Nationwide Insurance won strong support for theanti-concurrent-causation language in its Mississippi homeowners'policies when a federal appeals court in New Orleans ruled thewording “is not ambiguous.”

The ACC clause is used to override a damage claim from a coveredcause, such as wind, when an event such as flood–which is excludedin the policy language–occurs in the same time period.

In its decision in Leonard v. Nationwide Insurance Co., the 5thU.S. Circuit Court of Appeals interpreted Mississippi state law asalso backing Nationwide in its arguments that insurance agentscannot orally modify the language in insurance contracts, as theplaintiffs alleged in their lawsuit.

“The district court should never have considered this argumentbecause [the agent's] statements are irrelevant to interpretingthis policy as a matter of Mississippi insurance law,” the panelsaid.

The appeal arose from a 2006 decision in the case of Paul andJulie Leonard, who sued Nationwide after the company refused to payfor storm-surge damage–wind-driven water–to their home inPascagoula, Miss. Nationwide argued the home was lost to excludedflood damage, rather than wind.

However, the fact the decision came out as Congress reconvenedwith a flood of bills and hearings on coastal insurance issues onits agenda is likely to add further fuel to those who say a federalsolution is required, at least one lawmaker believes.

In a statement issued just hours after the ruling, Brian Martin,policy director for Rep. Gene Taylor, D-Miss.–who fought with hisown insurer over his Hurricane Katrina claim–said the ruling“strengthens our case that wind and flood need to be in the samepolicy.”

Rep. Taylor is the primary sponsor of H.R. 920–a bill recentlypassed by the House Financial Services Committee that would allowhomeowners to buy wind insurance as well as flood insurance throughthe National Flood Insurance Program.

The bill could be on the House floor by Oct. 15, although thewind insurance provision faces an uncertain future in the Senateand is also opposed by the Bush administration.

In addition, Robert P. Hartwig, president of the InsuranceInformation Institute, said “the decision does not back Mr. Martin.It contradicts his conclusion and backs the insurance industry'sposition that 'purchase of a flood insurance policy along with ahomeowners' insurance policy will provide complete protection tohomeowners in the event of a catastrophic event.'”

A Nationwide representative, Joe Case, responded to the court'sdecision by stating: “While we are studying the implications of theruling, it does appear the court's ruling fixes the issuesNationwide addressed in its appeal.”

Mr. Case added that this includes upholding Nationwide's ACCprovision as clear and legal. “That portion of the ruling alignswith decisions handed down by courts across the country affirmingthe validity of anti-concurrent causation provisions,” he said.

“Had the district court ruling been allowed to stand, it mayhave meant that Nationwide's Mississippi homeowners policies couldhave been forced to cover losses for which premium had never beencollected” Mr. Case added.

“We will continue to study the decision and remain committed toresolving all claims fairly and in a timely fashion,” he said.

David P. Rossmiller, a lawyer with Dunn Carney Allen Higgins& Tongue in Portland, Ore., and an expert on insurance issues,said the Leonard case “is of major importance to the insuranceindustry,” noting that ACC provisions have been a key part ofproperty insurance policies for at least 25 years. “Insurers relyon them to keep judges and juries from sticking them with lossesthey never contemplated,” he said.

He added that the underlying ruling by District Court Judge L.T.Senter was “somewhat strange, because to decide the case under thefacts before him, he did not need to consider the anti-concurrentcause language at all–such language is only operable where multiplecauses combine and result in the same damage.”

However, Mr. Rossmiller said the Katrina wind and water actedseparately, as separate forces, and caused separate damage to thehouse.

“It would have been best had the 5th Circuit simply said that,and that the water damage to the house was a single force that wasexpressly excluded by the terms of the flood exclusion, whichincludes a definition for waves driven by wind,” he explained.

“The 5th Circuit's analysis of the causation issue, like [Judge]Senter's, was somewhat off-base, but it nevertheless got the rightresult–the anti-concurrent cause provision is not ambiguous.”

