The debate over wind-versus-water homeowner claims is not quite as cut and dried thanks to a ruling by the Mississippi Supreme Court in a Hurricane Katrina case.
The decision by the court in Corban vs. USAA means that wind damage from hurricanes might still be covered even if excluded flood damage caused by a wind-blown storm surge is also present.
The suit was filed by the Corban family following USAA’s rejection of their claim for damage to their Long Beach, Miss., home during Hurricane Katrina on Aug. 9, 2005.
After an inspection, USAA rejected the Corban claim, determining that “the majority of the physical damage to their property was the result of flooding” and that “payment for losses caused by flood, an excluded peril in the homeowner’s policy, would not be made under that policy,” the high court’s decision noted.
The Corbans filed suit in the Circuit Court of Harrison County, Miss., First Judicial District, which sided with USAA, finding that:
o “‘Storm surge’ is an ‘excluded peril’ within the ‘water damage definition’” of the policy.”
o “The water damage exclusion and anti-concurrent-causation clause are both “unambiguous.”
o “Although expressing a contrary interpretation of the policy language,” the ACC clause “will be applied herein as interpreted by the U.S. 5th Circuit Court of Appeals, thereby barring coverage under the homeowner’s policy for any damage caused by water as defined in the policy or caused concurrently or sequentially by wind and water in combination.”
However, in the Corban family’s appeal, the state’s highest court concluded that while the state circuit court “did not err in ruling that ‘storm surge’ is included in the ‘water damage’ exclusion,” the lower court had “erred in holding that the ACC clause is applicable” in this particular instance.
Therefore, the high court determined, the circuit court ruling regarding the ACC clause and storm surge issues is “affirmed in part and reversed in part. This case is remanded for further proceedings consistent with this opinion.”
This means a jury will be asked to decide how much damage was caused by wind rather than excluded water perils, and determine exactly what USAA owes, rather than allow the insurer to reject the entire claim outright due to flood damage.
Insurance Information Institute President Robert P. Hartwig told National Underwriter in an e-mail that the decision “introduces uncertainty into an issue that virtually all had believed had been settled once and for all by the federal courts.”
He added that “if insurers are now going to be held responsible for damage they believed–and the 5th Circuit believed–was excluded, there are obvious cost consequences. The inconsistency in the decisions between the state and federal courts will at some point need to be resolved.”
However, a USAA representative, Paul Berry, told the Biloxi Sun Herald the carrier was “pleased” with the state Supreme Court decision.
“The court confirmed USAA’s approach to handling Katrina claims in Mississippi is correct,” Mr. Berry was quoted as stating. “Although other insurers may have taken different approaches, USAA has always paid for damage solely caused by wind. We are also pleased the court confirmed USAA’s position and decades of insurance law that damage caused by storm surge is not covered.”
The newspaper reported that Mr. Berry said USAA believes its policies cover wind damage when homes also are subjected to tidal surge. (For the complete Sun Herald story, go to http://bit.ly/1s57ta.)
The American Insurance Association also reacted positively to the news. AIA said the decision “confirms that the water damage exclusion and anti-concurrent causation clause–two key issues in Hurricane Katrina litigation–are valid provisions of the insurance contract and will continue to be important to insurers in adjusting wind versus water claims.”
James Whittle, AIA’s assistant general counsel, went on to say that “first, and most importantly, the Corban decision reaffirms the long-standing flood exclusion provision found in most homeowners’ insurance policies that expressly excludes coverage for hurricane-driven water or storm surge.”
He added that “the water damage or flood exclusion has now withstood every post-Katrina court challenge and remains a part of regulator-approved insurance contracts throughout the country.”
He also said that “with this ruling, the court has provided meaningful guidance to consumers and insurers. Nothing in this decision changes the important role that insurers play in recovery by adjusting claims according to their contracts with policyholders.”
J. Robert Hunter, insurance director at the Consumer Federation of America, said that “consumers of home insurance are not in a position to understand that their insurers, whom they trust, would sell them wind insurance–or any other sort of insurance–and, when the event happened, yank the coverage out from under them when another event happened, even after they suffered the covered event.
He added that “the court ended uncertainty when it confirmed the consumer certainty that their insurers would not be so cruel.”