A federal appeals court panel in New Orleans last week rejected a lower court's ruling that permitted a Mississippi couple to pursue a Hurricane Katrina homeowners claim even when policy-excluded flood damage was involved.

The decision by the 5th U.S. Circuit Court of Appeals overturns a ruling by U.S. District Court Judge L.T. Senter Jr. in Gulfport, Miss., that tossed out a portion of State Farm's policy language as ambiguous.

State Farm was sued by Long Beach, Miss., homeowners John and Claire Tuepker, after their house was reduced to a foundation slab by Hurricane Katrina and the insurer refused to pay for the damage.

At issue was language in the State Farm policy's anti-concurrent causation clause that rules out payment for covered wind damage claims when they occur at the same time as flooding, which the policy does not cover. The appeals court found that “the ACC clause in State Farm's policy is not ambiguous and should be enforced under Mississippi law.”

Under the appeals court ruling, the Tuepker case is effectively ended because before a jury could rule whether State Farm owed the couple damages, the insurer reached a settlement where the amount to be paid would be based on the outcome of the appeal. Had the Tuepkers won the appeal, their settlement would have been higher.

The settlement was also reached before the jury could assess any question of punitive damages.

The 5th Circuit Court did uphold Judge Senter on a ruling that the policy language excluded water damage and that storm surge damaging the Tuepker's home is “unambiguously excluded from coverage.”

However, Judge Senter, while allowing the water damage exclusion, permitted the jury to consider how much wind damage the home sustained.

“This reinforces the confidence we have in our policy language and we are pleased with the [appeal] court's ruling,” said a State Farm representative, Phil Supple. “State Farm continues to work with the Mississippi Insurance Department on a resolution agreement, and we've reevaluated 3,500 claims, adding another $55 million to the area's recovery effort in payments to policyholders.”

The Scruggs Katrina Group–the attorney combine that has litigated numerous Katrina claim cases, including the Tuepker matter–argued that there were some positive aspects to the latest ruling.

“Although the 5th Circuit held the ACC clause was technically 'unambiguous,' it severely limited its application only to cases where wind and water caused the exact same loss at the exact same time,” the group said in a statement. “That never happens in a hurricane. Wind damage is always separate from water damage, and wind damage always occurs first.”

The Scruggs Group also said the 5th Circuit decision “confirmed that if a loss is caused by wind, there is full coverage.”

A different three-judge panel of the 5th Circuit already has found that similar ACC language in Nationwide Mutual Insurance Company policies is not ambiguous and can be enforced.

The decision in Tuepker vs. State Farm “handed State Farm a huge win,” said David Rossmiller, a Portland, Ore., attorney who defends insurers and has made a study of the ACC provisions in insurance policies. He called the case “one of the biggest” of the legal disputes between insureds and their carriers over Katrina damage.

He added that not only was the ACC language upheld, but the ruling was a “clean opinion that confines itself to the necessary facts and is not going to be difficult for lawyers and parties to interpret in the future.”

In related action, the 5th Circuit scheduled oral arguments for Dec. 5 in another case involving State Farm and Katrina. In this case, Judge Senter ruled in January that State Farm owed a Biloxi couple $223,292 for their Katrina-demolished home and its contents. Judge Senter ruled that even though their policy excluded flood damage, the company did not prove during trial that the entire loss was caused by flood.

He then allowed a jury to resume deliberations in the case to determine punitive damages. The jury came back with an additional award of $2.5 million, which State Farm is appealing.

Special Reports /

Anti-Concurrent Causation Clause Upheld In Katrina Suit

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