A Video Explaining Hurricanes and Insurance Coverage
Katrina Cases
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The United States District Court for the Southern District of Mississippi, Southern Division, entered an important decision with regard to water damage and insurance policy coverages raised after Hurricane Katrina.
In Leonard v. Nationwide Mutual Insurance Co., 499 F.3d 419 (5th Cir. 08/30/2007), the first of the Katrina cases to go to trial, the court found that the Leonards’ residence was not covered by any policy of flood insurance at the time of the storm. Flood insurance is available to anyone, regardless of which flood zone their residence is situated in, yet the plaintiffs did not purchase it; they purchased only a common homeowner’s policy from Nationwide.
The evidence presented at trial conclusively established the following points:
That on August 29, 2005, the entire area surrounding Pascagoula, Mississippi, including the Leonard residence and its surrounding neighborhood, was subjected to violent winds in excess of 100 miles per hour. These winds increased gradually in the early morning hours and reached a peak of intensity between 9:00 a.m. and noon.
Water from the Mississippi Sound was driven ashore by the storm, and the water level in the Leonard neighborhood rose to a peak level between 11:00 a.m. and noon. At its highest point, this water inundated the Leonard residence to a depth of approximately five feet.
The Leonard residence is approximately 12 feet above sea level. This property is 515 feet from the beachfront to the south.
The inundation of the ground floor of the Leonards’ residence caused extensive damage to their floors, carpets, walls, and personal property. The second floor of the Leonards’ property was not damaged. The physical damage to the roof of the Leonards’ property consisted of a small number of broken shingles, and the watertight integrity of the roof was not breached during the storm. The attached garage on the Leonards’ property was also extensively damaged during the storm.
The only wind damage on the ground floor of the Leonards’ residence was a hole in one window that witnesses described as “golf-ball sized.” The exterior of the Leonards’ home and the attached garage were soiled by a combination of wind-driven materials and water-borne materials.
Based on the findings of fact established by evidence at trial, the court concluded:
The provisions of the Nationwide policy that exclude coverage for damages caused by water are valid and enforceable terms of the insurance contract. Similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions.
The judge did not totally deprive the insureds of coverage. He noted that under applicable Mississippi law, in a situation where the insured property sustains damage from both wind and water, the insured may recover that portion of the loss that he or she can prove to have been caused by wind. Nationwide is not responsible for that portion of the damage it can prove was caused by water. The final judgment, therefore, was for wind damage only and was less than $2,000.
After the trial, the case was appealed to the Fifth Circuit Court of Appeal, which affirmed the decision of the trial court yet disagreed with the methods used:
The fatal flaw in the district court’s rationale is its failure to recognize the three discrete categories of damage at issue in this litigation: (1) damage caused exclusively by wind; (2) damage caused exclusively by water; and (3) damage caused by wind “concurrently or in any sequence” with water. The classic example of such a concurrent wind-water peril is the storm-surge flooding that follows on the heels of a hurricane’s landfall. 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. Thus, the Leonards’ money judgment was based on their roof damages solely caused by wind. Contrary to the court’s damage matrix, however, had they also proved that a portion of their property damage was caused by the concurrent or sequential action of water—or any number of other enumerated water-borne peril—the policy clearly disallows recovery.
This decision will make it more difficult for plaintiffs with damaged property to avoid the effect of concurrent cause exclusions when wind, water, storm surge, or mold concur with excluded causes to result in loss. [Interestingly, the plaintiffs’ trial lawyer, Richard “Dickie” Scruggs, is now serving a long sentence in federal prison for attempting to bribe a judge with regard to a dispute with his co-counsel relating to fees earned from other Katrina cases. Reported at United States of America v. David Zachary Scruggs, No. 3:07CR192-B-A (N.D.Miss. 08/03/2011); Barrett v. Jones, Funderburg, Sessums, Peterson & Lee, LLC, No. 2008-IA-00421-SCT (Miss. 11/12/2009); United States v. Whitfield, No. 07-60748 (5th Cir. 12/11/2009); United States of v. David Zachary Scruggs, No. 3:07CR192-B-A (N.D.Miss. 05/13/2011); United States ex rel Rigsby v. State Farm Insurance Co., No. 1:06CV0433 LTS-RHW (S.D.Miss. 05/19/2008). These cases and the prosecution of Richard and David Scruggs called into question the validity of all Katrina lawsuits and claims.]
In Tuepker v. State Farm, 507 F.3d 346 (5th Cir. 2007) the Fifth Circuit affirmed the majority of the trial court’s decision, an important and far-reaching conclusion interpreting insurance policy coverages in the wake of a catastrophe. Judge Senter, the trial judge, concluded:
As to the damage caused by wind, there is coverage under the provisions of the State Farm policy because destruction of the insured dwelling by a windstorm, including a hurricane, would constitute an accidental direct physical loss and would therefore be a covered peril. Thus, to the extent that the plaintiffs’ property was damaged by wind or by objects propelled by wind, the State Farm policy covers the loss. This is also true of damage to personal property inside the insured dwelling caused by rain that entered plaintiff’s home through breaches in walls or in the roof caused by hurricane winds.
Losses directly attributable to water in the form of a “storm surge” are excluded from coverage because this damage was caused by the inundation of plaintiffs’ home by tidal water from the Mississippi Sound driven ashore during Hurricane Katrina. This is water damage within the meaning of that policy exclusion. The exclusion found in the policy for water damage is a valid and enforceable policy prevision. Indeed, similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions.
Because the adjective “physical” is defined as “having material existence,” mold spores undoubtedly have a “material existence” even though they are not tangible or perceptible to the naked eye. Therefore, mold contamination constitutes a “physical loss” within the meaning of a policy and, assuming all other policy conditions are met, the cost of removing mold from a property, or of replacing personal property, may be recovered under a property policy. The Fifth Circuit found, however, that the anticoncurrent cause exclusion was enforceable and reversed the part of the trial court decision determining the exclusion did not apply.
Under Mississippi law, the judge concluded that where there is damage caused by “both wind and rain (covered losses) and water (losses excluded from coverage) the amount payable under the insurance policy becomes a question of which is the proximate cause of the loss.” This is, of course, subject to the evidence presented at trial.
ZALMA OPINION
Whether a claims is for water damage, wind damage, or resulting mold infestations as a result of water infestation it is important that the insurer conduct a thorough investigation into the causes, determine which are due to a covered peril and those which are clearly and unambiguously excluded by the policy. The video discusses the types of decisions that are rendered by the courts after a catastrophe like a hurricane.
© 2021 Barry Zalma
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
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