12 09 07 Katrina Aftermath

8/8/2019 12 09 07 Katrina Aftermath

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THE LEGAL AFTERMATH OF HURRICANE KATRINA

Hurricane Katrina blew ashore along the Louisiana/Mississippi Gulf Coastduring the early morning hours of August 29, 2005. Before is dissipated, ithad become the costliest [$81.2 billion in damages] and proved itself as oneof the five deadliest hurricanes in the history of the United States (1836deaths and 705 missing]. The hurricane left massive devastation along muchof the north-central Gulf Coast, especially in New Orleans where the city’slevee system catastrophically failed in more than 50 places and flooded 80

percent of the city along with many of the city’s neighboring parishes.Thousands of homes, rental properties and commercial businesses weredestroyed by Hurricane Katrina.

Policyholders with homeowners, renters, and commercial property insurance

filed claims with their insurers. These claims were uniformly denied by the by the following insurance companies in one manner or another:

• State Farm Fire and Casualty Company• Hanover Insurance Company• Standard Fire Insurance Company• Travelers Property Casualty Company of America• Encompass Indemnity Company• Encompass Insurance Company of America• Unitrin Preferred Insurance Company• Allstate Indemnity Company• Allstate Insurance Company• American Insurance Company• Aegis Insurance Company• Lafayette Insurance Company• Liberty Mutual Fire Insurance• AAA Homeowners Auto Club Family Insurance Company• Louisiana Citizens Property Insurance Corporation• Lexington Insurance Company• Great Northern Insurance Company• Nationwide Mutual Insurance Company

In the wake of Katrina, scores of policyholders filed a series of lawsuits infederal district courts in Louisiana and Mississippi raising a variety of legal



challenges to the refusal of the insurance companies to cover their Katrina- produced loss. These courts issued mixed rulings – mostly favorable to theinsurance companies but extending some hope to the policyholders. Thishope, however, was short-lived after the Fifth Circuit Court of Appealswaded into the murky hurricane waters. Since August 2007 the appeals courthas issued three significant rulings which effectively devastated any hopes

by the policyholders of ever being compensated for their losses.

The first ruling was issued on August 2, 2007 in In Re: Katrina CanalBreaches Litigation, 495 F.3d 191 (5 th Cir. 2007). In this Louisiana case

policyholders of homeowners, renters and commercial property insurancesued insurance companies claiming that the loss of their property was notdue to “natural” causes flowing from Hurricane Katrina but by “non-natural”causes resulting from the negligence maintenance of the New Orleans levee

system. The following is a brief synopsis of the court’s ruling:

“Each plaintiff in this case is a policyholder with homeowners, renters, or commercial-property insurance whose property was damaged during the

New Orleans flooding. Despite exclusions in their policies providing thatdamage caused by ‘flood’ is not covered, the plaintiffs seek recovery of their losses from their insurers. Their primary contention is that the massiveinundation of water into the city was the result of the negligent design,construction, and maintenance of the levees and that the policies' floodexclusions in this context are ambiguous because they do not clearly excludecoverage for an inundation of water induced by negligence. The plaintiffsmaintain that because their policies are ambiguous, we must construe themin their favor to effect coverage for their losses.

“We conclude, however, that even if the plaintiffs can prove that the leveeswere negligently designed, constructed, or maintained and that the breacheswere due to this negligence, the flood exclusions in the plaintiffs' policiesunambiguously preclude their recovery. Regardless of what caused thefailure of the flood-control structures that were put in place to prevent such acatastrophe, their failure resulted in a widespread flood that damaged the

plaintiffs' property. This event was excluded from coverage under the plaintiffs' insurance policies, and under Louisiana law, we are bound toenforce the unambiguous terms of their insurance contracts as written.Accordingly, we conclude that the plaintiffs are not entitled to recover under their policies.” Id., at 196.



The policies in these cases provided coverage for risk of direct physical lossto structures on a property as well as for certain risks of loss to personal

property – so long as the loss was not an “excluded peril.” Flooding waslisted as an excluded peril the following language:

“We do not insure for loss caused directly or indirectly by any of thefollowing. Such loss is excluded regardless of any other cause or eventcontributing concurrently or in any sequence to the loss.“... Water Damage, meaning:“... Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind ....”

