A prior post [here] discussed the Fifth Circuit's grappling with the proper measurement for covering loss of a home due to Hurricane Katrina. On rehearing, the Fifth Circuit altered its prior determination that the policy's loss provision was ambiguous. See Bradley v. Allstate Ins. Co., 2010 U.S. App. LEXIS 19476 (5th Cir. Sept. 20, 2010).
Hurricane Katrina totally destroyed the insureds' home, leaving only a slab. Allstate determined the dwelling was unlivable. Payments for structural damage under the insureds' flood policy were $63,800 and from their homeowners' policy $41,339.06, for a total of $105,139.06. Allstate later performed a retroactive analysis that appraised the pre-storm market value of the home at $85,000. The insureds indicated at a deposition they intended to rebuild their home.
Section 5 (a) of the Allstate policy promised to pay actual cash value if the insured did not repair or replace the damaged property. If the insured repaired the home within 180 days of the actual cash value payment, additional payments would be made to reimburse for the costs of repair. Section 5(e) stated that in the event of the total loss of the dwelling, the insured would pay the policy limits of $105,600. Elsewhere, however, the policy excluded coverage for loss to property caused by flood. Moreover, if there were two causes of loss and the predominant cause was excluded by the policy, there was no coverage.
The insureds sued Allstate, claiming they were entitled to policy limits of $105,600. The district court determined that, despite the total loss provision in the homeowners policy, the insureds were only entitled to the actual cash value of their home, which, prior to Katrina, was less than the total amount they received under their homeowners and flood policies. Accordingly, any further recovery would amount to a double recovery.
In its initial decision, the Fifth Circuit determined "total loss" was ambiguous because the provision was susceptible of two possible meanings. The ambiguity was construed in favor of the insureds, entitling them to a recovery of up to policy limits, or $105,600. Bradley v. Allstate Ins. Co., 606 F.3d 215 (5th Cir. 2010). The new decision abandoned the ambiguity determination, instead noting the relevant question was whether a non-covered peril (flood) was the predominant cause of the loss, an issue never decided by the district court. Accordingly, the district court did not address the total loss provision under section 5 (e), instead grating summary judgment to Allstate based on the actual cash value under section 5 (b). Consequently, the case was remanded so that the district court could evaluate the causation issues and ascertain the applicability of the section 5(e) total loss provision.
The Fifth Circuit also altered its prior discussion on the potential double recovery by the insureds. Previously, the court found an unresolved question on whether the appropriate measure of the insureds' actual loss was the cost to rebuild or actual cash value, believing the insureds had an option to rebuild. The new decision held that the insureds had failed to repair, rebuild, or replace their home within the two year period allowed under the policy and state law. Thus, the appropriate measure of loss was the actual cash value of the property, not the cost to rebuild or replace the property.
Further, depending on the factual determinations to be made on remand regarding the predominant cause of the damage to the insureds' property, either: (1) the total loss provision in section 5 (e) would dictate that the insureds were entitled to recover the full policy limits for covered losses; or (2) the actual cash value provision in section 5 (b) would dictate that the insureds were entitled to recover the actual cash value of their home, replacement cost minus depreciation. Under either section 5(e) or 5(b), the fact-finder would arrive at the proper figure for the actual cash value to establish the amount of actual loss. As long as the insured's combined recovery under their homeowners and flood policies was less than their actual loss, then the double recover rule would not preclude the insureds from receiving additional compensation under their homeowners policy.