Category Archives: First Party Insurance

Goodnight Irene

Chad Hemenway is out with a new piece on about Hurricane Irene and whether we will see any wind vs. water or anti-concurrent cause litigation. His verdict: no. The damage is mostly just flood damage. 

Of course, that didn’t stop cases such In Re Katrina Canal Breaches Litigation from happening several years back when New Orleans flooded due to storm surge. The essence of those consolidated cases was the contention that although water damage and even certain causes of water damage were excluded from coverage, policies generally did not explicitly exclude coverage for losses caused  human negligence in construction and maintenance of flood levees. (I wrote about In Re Katrina Canal Breaches here, here and here, among other places).

This human negligence argument has a better chance where an open peril policy excludes causes but does not expressly exclude results, and for some reason it does much better in challenges to earth movement exclusions and some other limitations. However, when it comes to flood or water damage exclusions, human negligence is the Washington Generals to the water damage exclusion’s Harlem Globetrotters. It just gets run off the court, and has its shorts pulled down by Meadowlark Lemon while shooting a free throw. The human negligence argument won out at the District Court level in Canal Breaches, but that was like winning the first quarter —  and it got crushed at the Fifth Circuit. 

Truth is, flood exclusions have been almost always upheld for a long, long time. If you are looking for a reason why flood exclusions fare better than earth movement exclusions, it is because where earth movement exclusions fail, it is generally not in cases of widespread earthquake damage. Instead, the failure usually comes in isolated cases involving mud slides or similar damage. Courts are reluctant to break exclusions that clearly related to low-frequency, high-severity losses, like floods and earthquakes. Depending on the judge, courts are more willing to see ambiguity involving high-frequency, low-severity losses. That’s my explanation, anyway. Maybe someone has a better one.  

OK, enough philosophy for now. Chad writes:

The point here is that any talk about lawyers expecting disputes over wind vs. water is just that—talk…probably from plaintiffs’ attorneys. The case law is plentiful.

As George Simpson, an attorney with North Carolina’s Cranfill Sumner & Hartzog, tells me, “It would be hard to imagine anyone opening a Pandora’s Box of issues that haven’t already been addressed ad nauseum.”

Dude has it right, I think. Read the whole story and see if you agree. Also, thanks to Chad for the shout out.     

Speaking of Irene, this gives me an excuse to talk about Frank Sinatra. Here’s a link to his version of Goodnight Irene. If you can get past the really annoying backup vocals that sound like a mix of drunken cowpokes and coked-up banshees, this song is a good example of what an amazing talent Sinatra was — he could take a song that is otherwise pretty forgettable, or that sucks, and sell it. Sinatra, whose theory of singing was to act the part he was singing, is right at the top of singers who could bring sincerity to their work.    


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Insureds, Intent, Indemnity and the Briar Patch


I grew up about 20 miles from the Canadian border and know quite a lot about Canada, but shamefully, not that much about Canadian insurance law. 

So this story in a Canadian legal publication caught my eye — it’s about a series of Canadian court decisions that say that if one family member or another insured burns down the house or otherwise intentionally destroys the insured property, the policy’s exclusion for intentional acts keeps even an innocent co-insured from recovery.

As the story indicates, this is a vexing issue to try to balance. As with many things about insurance coverage, trying to resolve questions often requires one to think pretty deeply about human nature and human conduct. There is an argument that if an innocent insured can collect for the intentional acts of another, there is an incentive for fraud or collusion. With acts like actually torching a house, this moral hazard is somewhat lessened, I think, because arson is a serious crime and volunteering to take up residence at the graybar hotel so your co-insured can collect insurance proceeds is, 999 times out of 1,000, going to act as a pretty powerful disincentive. Most of the time, the criminal will seek to benefit himself and any benefit to a co-insured will be incidental or unplanned. Besides, collusion is not really what the issue is here. This question posits a co-insured who is not colluding or engaging in fraud, but instead is the victim of aggression or criminal plotting by a crooked or nutty current or former spouse or some such sleaze; or possibly the victim of bizarre or crazed conduct by a drug-addicted, emotionally whack or otherwise out-of-control family member, such as a teenager. Maybe the co-insured just doesn’t know what some dirtbag family member is up to. Hey, don’t scoff, if you’ve ever known dirtbags, you do your best to tune them out. 

In the United States, how innocent co-insureds are treated varies. In my totally unscientific, quick and dirty survey of four jurisdictions and some texts and periodicals, I found most courts looked to give a recovery to the the co-insured, particularly because it was often the intention of the destroyer to deprive the victim of both property and security, if not life itself.  Remember, no one is saying the slimeball arsonist should get anything except an extended working vacation at the rock pile. The question is whether the innocent co-insured should get zero, half (or other proportionate share) or all the recovery.   

In Yerardi v. Pacific Indemnity, 436 F.Supp.2d 223 (2006), a federal district court in Massachusetts said there could be no recovery for the wife where there was an accusation she colluded with her husband to commit arson, because the policy unequivocally said no co-insured could recover for the intentional acts of another. Same result, the court said, for intentional misrepresentation by a co-insured — bango, you’re both done. Might the court have had a different take if there was a clearly innocent co-insured? It looks to me like the answer is yes. The court cited an older Massachusetts case that was a hit before your mother was born, a real golden oldie, straight from the nostalgia file, back in 1938, that said insureds were joint and nonseparable. The court said this had not been revisited, unlike in other jurisdictions. Which suggests to me the court might have given some thought to the feasibility of a different result in the facts presented a more compelling justification. 

