As discussed here, the Fifth Circuit Court of Appeals recently heard oral argument on the appeal in the Katrina case of Leonard v. Nationwide Mutual Insurance Company. Last week, the Fifth Circuit affirmed the August 2006 holding of the district court, and held that most of the damage to the Leonards’ property was not the result of covered wind damage, but the Fifth Circuit disagreed with much of the district court’s rationale.
The Fifth Circuit focused primarily on the policy’s anticoncurrent causation clause (“ACC clause”), which stated:
We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss.
The Fifth Circuit disagreed with the district court’s holding that the ACC clause was ambiguous and unenforceable. Rather, the Fifth Circuit held that the ACC clause “unambiguously excludes coverage for water damage ‘even if another peril’ – e.g., wind – ‘contributed concurrently or in any sequence to cause the loss.” According to the Court:
The only species of damage covered under the policy is damage caused exclusively by wind. But if wind and water synergistically caused the same damage, such damage is excluded.
Upon finding that the ACC clause was unambiguous, the Fifth Circuit held that the Leonards would prevail only if they could demonstrate that the clause itself was prohibited by Mississippi case law, statutory law or public policy. The Court found that it was not prohibited by any of the three. As part of this analysis, the Court stated that the Mississippi Department of Insurance’s prior approval of the policy form (including the ACC clause) provides support in favor of the clause’s enforcement. (The Mississippi Insurance Code, according to the Court, requires the Insurance Commissioner to reject any policy form that contains inconsistent, ambiguous or misleading clauses.)
The Fifth Circuit also rejected the Leonards’ argument that the water damage was caused not by an excluded peril – flooding – but rather by “storm surge” which the Leonards characterize as a “separate, discrete peril unique to hurricanes” and a term commonly understood by residents of the Leonards’ hometown as distinct from a flood. In rejecting this argument, the Fifth Circuit cited to the its decision in the In Re Katrina Canal Breaches Litigation, which addressed the meaning of the term “flood,” as we discussed here.
Lastly, the Court rejected the Leonards’ claim that their insurance agent negligently misrepresented the scope of the Nationwide policy and seeking an oral modification of the policy and resulting in recovery for all Katrina-related losses. The Court stated that under Mississippi law an insured has an affirmative duty to read the policy, and representations by an agent would only modify a policy if it was ambiguous, which the Nationwide policy was not.
On this basis, the Fifth Circuit affirmed the district court’s ruling that the proper amount awarded to the Leonards was $1,228 (in addition to the $1,661 previously paid by Nationwide to the Leonards).
InsureReinsure.com will continue to monitor this and other Katrina-related coverage developments.