In comments to the Associated Press, Zach Scruggs, an attorneyrepresenting dozens of policyholders on the Gulf Coast, called theruling disappointing. Mr. Scruggs said the Leonards will appeal theruling.

In his comments, Mr. Martin said that in its decision, “theappeals court is saying it is okay for a company to sell a policythat is likely to be worthless for a major hurricane if you alsohave flood risk.”

He added that “if the wind insurance does not cover wind damage,that means it is impossible to buy insurance and know that you arecovered.”

“The flood policy is not supposed to pay for wind damage,” Mr.Martin added. “Congress should ban any company with ananti-concurrent causation clause from participating in the floodprogram. I think this also helps our case that the antitrustexemption has to go and the federal government needs to take overregulation of insurance. Consumers and taxpayers need federalintervention.”

An American Insurance Association representative, BlainRethmeier, reacted to the ruling by saying: “We view this decisionand the others from the U.S. 5th Circuit that have recentlypreceded it as a clear affirmation that insurers need not fear thatpolitically motivated decisions will undermine the preciseagreements they have struck and upon which free enterprise isbased.”

Meanwhile, earlier last month, plaintiff attorneys asked thesame federal appeals court in New Orleans to review two of its ownrulings against class actions by homeowners disputing insurers'treatment of Hurricane Katrina damage claims.

The request for an en banc rehearing by all 17 judges of the 5thU.S. Circuit Court of Appeals follows decisions earlier in Augustby two of the court's three judge panels that uphold policylanguage excluding claims for flood damage.

In their petition, lawyers asked the court to set aside the Aug.8 decision of the panel of the court in Chauvin v. State Farm Fire& Casualty.

That decision upheld an Aug. 2, 2006 ruling by U.S. DistrictCourt Judge Sarah S. Vance in New Orleans that dealt with theapplication of a Louisiana state statute–the Valued Policy Law.

Under the Valued Policy Law, an insurer is required–when thereis a complete loss–to pay the full face value of the policy. Thelaw also precludes a carrier from accepting premiums for one facevalue and then claiming the loss is a lesser amount.

Judge Vance found that VPL was not intended to expand coverageto excluded perils such as flooding.

The appeals panel also rejected the contention by lawyers forhomeowners that the VPL means home insurers have to pay for thefull value of a policy when the house is destroyed by a combinationof flooding and hurricane wind damage.

Attorneys in their court papers argue that a rehearing isjustified because the case constitutes “extraordinarycircumstances,” according to Jeff Struckhoff, an attorney withLestelle and Lestelle, Metairie, La.–the lead law firm in theChauvin case. “There is a great deal at stake in these cases, bothfor the property owners and the insurance industry,” he said.

In the second case, lawyers are asking the full court to setaside an Aug. 1 decision by its panel in re: Katrina Canal BreachesLitigation. In that case, the appellate court decided that floodexclusions apply to man-made as well as natural disasters.

The appeals ruling reversed a November decision by U.S. DistrictCourt Judge Stanwood Duval in New Orleans. He found that floodexclusion language in many insurance company policies did not ruleout water damage from levee breaches caused by negligent design,construction and maintenance of the levees.

Drew Ranier, a partner for Ranier, Gayle and Elliott based inLake Charles and New Orleans, La., said lawyers for the plaintiffsasked for review because the 5th Circuit panel should havecertified the case to the Louisiana Supreme Court for itsinterpretation of state law before ruling, among other reasons.

“These are interpretations of Louisiana law at issue here, andit is ultimately the interpretations of Louisiana law that willprevail here,” he argued.

In fact, oral arguments in the first case interpreting theValued Policy Law stemming from losses from Hurricane Katrina, Sherv. Lafayette Insurance Co., will be held Sept. 12 before the 4thLouisiana Circuit Court of Appeals, based in New Orleans, Mr.Ranier said.

The case will then go before the Louisiana Supreme Court, whichis the ultimate arbiter of Louisiana law, Mr. Ranier noted incomments to National Underwriter and in court briefs submitted tothe 5th Circuit.