The Fifth Circuit got it right. Here’s a pdf of the decision.
District Court Judge Stanwood Duval’s underlying decision had said that flood exclusions in many of the policies involved in this litigation were ambiguous because they didn’t specifically define floods to include water spilling out from a canal breach, due to defective construction and human error. Judge Duval, in an 85-page opinion that stretches the bounds of patience and the human attention span, implied that "overtopping" of the canals would be excluded, but that a breach in a levee — under the language of the standard ISO and most other insurance policies — is not specifically excluded. As most reading this will know, when a term or provision of an insurance policy is ambiguous, the interpretation is decided in favor of the insured. Along the way, Judge Duval spent a lot of time talking about cases involving water main breaks, rather than cases involving flooding due to dam breaks or levee construction.
The Fifth Circuit cut right through all this sophistry and said that merely because a levee breach is involved, it does not make the flood definition in the policy ambiguous:
[L]evees are flood-control structures, which by definition means that they interact with floodwaters. Because levees are man-made, one could point to man’s influence nearly any time a levee fails. If a levee fails despite not being overtopped by floodwaters, it is because the levee was not adequately designed, constructed, or maintained. If a levee fails due to the floodwaters overtopping it or loosening its footings, it is because the levee was not built high enough or the footings were not established strongly or deeply enough. Even where a levee does not fail, one could find a non-natural flood; where a properly designed and constructed levee causes floodwaters to be diverted downstream to another area of land, the resulting flood downstream occurs because the levee performs as designed. Any time a flooded watercourse encounters a man-made levee, a non-natural component is injected into the flood, but that does not cause the floodwaters to cease being floodwaters.
See p. 36 of the Fifth Circuit’s decision.
I was also impressed that the Fifth Circuit got the causation analysis right. The flooding here was not an issue of multiple causation of one loss, it was an issue of single causation of one loss. Doctrines like the efficient proximate cause analysis used by most courts in deciphering causation among multiple causes are not needed where a single cause is at work. Nor are the anti-concurrent, anti-sequential clauses of ISO policies and the policies of other insurers like State Farm at issue. As the Fifth Circuit said:
But here, on these pleadings, there are not two independent causes of the plaintiffs’ damages at play; the only force that damaged the plaintiffs’ properties was flood. To the extent that negligent design, construction, or maintenance of the levees contributed to the plaintiffs’ losses, it was only one factor in bringing about the flood; the peril of negligence did not act, apart from flood, to bring about damage to the insureds’ properties . . . . Moreover, to the extent that the plaintiffs do attempt to recharacterize the cause of their losses by focusing on negligence as the cause rather than water damage, their argument fails . . . . If every possible characterization of an action or event were counted an additional peril, the exclusion so in all-risk insurance contracts would be largely meaningless.
See opinion, p. 44.
Basically, the causal analysis is right. However, the court referred to negligence and the flooding as potentially "independent" causes of damage. That is not correct: if they had been viewed as multiple causes, the flooding was a dependent cause that followed in sequence from the human negligence — one caused the other, like a rainstorm causing a mudslide. An independent force is like the wind and storm surge that hit the homes in Mississippi. The wind was one independent cause of loss that caused its own damage (where this damage could be proven), and the water was also an independent cause that caused its own seperate and discernable loss. In the case of sequential, dependent causation, no one really disputes that the efficient proximate cause doctrine applies to find the real cause.
Where so-called concurrent forces operate, however, there is some disagreement: some define concurrent forces fairly strictly, as those that operate independently of each other and combine to create a single loss. The most famous example of this is the 1973 California case of Partridge v. State Farm. Even though this was a third-party liability case, not a first-party property case like those we are talking about here, the case contains a good causation example: the plaintiff’s injury came as a result of two causes that operated independently but combined to create the injury, which would not have occurred "but for" the existence of each cause (the defendant filed his gun mechanism to produce a hair trigger, then drove negligently over rough terrain, setting off the gun and shooting the plaintiff passenger). This is a concurrent cause. Not every court sticks to these labels, and many broadly label causes that are either dependent or independent as "concurrent" when they combine to produce the same damage. No matter what they call it, the overwhelming majority of courts use the efficient proximate cause doctrine to pick from among multiple causes of the same loss in first-party property insurance analysis.
Where anti-concurrent cause language comes in is that it contractually overturns the efficient proximate cause analysis and says that where multiple causes of the same loss exist, if any of them are excluded and the damage would not have happened but for that cause, the loss is excluded. As I point out in an article I just finished for the New Appleman’s Critical Issues publication, these clauses are not implicated in single causation, which the Fifth Circuit correctly pointed out. (Despite broad popular perception to the contrary, these anti-concurrent clauses by and large have not been asserted in most Katrina damage litigation, as insurers have recognized that wind and water, although separate forces, are not concurrent when they created separate, discernable and provable losses).
OK, that’s it for this post. I may have more to say later. A well-written opinion, on the money for the most part, and half as long as Judge Duval’s opinion.