November 7, 2012
Yesterday’s blog discussed the coverage analysis which applies when wind and water cause separate and distinct damage. Suppose, however, that the Policyholder cannot identify any damage caused solely by wind or some other covered peril. Does the Flood Exclusion necessarily apply when all of the Policyholder’s damage results from the inundation of her, his, or its property by storm surge?
The Policyholder’s best hope for obtaining coverage in these circumstances is to separate the immediate cause of loss—flooding—from some other more remote cause and then to argue that the remote cause is responsible for the flooding.
Policyholders can argue that storm surge damage is covered because a covered peril—wind—drove the water into their property and thus wind, not water, was the efficient proximate or predominant of their loss. In essence, they must try to equate storm surge with any covered peril that caused their loss, for example, a tree that wind carries into a house. Thus, they can argue, there was no need to allocate their loss between wind damage and storm surge damage.
Expert meteorological evidence regarding the storm surge phenomenon, showing that storm surge cannot occur independently of a cyclonic storm, such as Hurricane Sandy, and that the height of the storm surge at any particular location is directly related to the speed of the storm’s wind provides factual support for this argument.
Policyholders along the Atlantic Coast will have the advantage of making these arguments in States without a developed body of law on coverage for storm surge. Policyholders along the Gulf Coast were not so fortunate after Hurricane Katrina.
Both the Fifth Circuit, which stated that it was applying Mississippi law, and the Mississippi Supreme Court have refused to look beyond the obvious fact that sea water had invaded normally dry land to determine whether wind put it there, and have held as a matter of law that the flood exclusion unambiguously precludes coverage for storm surge. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 437, (5th Cir. 2007); Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346 (5th Cir. 2007). In both Leonard, the first of a series of Hurricane Katrina opinions authored by Judge Edith Jones, a Texas lawyer who wrote authoritatively on Mississippi law in an interpretation of insurance policy provisions which was rejected by the Mississippi Supreme Court, and Tuepker, the Fifth Circuit voted to hold that the exclusion at issue applied to damages caused by, among other things, “flood, waves, tidal water, and overflow of a body of water, all whether driven by wind or not.” The failure of the exclusion to mention “storm surge” specifically did not, in the court’s view, render the exclusion ambiguous.
In Corban v. United Services Auto. Ass’n, 20 So. 3d 601, 618 ¶ 48 & 618 n.24 (Miss. 2009), the Mississippi Supreme Court questioned the method of policy interpretation demanded by the Fifth Circuit panel’s decision in the Leonard case, by name. In the Corban case, the Mississippi Supreme Court held that the “water damage” exclusion before it unambiguously excluded damage from “storm surge”. Corban v. United Services Auto. Ass’n, 20 So. 3d 601, 610-11 ¶¶ 23-26 (Miss. 2009).
In all cases, the language of the exclusion in the policy at issue will greatly determine the Coverage outcome.