Other courts have found, as in Republic Ins. Co. v. Jernigan, 753 P.2d 229 (Colo. 1988), that the "separation of insureds" or "severablility of insurance" clause means that the policy applies separately to each insured as if that insured was the only insured. In Jernigan, the innocent co-insured wife was entitled to half the proceeds of the policy where the husband intentionally torched the house but she didn’t know of the plan. However, there is something a little odd here. It’s like when you look at a movie where they are supposed to be playing chess and the board is cockeyed, with a white square at the far bottom left of the player instead of the far bottom right. Your chess board is wanked, your game is going to be wanked too.

Here, the "severability" clause relied upon by the court actually is in the Conditions of the liability section of the policy, not in the first part of the policy, which deals with property insurance. In the Conditions following the property section, sometimes there is a statement that if "you" or "any insured person" intentionally harms the property "for the purpose of obtaining insurance benefits," then the policy is void. Now, this leaves a lot of room for coverage for destruction caused by a vindictive spouse or messed up kid, because they are burning the place down to deprive someone of property or maybe even trying to kill them. But it would apply where, as in the case here, it appears the husband wanted to collect on the insurance.

Other times, such as in the standard HO3 homeowners policy, it won’t say anything like that in the property coverage Conditions, but it will say no insured can be paid more than his or his interest in the property, and one of the exclusions will preclude coverage if committed by "an insured" with the intent to cause "a loss." It will also say, in a section of Conditions that apply to both property and liability coverages, that any material misrepresentation by an insured, before or after a loss, voids the entire policy. It seemed odd that the Colorado court would rely on on the Conditions for third-party liability coverage when the issue was first-party property coverage — for example, I wouldn’t try to apply the anti-concurrent cause language from the first-party property section of the policy to the liability section, it just wouldn’t make sense, and that is why the policy has different sections, because not all stuff applies to everything. In coverage, there usually is no one clear right answer, but there is rather a range of answers that range in credibility from high to Anthony Weiner.   

Another court noticed this, the cockeyed chess board. In Montgomery Mutual Ins. Co., 170 F.Supp.2d 618 (W.D. VA 2001), the court said the Conditions in the liability section, such as the severability clause, could not be applied to a first-party property loss. However, the standard HO3 intentional acts exclusion had been replaced by a Virginia-required endorsement: instead of saying no loss was insured if inflicted intentionally by an insured, the exclusion said there was "no coverage for an insured who commits or directs an act with the intent to cause a loss." The court therefore allowed a mother to recover after her son set fire to the house, after firing a gun at the home and before driving a pickup into the flames. The son couldn’t have recovered, but the mother could.

Voquardson v. Hartford Ins. Co. of the Midwest, 264 Neb. 337 (2002), gives a pretty good discussion of how courts tend to break these things down: if the policy unambiguously says that loss caused intentionally by "an insured" or "any insured" is excluded, it precludes coverage for everyone. But courts look for just about any way they can find around this. Sometimes, the policy conflicts with a statute or there is a colorable argument that it conflicts, and the court will pounce all over that and find for an innocent co-insured. 

Not scientific at all, really. As with most coverage questions, there is a high degree of art involved. But then again, why else do coverage law if not for the art? I always tell newer people who are just learning the field, we are not computers, we are artists. One of my names for insurance coverage is the Briar Patch, not only because it is full of thorns that will hang you up, and not just because it is easy to get lost if you don’t keep a detailed record of your analytical trail, but because there is always another level, another thicket, beyond where your analysis is. The goal is to go so deep in the Briar Patch, to understand the policy so thoroughly, to understand the philosophy so completely, that arguments will be many layers beyond those of an opponent and will ring with credibility and logic, rather than mere partisanship. Easy to say, hard to do.

 (Image above found at

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Ambiguity, Earth Movement and Fibber McGee’s Closet

For reasons I have not fully resolved, courts treat earth movement exclusions much more harshly than flood exclusions (actually, "water damage" exclusions is more precise). Flood exclusions are almost always upheld and invited in for coffee and cookies, while a lot of the time — I haven’t worked out the precise percentage, but it’s higher than you might expect — earth movement exclusions get pimp-slapped. 

Courts often find ambiguity about the wording of these exclusions. Sometimes the ambiguity is found in the text of the exclusion. Sometimes it’s in something that wasn’t stated in the exclusion. Sometimes it’s because someone else said the exclusion was ambiguous so that creates a penumbra of ambiguity. Sometimes it seems like the court is confused about what ambiguity is or how to state why something is ambiguous but, like Justice Stewart’s famous description of obscenity, they know it when they see it.  

So I was interested to see this case, Powell v. Liberty Mutual, from the Nevada Supreme Court. I found it searching for recent cases about anti-concurrent cause language, which is a particular interest of mine.  In Powell, the court found an earth movement exclusion ambiguous when a water pipe ruptured and cause, er, earth movement. I guess we could say the water saturated soil in and around a dirt sub-basement, maybe that’s another way to put it. Supposedly this led the house to shift and crack, not too hard to believe. 

There was a pretty similar case in Nevada 20 years ago, Schroeder, in which a U.S. District Court upheld an earth movement exclusion in a State Farm policy, which has an anti-concurrent cause provision that has proved pretty hard to beat.   The Liberty Mutual policy had an anti-concurrent cause provision that is more standard, but still pretty challenging to beat. But the Supreme Court kind of shrugged it off, and the nearest I can come to figuring out why is that, if the earth movement exclusion is out, there is no excluded cause of damage to figure in the mix. OK, but what is the cause of damage, then? A catastrophic, sudden breach of the plumbing? That would be covered as an exception to the water damage exclusion, but it seems like to me the damage is hard to characterize as water damage alone — the water caused the dirt to shift, and that led to the house getting messed up. 