Several of the policies in this case expressed their “flood exclusion” with thefollowing language:

“We do not insure under any coverage for any loss which would not haveoccurred in the absence of one or more of the following excluded events. Wedo not insure for such loss regardless of: (a) the cause of the excluded event;or (b) other causes of the loss; or (c) whether other causes acted concurrentlyor in any sequence with the excluded event to produce the loss; or (d)whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as aresult of any combination of these:

“... Water Damage, meaning:(1) flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, all whether driven by wind or not ....”

The federal district court essentially concluded that most of the floodexclusions in these policies were “ambiguous” because the term “flood” wassusceptible to two definitions: floods resulting from natural causes only andfloods resulting from both natural causes and negligent or intentional acts.The district court, however, found that the “lead in” language of the StateFarm policies removed any ambiguity because of the following wording::“We do not insure for such loss [i.e., flood loss] regardless of … the cause of the excluded event [] or … whether the event … arises from natural or external forces.” The district court, therefore, dismissed State Farm from this“diversity” lawsuit. Id., at 198.



The Fifth Circuit began its legal analysis that federal courts must apply statelaw in these kind of cases. Id., at 206. To determine which Louisiana lawwas applicable, the federal court was required look to the final decisions of the Louisiana Supreme Court. “In the absence of a final decision by theLouisiana Supreme Court,” the Fifth Circuit said, “we must make an Erieguess and determine, in our best judgment, how that court would resolve theissue if presented with the same case…” Id.

Louisiana law provides that an “insurance policy is a contract between the parties and should be construed by using the rules of contract interpretationset out in the Louisiana Civil Code.” See: Cadwallader v. Allstate Ins. Co.,848 So.2d 577, 580 (La.2003). Louisiana law provides that an insurancecontract must be “construed according to the entirety of its terms andconditions as set forth in the policy, and as amplified, extended, or modified

by any rider, endorsement, or application attached to or made a part of the policy.” See: La.Rev.Stat.Ann. § 22:654 (2004).

The Louisiana Civil Code provides that “each provision in a contract must be interpreted in light of the other provisions so that each is given themeaning suggested by the contract as a whole.” § 2050 (1987) See also: La.Ins. Guar. Ass’n. v. Interstate Fire & Cas. Co., 630 So.2d 759, 763(La.1994)[“{a}mbiguity ... must be resolved by construing the policy as awhole; one policy provision is not to be construed separately at the expenseof disregarding other policy provisions”].

The Civil Code further provides that “Words susceptible of differentmeanings must be interpreted as having the meaning that best conforms tothe object of the contract,” § 2048, and “a provision susceptible of differentmeanings must be interpreted with a meaning that renders it effective andnot with one that renders it ineffective.” § 2049.

Citing La. Ins. Guar. Ass’n., the Fifth Circuit concluded that “ambiguity” ina contract “may also be resolved through the use of the reasonable-expectations doctrine-i.e., ‘by ascertaining how a reasonable insurance

policy purchaser would construe the clause at the time the insurance contractwas entered.” In re Katrina, supra, at 207. See also: 630 So.2d at 764. TheFifth Circuit added that Louisiana’s strict rules of contract interpretationrequire that any ambiguity in an insurance contract must be construed infavor of the policyholder. Id. [La.C.C., § 2056]. See also: Cadwallader, 848So.2d at 580. The appeals court, however, cautioned that this does not mean



an insurance contract should be “’interpreted in an unreasonable or strainedmanner under the guise of contractual interpretation to enlarge or restrict its

provisions beyond what is reasonably contemplated by unambiguous termsor achieve an absurd conclusion’.” Id., at 208 [citing Cadwallader, 848So.2d at 580]

The Fifth Circuit then went directly to the ambiguity issue with respect tothe “flood” exclusions the policies before it:

“The plaintiffs contend that their policies' flood exclusions do notunambiguously exclude coverage for losses caused by an inundation of water resulting from a breached levee where the breach occurred in part

because the levee was negligently designed, constructed, or maintained. The plaintiffs urge us to conclude that the term ‘flood’ is ambiguous in this

context and that the policies must be construed in favor of coverage. Bycontrast, the insurers maintain that the policies unambiguously excludecoverage for the inundation of water resulting from the breached levees.

