Coverage of wind and flood damage under homeowners’ policies in the aftermath of Hurricane Katrina has been a hot topic of litigation. Because Hawaii is also prone to wind and flood damage, cases addressing coverage under homeowners’ policies has relevance here.
A recent case from the Fifth Circuit Court of Appeals, Tuepker v. State Farm Fire & Casualty Co., No. 06-61075 (5th Cir. Nov. 6, 2007), analyzed the impact of an anti-concurrent causation clause within the policy. State Farm refused coverage under a homeowner’s policy for destruction of a home by Hurricane Katrina. The policy contained an anti-concurrent causation clause (“ACC Clause”):
We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these.
Perils excluded by the policy included “water damage,” defined to mean flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not.”
The insureds sued, alleging their residence was completely destroyed by hurricane wind, rain and/or storm surge. The complaint further alleged that the policy’s flood exclusion was not applicable. State Farm moved to dismiss the complaint, arguing the plain language of the policy excluded water damage from hurricane and storm surge.
The district court denied State Farm’s motion. Although the court found the water damage exclusion valid, losses caused by both wind and rain raised an issue of proximate cause of the loss. Utilizing the efficient proximate cause doctrine, the court held if the policy was inconsistent with this settled rule of law, the exclusion was invalid. The court also determined the ACC Clause was ambiguous and ineffective to exclude damage proximately caused by wind or rain.
On appeal, the Fifth Circuit first determined the water damage exclusion was valid. In a prior case interpreting an almost identical water damage exclusion, the court found that “storm surge” was little more than a synonym for a tidal wave or wind-driven flood, both of which were perils excluded by State Farm’s policy. See Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419, 428 (5th Cir. 2007). Therefore, the storm surge that damaged the insureds’ home was a peril that was unambiguously excluded from coverage under the policy.
The court then turned to the ACC Clause, determining it was unambiguous and enforceable. Any damage caused exclusively by a non-excluded 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. Therefore, the ACC Clause in combination with the water damage exclusion provided that indivisible damage caused by both excluded perils and covered perils or other causes was not covered. The court cautioned however, 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.
Finally, the court considered whether the ACC Clause was unenforceable because it conflicted with the efficient proximate cause doctrine. Under this doctrine, when a loss is caused by the combination of both covered and uncovered perils, the loss is fully covered by the insurance policy of the covered risk proximately caused the loss. Therefore, if the policy covered wind damage but excluded water damage, the insured would be covered if it could show that the wind proximately or efficiently cause the loss, notwithstanding that there were other excluded causes contributing to the loss like flooding.
Here, however, the ACC Clause overrode the efficient proximate cause doctrine. Therefore, the district court’s holding that the ACC Clause was invalid to the extent it conflicted with the efficient proximate cause doctrine was reversed.