Maybe I’m missing something in the court’s opinion that gives a clear justification for the ruling. If so, you can point it out to me. And as an aid to discussion, here’s the Liberty Mutual anti-concurrent cause language and earth movement exclusion, followed by the court’s penultimate reasoning. 

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss . . . . Earth movement, meaning earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide, mine subsidence; mudflow; earth sinking, rising or shifting. 

OK, that’s the way the anti-concurrent cause language and earth movement exclusion read in the decision. Below is part of the court’s analysis. 

The [lower state] court granted Liberty Mutual summary judgment under the rationale that there was no reason to depart from the holding in Schroeder, especially because the facts were similar to those in Schroeder.

However, the earth movement exclusion in Schroeder is distinguishable from the earth movement exclusion in Powell’s policy. First, the policy in Schroeder was drafted differently than the policy here, and many courts have concluded that certain damage is excluded under earth movement exclusions in policies similar to the one in Schroeder. Schroeder’s earth movement definition is not all-inclusive because it contains the language "includes but is not limited to," whereas Liberty Mutual’s policy simply states "including." As such, the earth movement exclusion in Schroeder clearly applies to other events than those listed as examples in its earth movement definition and Liberty Mutual’s does not.

Second, Schroeder’s lead-in clause clearly states that it does not matter what caused the earth to move, if there is earth movement, the damage caused by that movement is excluded. When reading Schroeder’s lead-in clause and earth movement definition, one can discern what damage was excluded. Further, Schroeder’s earth movement definition includes earth movement combined with water, whereas Liberty Mutual’s earth movement definition does not.

The conclusions reached by the court in Schroeder were based on the specific language of the policy at issue in that case. Simply because the damage to Powell’s house might be excluded under the Schroeder policy does not mean it is excluded under the Liberty Mutual policy at issue in this case. Thus, we conclude the district court erred in relying on Schroeder.

Um, what? That’s not an explanation, that’s opening Fibber McGee’s closet. I notice on the docket that the insurance company has moved for reconsideration of this decision, and I wouldn’t be surprised if this is granted.  The Nevada Supreme Court has a neat website, by the way, where you can look up cases, see the docket and access stuff filed in the case. 

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Homeowners insurance for natural disasters

After a disaster like the Joplin, Missouri tornado, there are always a spate of stories like this one about knowing what homeowners policies cover and don’t, and getting supplemental coverage if you can. Mostly they are uninformative or wrong, but this one is surprisingly accurate for the most part. One thing about it is wrong: it says destruction of your home by "natural" fires aren’t covered. For the most part, this is untrue, although if your house is in a forest there may be an exclusion. This piece is non-Joplin related, gives more details, and answers the crucial question of whether you are covered if your ex- burns down your house. As an aside, when I say most stuff about insurance in popular media is wrong, I don’t say that with snark. I have a lot of sympathy for journalists, used to be one myself, and it is not easy to write something like this. It’s easy to be wrong about insurance. In fact, it’s so easy I’ve never yet seen opposing counsel or the other party in a dispute get it right. 

More disaster links:

Red tape adds to misery for Alabama tornado victims: A lot of this is simply confusion about what federal agencies do, and how the insurance process works. What a situation like this calls for, really, is a famous and rich litigation impressario to come in, pose as a champion of the people, and exploit the situation for profit.  

Texas windstorm negotiations fail:  "The marathon negotiations over the Texas Windstorm Insurance Association failed to produce a bill, probably prompting a special session later this summer over that issue. The insurer of last resort is short of funds and lawmakers are trying to reform the quasi-government agency and get it on sound financial footing. The last sticking points were over when and how much to compensate policyholders and their lawyers and became a proxy fight for trial lawyers and tort reformers." Like most brands, the well has run dry on the term "trial lawyers," but it was a brilliant naming strategy while it lasted. 

Insurers cool to news of improved flood defenses in New Orleans:  Good to see reporter Rebecca Mowbray still doing good, informative stories on insurance for a major newspaper. Got to know her during the Katrina Follies, always have thought highly of her work. 

Update: Ambulance-chasing contractors plague Minneapolis and swarm homeowners after tornado damage.  It’s pretty significant, but not all that hard to believe, that four out of four contractors checked out by the StarTribune were shaky.   


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‘Once the cash flow dries up your business is history’

A story from New Zealand, after the devastating quakes, about the importance of business-income insurance.  I see they are still calling it "business-interruption" insurance there. Outside of a relatively small cadre of people who deal with these them all the time, I seldom meet anyone, especially business owners (and sometimes adjusters), who really understands or even claims to understand how these policies work. Results in a lot of heartache, misunderstandings and recriminations.     

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Corban v. USAA: A few (more) words about anti-concurrent causation


I’ve been meaning to write about this case for some time, and I even went down to Mississippi last October at the invitation of the University of Mississippi and spoke about the case at the Mississippi-Alabama Sea Grant Legal Program conference a couple days before Halloween.  Mississippi is a great place, I love visiting there.  I’d say it’s probably my next favorite place after North Dakota.  Don’t get me wrong, Portland, Oregon is pretty nice otherwise I wouldn’t live here, but there’s a certain subtext of weirdness here consisting of getting all wee-wee’d up about needing to ban plastic grocery bags and create 600 miles of bike lanes at a cost of $1.5 billion.  On my priority list, these things fall, oh I don’t know, somewhere in the bottom .00001 percentile.  Maybe a little lower.  So anyway, as I mentioned, great visit to Mississippi, and best of all, while I was there no one subpoenaed my "ass." 

