George Dale: insurance companies paid Katrina money they did not owe
This is a fascinating story by Anita Lee of the Sun Herald -- reacting to the Fifth Circuit's decision yesterday in Tuepker v. State Farm, outgoing Mississippi Insurance Commissioner George Dale said as follows:
"All these people on the Coast who have criticized me for being in bed with insurance companies and not doing my job only have to look at what the courts have said in the Nationwide case and the State Farm case and see the absolute thousands of claims that were paid that, based on these two cases, were not covered perils," Dale said after the 5th U.S. Circuit Court of Appeals upheld language in State Farm insurance policies.
I have no doubt that preliminary adverse rulings in the Leonard v. Nationwide and Tuepker cases had something to do with the climate where insurance companies were willing to go for mass settlement of litigation and re-evaluate non-litigation claims as well, but let's remember something important. In neither the Leonard nor the Tuepker case, nor in any other Katrina case I have seen, did the anti-concurrent cause language of the insurance policy serve as the basis for a denial of wind coverage. Although Judge Senter's finding that anti-concurrent cause language was ambiguous was the main reason these cases were appealed to the Fifth Circuit, it has not played a major role in evaluation of Katrina claims, and has served mainly as a rallying point and a straw man for policyholder lawyers and critics of the insurance companies. I have been saying this for months now, and no one has brought me a case that will show the assertion of anti-concurrent cause language as the reason for the denial. Instead, in each instance that I have seen or that has been called to my attention, the actual reason was that the insurer merely said there was no evidence of wind damage. Because the anti-concurrent cause language and the reasons for its existence are conceptually and philosophically difficult to master even with some concentrated effort, what it is and what it does gets fuzzed up in people's minds, and it becomes inflated into some slavering beast stalking people by night.
More important was the Broussard v. State Farm case, which was not even remotely about anti-concurrent cause language, and was instead about the very issue that is central to Katrina litigation, allocation of the burden of proof of damages. In that case, State Farm was hit with a $2.7 million bad faith verdict, since reduced to $1.2 million (the case is also on appeal to the Fifth Circuit). You can add in cases like Weiss v. Allstate, where the insurer got ripped up by a jury in Louisiana as contributors to the impetus for settlement, as well as the fact that almost all civil litigation is settled before trial anyway. The harbingers set the price of settlement, it is true, but they don't necessarily force settlement. And even more important than these cases, I would say, was the anti-insurer climate and political pressure created by folks like Jim Hood and Dickie Scruggs. A combination of criminal investigations, media warfare, Congressional hearings and civil litigation led to an atmosphere that created higher risk for insurers and made settlements at a higher price more palatable.
Katrina-related legal developments are happening fast and furious. A sampling: a federal magistrate extended State Farm's injunction against Mississippi AG Jim Hood's criminal investigation of the insurer, while State Farm has filed court documents wit...
George Dale is the problem. He should not have approved ACC language in the first place, although I believe he has said he did not know it existed until after Katrina. State Farm agents have said the same thing.
Why should states allow insurers to sell wind policies that will not cover all wind damage?
If policies did not have anti-concurrent cause language in them insurers would charge more to issue policies in Mississippi or not sell insurance there at all. Then everybody could buy insurance from some guy in an old truck named Bubba who keeps the cash reserves in the pocket of his shirt.
Brian, is George Dale the reason Taylor's wind coverage got stripped out of the flood insurance reform bill in the Senate? I mean, the man can't possibly be responsible for all the evil in the world can he?
"Because the anti-concurrent cause language and the reasons for its existence are conceptually and philosophically difficult to master even with some concentrated effort, what it is and what it does gets fuzzed up in people's minds...."
Bingo! David, do you remember staying up nights pouring through this stuff, going through the whole Partridge and Garvey mess in California, no doubt struggling with concurrent and proximate causation cases nationwide and the sometimes divergent results when courts try to determine duties to indemnify or defend in cases of property damage under liability insurance policies and coverage under first party property insurance? It took you a long time to pull all of that together to come up with your clear and (to you) obvious way of reading ACC policy language. Why on earth do you assume that not only is this all really easy stuff (if only folks would listen to you) but, more tellingly, that all the adjusters, claims managers, and legal counsel associated with all the insurance companies have all interpreted these provisions the same way? You, yourself, pointed to some mixed signals and positions in State Farm's trial briefs in Judge Senter's court and then applauded when they seem to have finally gotten it right (in your view) when they had been working all along with some the most experienced and best legal minds in the industry.
