upon the water damage exclusion in the policy. Lunday v. Lititz Mutual Ins. Co., 276 So.2d 696 (Miss.1973). That burden of proof requires State Farm to establish, by a preponderance of the evidence, what portion of the total loss is attributable to flood damage and is therefore outside the policy coverage. The Lunday case has been cited with approval by the Fifth Circuit in U.S.Fidelity & Guar. Co. v. Planters Bank & Trust Co., 77 F.3d 863 (5th Cir.1996). There the Court stated, "As the plaintiff, U.S.F. & G. bears the burden of proving that exclusion (o) is applicable: '[W]here an exclusion is specifically pleaded as an affirmative defense the burden of proving such affirmative defense is upon the insurer,' " citing the Lunday case.
State Farm did not appeal this because State Farm believes that ACC relieves them of the burden of proving what portion of the total loss is attributable to flooding.
Flood exclusion = once homeowner establishes some wind damage, insurer's exclusion is limited to that portion of damage it can prove was due to flooding.
Anti-concurrent causation = once insurer establishes some flood damage, homeowner's wind coverage is limited to that portion of damage that he/she can prove was due to wind.
Since State Farm took a position in its appeal brief that is contrary to what you are saying, I can't see that as being the true strategy.