Nationwide Insurance won strong support for the anti-concurrent language in its Mississippi homeowners' policies yesterday when a federal appeals court in New Orleans ruled the language "is not ambiguous."
The anti-concurrent causation clause is used to override a damage claim from a covered cause such as wind when an event such as flood, which is excluded in the policy language, occurs in the same time period.
In its decision in Leonard v. Nationwide Insurance Co., 06-61130, the 5th U.S. Circuit Court of Appeals interpreted Mississippi state law as also backing Nationwide in its arguments that insurance agents cannot orally modify the language in insurance contracts, as the plaintiffs alleged in their lawsuit.
"The district court should never have considered this argument because [the agent's] statements are irrelevant to interpreting this policy as a matter of Mississippi insurance law," the panel said.
The appeal arose from a 2006 decision in the case of Paul and Julie Leonard, who sued Nationwide after the company refused to pay for storm surge damage to their home in Pascagoula, Miss. Nationwide argued the home was lost to excluded flood damage rather than wind.
But the fact the decision came out as Congress prepares to reconvene with a flood of bills and hearings on coastal insurance issues on its agenda will just add to the debate.
In a statement issued just hours after the ruling, Brian Martin, policy director for Rep. Gene Taylor, D-Miss., said, "This strengthens our case that wind and flood need to be in the same policy."
Rep. Taylor is the primary sponsor of H.R. 920, a bill recently passed by the House Financial Services Committee which would allow homeowners to buy wind insurance as well as flood insurance through the National Flood Insurance Program.
The bill could be on the House floor by Oct. 15, although the wind insurance provision faces an unlikely future in the Senate and is also opposed by the Bush administration.
But Robert P. Hartwig, president of the Insurance Information Institute, disagreed. "The decision does not back Mr. Martin," Mr. Hartwig said. "It contradicts his conclusion and backs the insurance industry's position that 'purchase of a flood insurance policy along with a homeowners' insurance policy will provide complete protection to homeowners in the event of a catastrophic event.'"
Joe Case, a spokesman for Nationwide, responded to the ruling by stating, "While we are studying the implications of the ruling, it does appear the court's ruling fixes the issues Nationwide addressed in its appeal."
Mr. Case added that this includes upholding Nationwide's anti-concurrent causation provision as clear and legal. "That portion of the ruling aligns with decisions handed down by courts across the country affirming the validity of anti-concurrent causation provisions," he said.
"Had the district court ruling been allowed to stand, it may have meant that Nationwide's Mississippi homeowner policies could have been forced to cover losses for which premium had never been collected" Mr. Case added.
"We will continue to study the decision and remain committed to resolving 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 insurance industry," noting that anti-concurrent cause provisions have been a key part of property insurance policies for at least 25 years, and "insurers rely on them to keep judges and juries from sticking them with losses they never contemplated."
He added that the underlying ruling by District Court Judge L.T. Senter was "somewhat strange, because to decide the case under the facts before him, he did not need to consider the anti-concurrent cause language at all–such language is only operable where multiple causes combine and result in the same damage."
However, Mr. Rossmiller said the Katrina wind and water acted separately, as separate forces, and caused separate damage to the house. "It would have been best had the Fifth Circuit simply said that, and that the water damage to the house was a single force that was expressly excluded by the terms of the flood exclusion, which includes a definition for waves driven by wind," he explained.
"The Fifth Circuit's analysis of the causation issue, like [Judge] Senter's, was somewhat off-base, but it nevertheless got the right result: the anti-concurrent cause provision is not ambiguous."
In comments to the Associated Press, Zach Scruggs, an attorney representing dozens of policyholders on the Gulf Coast, called the ruling disappointing.
Mr. Scruggs said the Leonards will appeal the ruling.
In his comments, Mr. Martin said that in its decision, "the appeals court is saying it is okay for a company to sell a policy that is likely to be worthless for a major hurricane if you also have flood risk."
He added, "If the wind insurance does not cover wind damage, that means it is impossible to buy insurance and know that you are covered."
"The flood policy is not supposed to pay for wind damage," Mr. Martin added. "Congress should ban any company with an anti-concurrent causation clause from participating in the flood program. I think this also helps our case that the antitrust exemption has to go and the federal government needs to take over regulation of insurance. Consumer and taxpayers need federal intervention."
Blain Rethmeier, an American Insurance Association spokesman reacted to the ruling by saying,"We view this decision and the others from the US Fifth Circuit that have recently preceded it as a clear affirmation that insurers need not fear that politically motivated decisions will undermine the precise agreements they have struck and upon which free enterprise is based."
This article updated Sept. 4, 10:20 a.m.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.