You might have seen that, besides the decision in the big In Re Katrina Canal Breaches Litigation last week, the Fifth Circuit decided a couple other Katrina cases on Monday.
This one, Arias-Benn v. State Farm, is pretty dull fare, but contains an interesting point on loss causation analysis. The issue — whether a homeowners policy covers damage to refrigerators when their contents rotted during extended power outages due to Hurricane Katrina. The important distinction for this case is that the policy covers the spoiled food itself, but not the refrigerator, unless the power outage was caused by some condition unique to the residence premises, such as a falling tree, while power lines remained energized elsewhere. Because the power outage was general, damage to the refrigerators themselves was not covered. That seems to me a pretty simple way to state the issue, I was disappointed this opinion by the Fifth Circuit was so opaque on such a straightforward matter. The decision is written as if no one but the two litigants is going to read it, and after all, they already know what is going on. To make sure I understood the court’s point, I had to go back to the briefing in the underlying case. To me, the really interesting part of this case was the plaintiff’s attempt to use the efficient proximate cause doctrine to say the damage should be covered. The Fifth Circuit’s ruling on that issue was again kind of fuzzy and dense, but what it was trying to say was this: proximate cause inquiry is merely the default rule of causal inquiry, and a contract can alter the causal analysis that must be used, and did alter the analysis in this case.
The other case was Chauvin v. State Farm, which affirmed the district court’s ruling that Louisiana’s Valued Policy Law did not apply to a total loss by flooding, an excluded peril. Two points from this case are worth remembering: the Valued Policy Law is meant to provide disincentive for insurers to underwrite insurance for property for more than it is worth and charging higher resulting premiums, and it is also meant to discourage policyholders from intentionally destroying overinsured property and reaping a windfall (in theory, someone is less likely to torch their property if they will merely break even, rather than profit, by the act). Again, this opinion could be written more clearly and explain how the law works more clearly. I wrote this post last year about Louisiana’s Valued Policy Law in a different case, it might be of assistance in further exploring this issue if you are interested. As I understand the law — and obviously there is some disagreement over how this works or the Chauvin case wouldn’t have been necessary — it says that the face value of the policy must be paid only if the total destruction is caused by a covered loss. If 50 percent of a loss is caused by a covered loss, 50 percent is covered, as you would expect, but not the entire loss.