“The Louisiana Supreme Court has not interpreted a flood exclusion in thecontext of breached levees. We must therefore make an Erie guess anddetermine, in our best judgment, how that court would resolve the issue if

presented with this case.

“The plaintiffs first contend that because the term ‘flood’ is not defined inthe policies, it is ambiguous-indeed, the Chehardy plaintiffs say that theterm's undefined status makes it per se ambiguous-requiring us to construethe term in favor of coverage. But the fact that a term used in an exclusion‘is not defined in the policy itself ... alone does not make the exclusionambiguous; instead, [the court] will give the term its generally prevailingmeaning.’ “The Chehardy plaintiffs also cite Arnette v. NPC Services, Inc., 808 So.2d798 (La.Ct.App.2002) . In that case the term being construed was‘professional duty’ in the context of a professional-liability exclusion. TheArnette court did state: ‘Further, because ‘professional duty’ is undefined inthe First State policy, we conclude the professional liability exclusion isambiguous and must be construed in favor of NUS and against First State.’Id. at 803 . But the term ‘professional duty,’ unlike ‘flood,’ lacks anygenerally prevailing meaning in common parlance, and it thus provided noclear indication of what coverage was being excluded. Arnette cannot stand

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for the proposition that even though a term has a generally accepted meaningoutside the context of the policy, the policy's failure to define it nonethelessmakes it ambiguous; otherwise Arnette would conflict with article 2047 'scommand to give the words of a contract their generally prevailing meaning.See La. Civ.Code Ann. art. 2047 .

“The plaintiffs also maintain that because the insurers could have moreexplicitly excluded floods that are caused in part by negligence, their failureto do so in these policies makes the flood exclusions ambiguous.Specifically, the Chehardy plaintiffs point to evidence that before HurricaneKatrina struck, the insurer defendants knew about the availability of policyforms that more explicitly excluded floods caused in part by man but thatthey elected not to amend their policies' language accordingly. Xavier,which was insured through Travelers, also points to its policy's ‘earth

movement’ exclusion, which excludes earth movements ‘whether natural or man made’; Xavier asserts that Travelers thus knew how to clearly excludeman-made floods but did not do so. Similarly, the district court comparedthe flood exclusions in most of the policies with those in the policies of StateFarm and Hartford Insurance Company of the Midwest, remarking that thoseinsurers succeeded with little effort in clearly excluding water damageresulting from negligent acts and that the other insurers could have done soas well.

“But the fact that an exclusion could have been worded more explicitly doesnot necessarily make it ambiguous… Nor does the fact that other policieshave more explicitly defined the scope of similar exclusions.

“We therefore reject the plaintiffs' arguments that the flood exclusions in the policies before us are ambiguous in light of more specific language used inother policies” Id., at 210 [citations omitted].

The Fifth Circuit examined a number of authorities, including the dictionary, before settling on a generally accepted definition of “flood.”

“In light of these definitions, we conclude that the flood exclusions areunambiguous in the context of this case and that what occurred here fitssquarely within the generally prevailing meaning of the term ‘flood.’ Whena body of water overflows its normal boundaries and inundates an area of land that is normally dry, the event is a flood. This is precisely whatoccurred in New Orleans in the aftermath of Hurricane Katrina. Three


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watercourses-the 17th Street, Industrial, and London Avenue Canals-overflowed their normal channels, and the levees built alongside the canalsto hold back their floodwaters failed to do so. As a result, an enormousvolume of water inundated the city. In common parlance, this event isknown as a flood.

“Additionally, a levee is a flood-control structure; its very purpose is to prevent the floodwaters of a watercourse from overflowing onto certain landareas, i.e., to prevent floods from becoming more widespread …Bydefinition, whenever a levee ruptures and fails to hold back floodwaters, theresult is a more widespread flood. That a levee's failure is due to itsnegligent design, construction, or maintenance does not change the character of the water escaping through the levee's breach; the waters are stillfloodwaters, and the result is a flood.