In light of all this difficulty just about every one has with these issues, don't you suspect that at various times and in various places insurers have read and applied this kind of policy language differently? That, as conceptually distinct as BOP (burden of proof) issues may be from what the policy says about coverage when the evidence only shows one kind of damage or, as the 5th Circuit put it, "indvisible" damage involving excluded and covered perils, don't you think that just maybe someone not as smart as you might have adjusted a loss differently? Oh, I know, you say, give me proof of when and how an adjuster said something like, if you have any flood damage, we're going to pay nothing. Yea, like the insurers are keeping records of these things or anyone is writing down any more than they have to in order to process a claim.
As much as I applaud your efforts at tackling this difficult subject, you really are not helping the industry or the courts any by your ongoing declarations of "of course" or "it's so simple" and "why doesn't everyone see what is so OBVIOUS" that the ACC preface does NOT mean what EVERYONE seems to think it does? Didn't they tell you in law school that the law (in this case contractual language judicially interpreted) is what the courts say it is? It doesn't matter a fig what underwriters or scholars thought in the 1980's about concurrent causation, earth quake exclusions and endorsements, plumbing leaks, faulty work and the like if a court decides to make different law on hurricane damage claims (and we still haven't heard much from the state courts so far). It doesn't even matter what David Rossmiller thinks. It only matters what the judges say it means, and they're still differing over much simpler things like what is "earth movement" and what is "collapse."
In any event, whatever the courts ultimately do with these 2005 hurricane damage claims, I would think that it might have occurred to you that this messy causation policy language is not GOOD for anyone if policyholders, adjusters, underwriters, insurance executives, and politicians cannot make sense of it. The average homeowner should not have to read Plato and Garvey to come up with a sophisticated understanding of why they're going to get screwed if they get hurricane damage, why they can't buy enough coverage to rebuild their home even if they get both a homeowners and flood insurance policy, and why, if they complain, they're just going to be told they're damned lucky to get any insurance at all, and pretty soon no insurers will issue policies and no banks, as a result, will carry mortgages. What we all need is clear language that most everyone really can understand and apply. And if that is not conducive to the economics of underwriting, then something else must change so that both private and public players can do some rational planning based on clear understanding of who can and should pay for what.
Meanwhile, I hate to break this to you, but the burden of proof is THE kicker in all this. Some folks in the industry, rightly or wrongly, think that just because of the ACC preface, if an adjuster comes along and sees nothing but a Gulf coast slab left after a hurricane, then there is no coverage unless the homeowner can hire an engineer and a meteorologist (or attorneys like Scruggs who have a stable of them) to try to prove that wind blew the property to pieces before storm surge came and washed it away. The theory is that if even if there is evidence of both wind and storm surge damage, the ACC preface means there is no coverage for any of it because it is, in effect, "indivisible" or, as you say, the "same" damage to the same part of the property unless or until someone -- the policyholder -- can prove otherwise. If, on the other hand, under ordinary efficient proximate cause analysis, wind can be shown to be the predominant cause of the loss, then there should be coverage unless the insurer can show that there is separate flood damage to be excluded. This makes a big difference -- who has to prove what -- and it is ludicrous to speak as if one can talk about causation without addressing the only kinds of real evidence likely to be available. Adjusters, homeowners, and courts don't look at what "really happened." They can only look at debris and weather reports and surmise what happened. When there is clear and strong evidence that both wind and flood damaged property, that different parts may have suffered damage from solely one or the other at various points in time during the storm but no one can tell which happened first afterwards, one is faced with a burden of proof issue, not simply incidents of separate damage and incidents of concurrent damage by two perils that occurred only simultaneously. So, while it may be conceptually messy, it would appear that what insurers have always been after is using ACC language to win on the burden of proof issue, and the rest is all philosophical whistling in the wind.