Corban v. USAA was decided by the Mississippi Supreme Court  in October.  This, of course, is one of the Hurricane Katrina cases, and from my perspective, it was the most important, because the court got it pretty much spot on, and because as the state’s highest court interpreting state law, it did away with some of the looseness of prior Katrina cases in the U.S. Fifth Circuit Court of Appeals, notably Leonard v. Nationwide.  I’ve been critical of the Fifth Circuit for falling prey to false doctrine and ruling in Leonard and a later case, Tuepker v. State Farm, that the anti-concurrent cause language in homeowners policies was applicable to Hurricane Katrina damage.  So I was pleased to see that the Mississippi Supreme Court said that anti-concurrent cause language did not apply at all to the type of losses suffered in Katrina.  This is an important vindication of textualism in interpreting insurance policies — reading what is there without supplying outside words, or importing concepts that are not supported by the text.

I won’t lie to you, it’s also a big deal to me because the analysis the court used on anti-concurrent cause is the one I long advocated and frequently wrote about, one that I wrote two lengthy scholarly articles about, and one that I advocated in Chapter 192 of the Appleman 2d treatise.  So I created this analysis and was committed to it, and I recall spending approximately 60 hours of a 72-hour period one weekend to finish the chapter for the treatise by the Lexis-Nexis deadline.  When I read Corban for the first time last October, I thought some of the language the court quoted sounded familiar, and then I realized that was because I had written it.  Understand, I’m not boasting, I’m just saying when I started looking deeply in Katrina litigation, this is the analysis I came up with after a lot of late hours, and that I was able to do so and provide a simpler, more coherent and textually justified methodology is a source of satisfaction to me even greater than my Scruggsblogging.  Intellectually, it was certainly a lot harder to master anti-concurrent theory than it was to report on Scruggs, although sadly, the former presents many fewer opportunities for comedy writing. 

The court didn’t agree with everything I’ve advocated.  They had a somewhat different understanding than I have of what "in sequence" means, and they also gave a slightly different nuance to what "concurrent" means, compared to the way I have explained it.  But these are small quibbles.  The most important thing is the court realized the key thing to look for is to identify the "loss," because that is what the policy covers, not "damage."  The Supreme Court also well understood that once loss has occurred and is covered, it can never become uncovered no matter what happens later.  And also very significantly, the court understood that Katrina involved separate forces that caused separate losses, and that anti-concurrent cause language applies only to an instance where multiple forces combine to cause the exact same loss.  You cannot possible understand what pleasure it brings me to read this case unless you go out on the road with me sometime and hear me speak about anti-concurrent cause language, because while a certain number of people buy my theory, these explanations generate an intense hostility in a certain number of people too. (I read the evaluations and try to learn from them, but I would have to disagree with one evaluation from an anti-concurrent cause talk I gave in San Antonio in March: my speech was probably not "completely worthless" — I did have three really good lawyer jokes at the beginning).  

It was also good to see that the Mississippi Supreme Court rejected some terms the Fifth Circuit had imported into the analysis, such as "indivisible" and "synergistically," which are extra-textual.  Look, I know what the Fifth Circuit was driving at, and I don’t want to be too hard on them, but these concepts are pretty difficult and even what seems like a minor miscaluation in methodology results in missing the target by a long shot.   You hit the thruster on your space ship at the wrong time and instead of coming in for a nice soft touchdown on some salt flats you hit the side of Mt. Everest and go splat.

Enough for now, except I would like to mention two things.  First, if you want to know about anti-concurrent cause language and intepretation enter "anti-concurrent" in my blog’s search bar and you’ll find a ton.

Second,I watched the webcast of the oral argument and I thought the lawyers, Judy Guice for the Corbans, and Greg Copeland for USAA, were amazing, really A+ oral advocacy.   But also, in the decision I noticed — and I am not making this up — that the court said Attorney General Jim Hood was also granted permission to speak as an amicus.  I missed this on the tape, but if true, it’s hard to figure out.  What was he there for, a little comedy relief, maybe?  I mean, Hood doesn’t know anti-concurrent from antipasto, I’ve seen him talk about it before. Hood thinks when you say "in sequence" that you’re talking about Liberace.  What was that he said in that Katrina testimony he gave before Congress?  Oh yeah, "It’s the wind, stupid!"  Indeed.



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Kodrin Katrina case: Fifth Circuit vacates punitive damage award against State Farm, upholds verdict of wind damage

Kodrin v. State Farm is one of the Katrina cases, which I wrote about previously here and here.  It was different from many Katrina cases in that, at least as far as what was presented to the jury, there was nothing to sort out about wind vs. water and what damage had been caused by each.  So this is not one of the cases where anti-concurrent cause language became an issue — although as I repeatedly talk about, under the facts of Katrina damage, anti-concurrent cause language should never have been an issue, because the facts of Katrina damage do not support analysis of the damage as caused by concurrent causes. 