“The plaintiffs, however, attempt to inject ambiguity into the term ‘flood’ byasserting that a reasonable interpretation of the term is that it refers only toinundations of water with ‘natural’ causes, not those with a ‘non-natural’cause. The plaintiffs rely primarily on cases interpreting flood exclusions inthe context of broken water mains. They also assert, applying two canons of construction, noscitur a sociis and ejusdem generis , that a flood includesonly natural events because the other terms in the water-damage exclusionsare natural phenomena. Additionally, they contend that a reasonable

policyholder would expect that only naturally occurring floods would beexcluded.

“Before we address these contentions, we first question the notion that theflood in this case was non-natural. The plaintiffs focus on the allegednegligent design, construction, or maintenance of the levees as being thecause of the flood, and we accept as true (for the purpose of assessing themotions to dismiss) their allegation that the canals' floodwaters would nothave reached their property had the negligence not occurred. This focus,however, ignores the sizeable natural component to the disaster: acatastrophic hurricane and the excess water associated with it. The non-natural component is simply that in certain areas, man's efforts to mitigatethe effect of the natural disaster failed, with devastating consequences. But if man's failure to adequately prepare for a natural disaster could alonetransform the disaster into a non-natural event outside the scope of a policy'sexclusion, it is difficult to conceive how an insurer could ever exclude theresulting loss; any natural event could be recharacterized as non-natural



either because man's preventative measures were inadequate or because manfailed to take preventative measures at all.

“Even if we accept the plaintiffs' characterization of the flood in this case asnon-natural, we disagree that the term ‘flood’ in this context is limited tonatural events. The plaintiffs first maintain that dictionary definitionssupport their interpretation, but the dictionaries we have reviewed make nodistinction between floods with natural causes and those with non-naturalcauses…” Id., 214-15 [citations omitted].

The Fifth Circuit’s reasoning widely missed the mark on one issue notclearly addressed: a levee exist to protect against flood, no matter the causeof the flood waters. Negligence preceded the flood. Put another way, the

New Orleans flood would not have happened absent the negligence. The

appeals court skirted this issue by concluding that finding any distinction between natural and non-natural events surrounding Hurricane Katrinawould not be “workable” and would “lead to absurd results” in theinterpretation of the insurance contracts. Id., at 218. This disingenuousreasoning slammed the door on the policyholders contention that the canonsof construction known as noscitur a sociis and ejusdem generis supportedtheir position that the term “flood” is limited to purely natural events. Id.

Having rejected the heart of the policyholders claim, the Fifth Circuit turnedits attention to several secondary arguments made by the policyholders.First, the policyholders argued that because they had “all-risk policies,” theyhad a heightened expectation of coverage even from water damage caused

by third-party negligence. Id., at 219. The appeals court noted that noLouisiana court has ever addressed this issue, and while it conceded that all-risk policies generally extended to “all fortuitous losses,” the rule does notapply to a policy that expressly excludes a loss (flood) from coverage. Id.

“Each policy in this case contains a specific provision expressly excludingdamage caused by flood, and none of the exclusions indicates that whether a

particular flood is excluded depends on whether its cause is purely natural,”the appeals court pointed out. “Given the generally prevailing use of theterm ‘flood,’ we believe a reasonable policyholder would expect a massiveinundation of water from a breached levee to be excluded, notwithstandingthe all-risk nature of the policies.” Id., 219-20.



Second, the policyholders argued that they had a reasonable expectation of coverage of damage resulting from a hurricane because many of their

policies contained a “Hurricane Deductible Endorsement.” The Fifth Circuitalso rejected this argument, saying:

“Many of the policies contained an endorsement materially similar to thefollowing, from Humphreys's policy with Encompass Indemnity:

“‘We will pay only that part of the total of the loss for all PropertyCoverages that exceeds the hurricane deductible stated on the CoverageSummary. The hurricane deductible shown on the Coverage Summaryapplies to all covered property for direct physical loss or damage causeddirectly or indirectly by a hurricane as defined below. Such deductibleapplies regardless of any other cause or event contributing concurrently or in

any sequence to the loss. No other deductible provision in the policy appliesto direct physical loss caused by a hurricane. In no event will the deductibleapplied for a hurricane loss be less than the property deductible shown onthe Coverage Summary.