Thanks for the long, thoughtful comment. In reality, many aspects of inssurance coverage law and insurance policy interpretation are extremely difficult, which is why I like it. Many things about being a lawyer are boring, but insurance coverage has many mental challenges. Issues like horizontal vs. vertical exhaustion, continuous trigger, allocation among insurers and many more produce many different viewpoints. Yet people must make the effort to understand them. I took the time to understand all the philosophical underpinnings of anti-concurrent cause theory, but long before I did, and you can check this in my posts, I was saying insurers were not asserting anti-concurrent causation as the reason for denial of wind payments.
As for whether it is easy or not, that is why I write, to explain things as I see them in a way that will make it easier for others to understand. Many people in the industry may have an imperfect idea of how anti-concurrent causation works, I don't know, I haven't polled them. But the evidence I see in the cases is that supervisors that have been deposed, claims adjusters that have been deposed, lawyers for the insurers, appear to understand it. Otherwise we would have to chalk up the fact that their testimony and briefs all came out one way to accident, and that is implausible. The fact that insurers have not paid certain wind claims may anger people, but the allocation of proof issue is entirely different. Merely because they are numerous grounds on which an insurer theoretically could assert a denial does not mean the insurer made use of all of them or that they factor into the denial. Some people are convinced by what I say, others take a while to be convinced, still others don't believe me. That's life.
Your second response is ridiculous. Dale is irrelevant in Washington. My comment was about ACC. Don't worry. We will win in the Senate. The insurance industry is adding to our support every day.
As to ACC, my point about Dale is that he had no idea what ACC meant or how State Farm would interpret it when he approved the language. A responsible regulator would have clarified the intent and interpretation of ACC before approving it.
After Katrina, he sent out bulletins and letters telling them to apportion damage between wind and flooding and they said no. Now he says they were right to say no to him and should not have settled the claims that he took credit for getting them to settle.
I think it is fraudulent to sell windstorm coverage with hurricane deductibles and yet include a trap door that excludes the most severe hurricane wind damage.
State Farm is pretending to offer full windstorm coverage but does not offer its policyholders any coverage of wind damage that cannot be proven to be indepenent and separate from any flooding. That is a substantial trap door that left policyholders with hundreds of thousands of dollars of uncovered losses even if they bought all coverage available to them.
If State Farm expects the flood policy to pay for both the flood damage and the wind damage that is not independent and separate from flooding, then they are violating their fiduciary responsibility to federal taxpayers and are defrauding NFIP.
As I have said many times, the bottom line is that ACC means that it is impossible to buy insurance that is certain to cover all hurricane damage. Why would any coastal resident buy insurance from State Farm if the ACC clause is explained to them?
As to the proof issue, read this slowly so you will understand it:
The flood exclusion excludes flood damage. It does not exclude any wind damage. The courts have consistently ruled that the insurer has the burden to prove that damage was caused by flooding in order to exclude coverage.
ACC does not exclude flood damage. It excludes wind damage that was not independent and separate from flooding. The insurer does not have to prove that damage was caused by flooding, but merely that it could not prove that the damage was independent and separate from flooding. The practical effect of that is that ACC means the homeowner has to prove that damage was caused by wind AND that the wind damage was independent and separate from flooding.
Honest assessments in thousands of Katrina cases would say that there was evidence of wind damage and evidence of flood damage but insufficient physical evidence to determine what portion of the loss was due to wind and what portion was due to flooding.
George Dale wrote State Farm and told them they had to apportion the damage between wind and flood in those cases. State Farm said they only had to pay for wind damage that could be proven to be independent and separate from flooding. Dale caved, but State Farm got clobbered in court. State Farm then went back to Dale and apportioned damage but paid less than they would have paid in the proposed settlement that Judge Senter rejected.
George Dale should stand up for what he said in his bulletins - that the insurer has to apportion damage of combined wind and water losses - and he should have enforced that policy when he said it.
Dale has no influence in Washington? Correct. But how much does Taylor have?I'll tell you what, when you've got a big spender like Chris Dodd saying your program is too expensive, that's like Chris Farley telling you you're too fat.
"...buy insurance from some guy in an old truck named Bubba who keeps the cash reserves in the pocket of his shirt."
Odd thing. Here in Mississippi I know a guy named Bubba, and, he's an attorney. However, I have yet to run across anyone with an old truck named Bubba.