I never get tired of saying this: I will be saying it in my speeches at the PLRB conference in Seattle later this month, and I probably will still be saying it when I am a little old man sitting in a rocker in front of the TV complaining about how the neighbor kids are so loud I can’t hear my programs and by the way, why doesn’t the milk wagon come anymore? No set of facts I have looked at — and I have looked at a lot of them — shows that any Katrina damage was caused by anything other than single forces working independently.  A lot of you may have heard this before, so you can skip the rant and jump down to a further discussion of Kodrin, but I think it bears repeating because this point is so easily lost in time.  Homeowners policies insure against damage to property, property has various elements.  Unless multiple concurrent forces cause the same damage to the same element of property, that is, unless they worked together to cause that result and unless it would not have occurred except for the combination, concurrent causes were not at work.

Kodrin is the ultimate in single causation questions: that’s all the jury heard, a dichotomy between the Kodrins’ claim that wind alone destroyed their house, and State Farm’s claim that flood alone destroyed their house.  This may sound like a strange set-up to you, until you look at the facts of the case: the whole neighborhood was hit by Katrina flooding, which washed the rest of the houses off their foundations and kind of pooled them in one location.  These homes, although severely damaged, were not utterly torn down and demolished.  The Kodrins’ home, among all of them, was the only one obliterated. 

This led them to,  as the Fifth Circuit put it in their opinion from a few days ago, "speculate" that a tornado destroyed the house.  Their claim was belied by their acceptance of the policy limits of their flood insurance.  I don’t say this to be a smart alec, but rather because I wonder about this flood payment in Kodrin and a number of other instances: did they give the flood money back or did they keep it? I ask this because the choice before the jury was all wind or all flood, and the jury found all wind. So what happened to the federal flood money?   

The jury, as the first link above shows, felt the Kodrins had been treated unfairly and awarded them the maximum amount under the policy plus punitive damages under Louisiana law.   I’m not sure if I’m adding it up correctly, but it looks like the punitive damages were about $135,000, plus about another $140,000 in statutory attorney fees and costs, not a huge amount in the scheme of things, but the precedent was important to State Farm, I imagine. 

The challenge to the verdict on the damage itself, as opposed to the punitive damage portion, was a steep climb uphill — you have to show that the jury instructions were wrong and prejudicial, and stuff of that ilk.  Most of the time such challenges don’t succeed, and this one was no different.  Even though it wasn’t necessary for the court to parse out causes — because whether you believed it was wind or water that caused the damage, it was presented to the jury as an instance of single force causation — I was pleased to see the Fifth Circuit panel recognized that merely because flood destroys a house does not mean that covered wind damage didn’t previously occur.  This is the example they used, in footnote 15 on page 7:

It is important to distinguish between this dispute over which force totally destroyed a home and cases in which the parties disagree as to the causes of various damaged elements of a home. Distinct elements of damage would have to be considered separately. Flood damaged carpets, for example, would not bar recovery for a wind-damaged roof.

Now, this gives me some hope that this panel gets it when it comes to an understanding of the proper analysis to differentiate between single and multiple force damage: first determine what the loss is.  The example used, flooded carpets and wind-damaged roof, was a fairly common scenario in Katrina damage, but it really doesn’t present any analytical problems, only problems of proof.  The real test of understanding is the realization that the carpet itself, or the roof itself, could be damaged by two single forces that caused separate damage, one covered and one uncovered, and that this does not make them concurrent forces. 

A house is not a unitary phenomenon of property, it has constituent elements that themselves are property.  Constituent elements such as carpet, likewise, are not monolithic, but have various degrees of worth as property — merely because wind tears some pages out of a book does not make the book worthless, although its value might be lessened considerably.  There is still some value there when the book is destroyed by flood — the two forces worked separately to cause separate damage, and the damage from the first force still occurred and caused damage even though the second force would have taken all the value of the book away.  The key is would have: in the hypothetical I pose, that is not actually what happened, and so would have doesn’t matter.  However, as I said, it wasn’t necessary for the Fifth Circuit to consider that issue this time, and so they didn’t, and this is just as well, because explanations from the Fifth Circuit of Katrina causation analysis usually haven’t been that great.

Although the court left standing the jury verdict on property damage, it vacated the award of punitive damages.  The court said, in light of the evidence, there could be an honest dispute about what caused the damage to the Kodrin home.  Again here, I don’t know what happened with the flood payment, whether that was returned or not, or the precise circumstances under which it was applied for, paid and accepted, but the very fact of a flood payment creates an idea in my mind that there could be an honest belief that flood caused the damage. 

Here’s what  the court said about bad faith, when it exists and when it doesn’t: 

State Farm declared that it determined flooding was the more likely cause of the damage to the home because (1) the Kodrins’ neighborhood was inundated when a levee was overtopped during Hurricane Katrina, (2) the Kodrins’ home was just one house away from that levee, and (3) many other houses in the area were lifted off their foundations and destroyed by the floodwaters. The Kodrins themselves acknowledged that their claimed wind damage to their home was unusual in their neighborhood, advancing that a tornado must have caused the damage as their speculation why their home was the only one in the area destroyed by wind, not flooding. On these facts, we perceive no probative evidence that State Farm acted in bad faith. State Farm’s refusal to pay was with reason, even if the jury ultimately rejected that reason. The Kodrins have failed to prove otherwise; they essentially ask this court to find bad faith any time an insurer denies coverage and a jury disagrees. This would unduly pressure insurers to pay out claims that they have reason to believe lie outside the scope of coverage, solely to avoid penalties later. Such a rule would pervert the presumption that insurers act in good faith unless the insured proves bad faith, and this is foreclosed by Louisiana law.




Filed under First Party Insurance, Industry Developments

Anti-concurrent cause: can an uncovered cause be superfluous to the analysis?