“‘Hurricane means wind, wind gust, hail, rain, tornado, cyclone or hurricanewhich results in direct physical loss or damage to property by a stormsystem that has been declared to be a hurricane by the National Weather Service ....

“‘All other provisions of this policy apply.’

“The plaintiffs assert that in light of this language, a reasonable policyholder would have expected the water damage in this case to be covered.Humphreys goes a step further and argues that the hurricane-deductibleendorsement in her policy actually expands coverage to extend to any

property damage caused by a hurricane.

“But the plain language of the hurricane-deductible endorsements indicatesthat they do nothing more than alter the deductible for damage caused by ahurricane. Nothing in the language of the endorsements purports to extendcoverage for floods or to restrict flood exclusions; indeed they do not eveninclude flood or water (other than rain) in the definition of ‘hurricane.’Further, the endorsements state that all other provisions of the policiesapply, indicating that the flood exclusions remain in effect. The hurricane-deductible endorsements therefore would not give a reasonable policyholder



the impression that flood resulting from a breached levee would becovered.” Id., at 220.

The Fifth Circuit’s second Katrina case was handed down on August 30,2007. See: Leonard v. Nationwide Mutual Insurance, Co., 499 F.3d 419 (5 th

Cir. 2007). This case arose after Mississippi homeowners sued arguing thattheir insurance policy should have covered the damages caused by thehurricane’s winds and storm surge. The federal district court ruled that someof their losses were covered but others were not. The Fifth Circuit rejectedthis finding.

The Leonards' home sat twelve feet above sea level on the southmost edgeof Pascagoula, Mississippi. It was less than two hundred yards from theMississippi Sound. On the morning of August 29, 2005 Hurricane Katrina

battered Pascagoula with torrential rain and sustained winds in excess of onehundred miles per hour. By midday, the hurricane had driven ashore a stormsurge that flooded the ground floor of the Leonards' two-story home. Id.,423-24.

The Leonards purchased their homeowner’s policy from Nationwide in1989, and while the insurance company had twice revised the policy’sstandard language, the policy in force when Katrina struck Pascagoula wasvirtually identical to the original policy they purchased. Id., at 424.

The Leonards’ policy was called “Nationwide’s Form HO-23-A, and it wasa “comprehensive” or “all-risk” policy that provided coverage for alldamage to dwellings and personal property not otherwise excluded. Likemost homeowners policies, the Nationwide policy covered only damagecaused by certain “perils” and excluded damage caused by others. The issuethe Fifth Circuit faced was “the scope of coverage for damage caused by (1)wind; (2) water; and (3) concurrent action of wind and water.” Id. The courtset out specific coverage of the policy:

“’1. Wind

“’Wind damage both to a dwelling and to personal property is a peril insuredagainst under Section I, clause 2 (the “wind-damages clause”), which alongwith pertinent prefatory language states:

“’Coverage A-Dwelling and



“’Coverage B-Other Structures“’(...)“’Coverage C-Personal Property

“’We cover accidental direct physical loss to property described in CoverageC caused by the following perils except for losses excluded under Section I-Property Exclusions:“’(...)“’2. windstorm or hail.

“’Direct loss caused by rain ... driven through roof or wall openings made bydirect action of wind, hail, or other insured peril is covered ....

“’2. Water’”

Like most homeowner's policies, the Leonards' policy unambiguouslyexcluded damage caused by water, including flooding, in an exemptionclause called the “water-damages exclusion.” Their policy, therefore,covered losses caused by rain blown through a hole in a roof, wall, or window caused by high winds. Further, it covered wind-related damage, likea blown-off roof, or a window damaged by a wind-propelled projectile. Id.

The Fifth Circuit then turned its attention to the policy’s “PropertyExclusions”:

“’(b) Water or damage caused by water-borne material. Loss resulting fromwater or water-borne material damage described below is not covered evenif other perils contributed, directly or indirectly, to cause the loss. Water andwater-borne material damage means:

“’1. flood, surface water, waves, tidal waves, overflow of a body of water,spray from these, whether or not driven by wind ....’” Id.