Despite the fact that anti-concurrent cause language has been around for quite a few years, if you go looking for the Anti-Concurrent Philosophy Library, you won’t find it — you’d be lucky to find enough to make up a slim book, much less a library or even a shelf in a library.  In other words, as with many insurance coverage issues, there is a great deal of room for scholarly examination.  You might have noticed the same thing I have — when you research just about any tough question, it’s not hard to find stuff that appears to be about the subject, but when you drill down into it, most of what you find is surface area with no core underneath.  The emphasis in the mass of legal literature on discovering what courts do — the search for rules — is often a chimera because, and I say this without rancor, courts often don’t know why they do what they do.  They have to do something so they do it.

Anti-concurrent cause theory is just one example of how a lack of philosophical inquiry and lack of curiosity as to "why" can harm the debate.  If you recall, during Hurricane Katrina litigation, anti-concurrent cause became politicized in large part because there was a very imperfect understanding of what anti-concurrent language was, what it does or why it exists.  That lack of understanding continues today: witness this editorial from Wednesday’s USA Today.  While I generally agree with the main thrust of the editorial — that proposals to "fix" the National Flood Insurance Program by increasing moral hazard and expanding the size of the program are utter folly — I’m suspicious of the depth of understanding of the writers based on these sentences about seven-eights of the way through the article:

Backers of the wind-damage proposal do have one thing right.  Private insurers should not be able to lull people into believing they are covered for hurricanes and then try to dump all the claims on the government.  That’s what some insurers did in 2005. 

Such bait-and-switch tactics could be handled with smarter regulation. Or, better yet, by the government getting out of the flood insurance business and leaving the issuance of policies to the private sector. 

Huh? Where are these guys getting their information, from the Third Book of Scruggs, Chapter 7, Verse 36?  If you’re going to go with the faux populism, at least try to use a line that hasn’t been totally discredited.  Bait and switch?  This issue has been tried in court, and found wanting — the "bait and switch" argument is as mythological as that photo of Sarah Palin with a dead Bigfoot she  shot.  These folks are behind the times — they probably walk into a drugstore and wonder why there are no bottles of laudanum on the shelf, they’re probably sitting around in rocking chairs emitting some Grandpa Simpson-like rant about why the milk wagon is always late, they’re probably trying to figure out how to play CD’s on their Victrolas.  

Which brings me to the question in the headline on this post.  You may recall some time ago I wrote this post about an anti-concurrent cause case in the Colorado Court of Appeals that had cited my work and theory on anti-concurrent cause — Colorado Intergovernmental Risk Sharing Agency v. Northfield.  (I see the link to the case has gone bad in the post, here’s another better link.) A roof on a building collapsed.  At trial, a jury said the damage was 90 percent attributable to the weight of snow on the roof, and 10 percent to rot caused by humidity from a swimming pool.  Damage caused by snow is a covered cause, rot is uncovered.  Therefore, potentially, this is a classic case for consideration of an anti-concurrent cause clause — if the two causes resulted in the very same damage and that damage would not have happened but for the combination of the two forces.  Remember, I said potentially.

The Court of Appeals looked at the damage as being one loss, caused by a concurrent of the two forces.  Since one was uncovered, the anti-concurrent cause language made the entire loss uncovered, the court said.  However, the losing party in the appeal, CISRA, filed a petition for rehearing before the full Court of Appeals (a unanimous three-judge panel decided the case earlier).  It’s been a number of weeks since the petition, and the court has yet to accept or reject the petition, but the fact that it has not rejected it yet might be a favorable sign for CISRA that the justices are seriously considering taking another look at the case. 

The petition for rehearing, which you can see here, comes up with a good argument — did the weight of the snow (a covered cause) actually combine with the rot (an uncovered cause) to result in the loss, or were they two separate forces causing separate damage?   This is the very question I asked regarding Katrina damage, and the answer I came up with, which is now pretty well accepted, was that uncovered flood and covered wind had not acted concurrently in Katrina damage and therefore anti-concurrent language was not implicated at all.  This petition for rehearing is pretty shrewd in driving for the same point — it says that the jury verdict and the evidence at trial were only that two independent causes resulted in different property damage.  I call this shrewd, because if you are going to fight anti-concurrent cause, you don’t win by weighing yourself down with bogus arguments about "bait-and-switch" and such amateur theatrics.  That’s like going into combat carrying an 80-pound cast iron kettle in your arms instead of a battle-ax.   Taking on anti-concurrent language as ambiguous or the like is, in my view, often not the best course. Instead, working within the framework I have explained is the best way to have a sophisticated, informed debate, and this petition does so.

Essentially, the petition considers the concept of "loss,"  which in the analysis I advocate, is the first step.  If you can find two losses, you can find a way to argue that anti-concurrent cause does not apply.  If you can find only one loss, it’s much harder, because then you have to try to peg the covered cause with 100 percent of the loss, and that is a harder row to hoe — many anti-concurrent cause clauses explicitly say any combination of covered and uncovered causes (theoretically 99 percent versus 1 percent) results in non-coverage.  So again, it’s vital to find different losses caused by separate forces acting independently and not concurrently. 

Does this petition for rehearing do a good job of that?  I think yes.  The facts of this case are more involved than I gathered upon just a reading of the Court of Appeals decision.  Whether this will convince the Court of Appeals to rehear the case or not, or to reverse it upon rehearing, I don’t know.  It is a very sophisticated argument, though.  One component of the argument, it seems to me, is somewhat different than just looking for two separate causes of loss, it ventures into uncharted territory — if a covered cause was sufficient in and of itself to cause the damage, can it truly be said the two causes contributed to the loss.  To use an extreme example, does it matter if a garage was weakened by rot if it is blown into toothpicks by a falling meteorite? Could the rot be said to be a concurrent cause of the loss in any meaningful sense?  I think if we ask for a show of hands or commission a Gallup poll, most people will say no.  So my question is this: if the weight of the snow on the roof would have caused its collapse regardless of the presence of rot, is the rot a concurrent cause?  Just asking.  Seems to me if the Court of Appeals takes up that issue, there is some new ground to be broken. 



Filed under First Party Insurance

Contract claims settled in McIntosh, more thoughts on end of case

Here are some additional thoughts I promised about the end of the McIntosh case.

— You may remember my post from last week about the plaintiffs’ dismissal of extra-contractual claims, or in other words, bad faith and punitive claims against State Farm.   Well, the entire case is over now.  The insurer announced in a press release Monday that the contract claims were settled for $250,000, and you can look at Judge Senter’s order of dismissal and see that each side bears its own attorney fees.  However, seeing as how the McIntoshes got the full federal flood payment for their home, $250,000 seems like somewhat more of a sum than you would suspect would be directly linked to covered wind damage to the house, especially as the plaintiffs admitted in their motion to dismiss the bad faith claims that "State Farm properly tendered payment to Plaintiffs for wind damage covered under their homeowners insurance policy prior to the time that the dwelling was inspected by an engineer."

The way these things often work, the settlement includes some consideration that the plaintiff’s lawyer has to eat, and that gets built into the settlement if it isn’t otherwise explicitly paid.  I don’t know what arrangement the Merlin Law Group had with the McIntoshes — almost certainly it was a contingency fee case, and contingency fees typically run from around 30 percent to as high as 40 percent. Incidentally, I see nothing on the Merlin Law Group blog about the case.  It’s also not unheard of for an insurer to up the amount just a little, giving all possible benefits of the doubt and then some to the plaintiffs, to get something to go away if the insurer gets something it wants out of the deal.  And in this instance, what State Farm gets is the chance to say that the signature Katrina case against it brought by Dickie "I’ll Fly Away" Scruggs was bunk of immense, Scruggsian proportions.   

— Just think again for a moment what the plaintiffs’ motion said: "no credible evidence that State Farm engaged in bad faith with respect to the adjustment of Plaintiffs’ claims under their homeowners policy."  I mean, that’s a heck of a thing to say, isn’t it?  That is what is supposed to happen when a lawyer realizes claims are unsupportable — dismiss them — but in the real world it happens all the time that lawyers hang onto dubious and even obviously bogus claims until you pry them from their cold, dead hands.  When such claims are dismissed in a settlement, the settlement is almost always a confidential complete release with both sides saying no one makes any admissions about nothin’.  So to see that in writing was startling to me, and could only happen where a) a plaintiff’s lawyer had no stake whatsoever in defending the conduct of his predecessor, b) his clients would benefit by distancing themselves from that conduct and c) the claims truly were unfounded and the lawyer would face ethical problems by saying otherwise (if "c" were not true, the lawyer would just be supplying ammunition against himself and other clients in other lawsuits, which itself would give rise to ethical problems). 

— Let’s talk about the State Farm press release for a bit.  The tone of it, to me, is remarkably restrained, considering they could have climbed on top of Scruggs’ burial mound and crowed and crowed about this.  Go back and read it again — it works better to undersell it, don’t you think? 

— I was interviewed last week by Chad Hemenway of A.M. Best about the insurance landscape after Katrina.  Chad, by the way, is one of my favorite interviewers — great sense of humor and, of course, dude knows insurance. One of the things I told him (I think I did, I tended to ramble on somewhat in the interview) was what I’ve said before, the State Farm merger of Katrina legal and public relations strategy was the most sophisticated I have ever seen or heard about from a corporation.  And I say this as both a lawyer who knows a few things about insurance and as a former journalist (and current interested observer of press and public relations matters).  No matter what you think of State Farm. I think it’s beyond dispute that, beginning about early 2007, they could not have handled the Katrina controversy any better, from their perspective, than they did.   

Let’s just take a look in the rear-view mirror at some of what happened.

  • Scruggs and the Scruggs Katrina Group disqualified from Katrina cases.
  • The Rigsby Sisters barred from testifying and driven off into the wilderness in disgrace for the "sham consultancy" with the SKG.
  • A successful federal court lawsuit against Jim Hood, the Mississippi Attorney General, that forced him to back off further criminal investigations of the insurer.  
  • Hood’s later dismissal of the civil suit he filed against State Farm for allegedly breaching an agreement with Hood to institute a claims procedure re-evaluating thousands of Mississippi Katrina claims (the agreement fell apart when Judge Senter refused to approve parts of the deal, and State Farm later reached a similar agreement with then-Mississippi Insurance Commissioner George Dale). 
  • The Trailer Lawyers were run off Ex rel. Rigsby, the ever-shrinking False Claims Act case.
  • Federal prosecutors have apparently ceased their investigation of alleged insurer fraud, which had been pursued for years with an Inspector Javert-like tenacity.  Someone remind me — how many millions of taxpayer money was spent on that investigation?  

You can probably supply some additional bullet points, but you get the idea.  Some of this, you might say, was luck — like the conspiracy to bribe Judge Lackey totally discrediting Scruggs and anyone connected with him, and forcing a new look at the "whistleblower" Rigsby sisters and the entirety of the Katrina Follies.  I wouldn’t use the word "luck," however.  Chance always plays a part in human designs, but you always have a choice about what to make of the chance.  Also, was it really luck that Scruggs Scruggsed himself, or given the way he’d comported himself since the beginning of Katrina litigation, was it more likely than not that the Scruggs Katrina Group would fall into infighting, leading to The Great Unraveling? 

— You know, I mentioned last week I heard some journalist is going to write the definitive Scruggs story, and I wish him all the best.  If asked, I’ll provide whatever help I can, including possible book titles such as The Rise and Fall and Kersplat of Dickie Scruggs.  

— How long till that Mississippi Insurance Department market conduct survey comes out on State Farm?  You can tell what it’s going to say, if you’ve been paying close attention to the smoke signals.  It will cite instances where State Farm made mistakes in adjusting, but will find no evidence of malicious intent or a company-wide plan to underpay.  However, it will cast shadows on Scruggs, Hood and the Rigsby sisters, among others. 

— One thing I hope someone writes about is the mindless tribalism that rode the Scruggs Express down the tracks.  You could paint some other names on the side of that train — such as Hood, Lott, Taylor.  How stupid do those Congressional hearings look now?  I said as much at the time.  Emotions are hard to contain during times of actual or perceived crisis, I know.  But I also know what Thucydides said about the Peloponnesean War: war is a harsh teacher that lowers the character of men to the level of their fear.  And believe me, it’s not just war — you can see the same thing in the political rantings going on right now.  Things haven’t changed much since the time of Thucydides, which is why he called his history a gift for the ages — because the things that were are the things that will be, as long as human beings are the way they are.   And they ain’t never gonna change.  If they were, they’d have done it by now.

— Hard to believe, I know, but there is still a lot to tell about this Katrina saga.  We’ll talk more about this soon.      




Filed under First Party Insurance

McIntosh case punitive damages eliminated, case settled

Holy Cow! The McIntosh case, which I have referred to as the Verdun of insurance litigation, has been dismissed by the plaintiffs’ own motion.  Given this litigation had long been the scene of intense trench warfare, consuming attorney fee dollars like five NFL offensive linemen chowing down on popcorn shrimp at an all-you-can-eat  buffet, it is surprising to see this turn of events.

If you remember, Thomas and Pamela McIntosh v. State Farm is the granddaddy of Katrina litigation, or perhaps more accurately, the Mother of All (Insurance) Battles.   This is the case where Kerri Rigsby of Rigsby sisters "whistleblower" fame approved the flood payment to the McIntoshes, and where, strangely enough, the original engineering report on the damage to the home said the damage was from wind, not flood.  Alexis "Lecky" King, a State Farm catastrophe team leader, found fault with the report and asked the engineers to re-evaluate.  The second report noted the presence of both wind and water damage.  Before we move on with the recap, remember that the first report was done by a man named Brian Ford, because his name will come up again. Ford did not work on the second report. 

Now, the McIntosh claims file was among those taken by the Rigsby sisters and fed to Dickie Scruggs for use in lawsuits he was bringing and planned to bring against State Farm.  This is the case that really started all the public uproar about changed engineering reports, insurer fraud, etc. etc.  Keep in mind that Kerri Rigsby and her sister, Cori, who like Kerri was another claims adjuster working with State Farm, both quit and went directly to work for Scruggs in what federal judge L.T. Senter called a "sham" consultant arrangement — but not before they had performed a massive "data dump," where they and some friends spent the weekend copying State Farm claims files to give to Scruggs and his good friend, Mississippi AG Jim Hood.  (Don’t forget Hood once called Scruggs his "confidential informant" and helped him play keep away with the documents the Rigsby sisters took. Jeez, talk about backing the wrong horse — if you go to the track with Jim, use him as a reverse barometer.)

You may also remember that the Scruggs Katrina Group, besides "employing" the "whistleblower" Rigsby sisters, also discussed hiring Brian Ford as a consultant.  Ford wanted a similar deal to those of the Rigsby sisters, somewhere in the neighborhood of 10-Large per month.  Entrepreneurism at work, you say?  Maybe.  But of course, payments by a party to material witnesses they would be calling to support their case is frowned upon, and in the end, that led Judge Senter to disqualify the Rigsby sisters as witnesses and to disqualify the Scruggs Katrina Group itself as counsel for the McIntoshes. 

Their present counsel, the Merlin Law Group, went a different direction with this than Scruggs did.  Here’s a copy of the motion, and here’s part of what the motion says:   

After engaging in extensive discovery, the Plaintiffs have determined the following:

(a) the McIntosh dwelling was damaged as a result of Hurricane Katrina;

(b) the majority of the damage to the McIntosh dwelling was caused by flooding;

(c) the McIntosh dwelling sustained flood damage of at least $250,000 to the structure and $100,000 to its contents;

(d) State Farm promptly and properly paid Plaintiffs the full policy limits of their flood insurance policy; and

(e) State Farm promptly tendered payment to Plaintiffs for wind damage covered under their homeowners insurance policy prior to the time that the dwelling was inspected by an engineer.

This has got to the most surprising development since those German and English soldiers met on that World War I battlefield for a soccer game during a Christmas truce.

The motion, which was granted yesterday by Judge Senter, dismissed with prejudice all the punitive claims.  That left only the contract claims, and my understanding is that those were settled. 

I’ll discuss this more later. 


Filed under Bad Faith, Duty to Indemnify, First Party Insurance, Industry Developments