The Leonards annually renewed their policy, and with each renewal, theyreceived a notice from Nationwide informing them that their policy did notcover flood losses but that such flood coverage was available upon request.Id., at 425. The Leonards never purchased additional flood coveragealthough they could have done so under the federally subsidized NationalFlood Insurance Program. Id. See also: 42 U.S.C. §§ 4001-4027.



The third part of the policy concerning “concurrent action by wind andwater” was set in the Fifth Circuit decision:

“’The prefatory language introducing the water-damages exclusionaddresses situations in which damage arises from the synergistic action of acovered peril, e.g., wind, and an excluded peril, e.g., water:

“’1. We do not cover loss to any property resulting directly or indirectlyfrom 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 ....’” Id.

This exclusion is commonly known as an “anti-concurrent-causationclause.” These clauses deny coverage when an excluded peril combines witha covered peril to damage a dwelling or personal property. That is what

happened to the Leonards’ home – the storm surge caused by Katrina’swinds inundated their dwelling. Nationwide, therefore, said it was not liablefor damages attributable to the storm surge. Id.

The Fifth circuit spelled out the damages caused by Katrina to the Leonards’home:

“Inspection of the Leonards' residence following the storm revealed modestwind damage. The roof suffered broken shingles and loss of ceramicgranules, but its water-tight integrity was not compromised. The non-load-

bearing walls of the garage and the garage door were severely damaged;doors in the house and garage had been blown open. Finally, a ‘golf-ballsized’ hole in a ground-floor window was likely caused by a wind-driven

projectile.

“Water damage, in contrast, was extensive. The Leonards' neighborhood hadsuffered a seventeen-foot storm surge, causing the entire ground floor of their residence to become inundated under five feet of water blown ashorefrom the Mississippi Sound. Walls, floors, fixtures, and personal propertysustained extensive damage. The second floor of the house remainedunscathed.

“Nationwide's adjuster evaluated the storm damage and, after applying theLeonards' five hundred dollar deductible, tendered a check for $1,661.17-theamount determined attributable solely to wind. Nationwide informed theLeonards that damages caused by water and the storm surge's concurrent



wind-water action were barred, respectively, by the water-damagesexclusion and the ACC clause.

“At trial, the Leonards offered expert testimony that the total damagesactually exceeded $130,000, but this figure did not apportion damagescaused by different perils. The Leonards' wind-specific assessment claimed$47,365.41, including costs for roof replacement and structural repairs to thegarage.” Id., at 426.

Following a bench trial, the district court awarded the Leonards’ $1,228.16for wind damages but held the exclusion for water damages clause preventedadditional recovery. The district court, however, struck down the “anti-concurrent-causation clause” finding that Mississippi law permitted recoveryfor damages sustained from covered wind damage and excluded water

damage provided the policyholder can prove there damages were caused bywind. Id.

Following the lead set out in In re Katrina, the Fifth Circuit found there wasno ambiguity in Nationwide’s “water” damage exclusion clause. The courtsaid:

“The fatal flaw in the district court's rationale is its failure to recognize thethree discrete categories of damage at issue in this litigation: (1) damagecaused 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-surgeflooding that follows on the heels of a hurricane's landfall. The only speciesof damage covered under the policy is damage caused exclusively by wind.But if wind and water synergistically caused the same damage, such damageis 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 wascaused by the concurrent or sequential action of water-or any number of other enumerated water-borne perils-the policy clearly disallows recovery.

“The district court seemed to fear that enforcement of the policy's concurrentcausation exclusion would render any recovery for hurricane damageillusory. Observing that the policy denies coverage whenever a ‘windstorm[ ] combined with an excluded cause of loss, e.g., flooding,’ the courthypothesized that ‘an insured whose dwelling lost its roof in high winds and



at the same time suffered an incursion of even an inch of water couldrecover nothing ....’ That fear is unfounded, with regard to the policy'swind-coverage clause, which clearly preempts the court's scenario:

“’We cover accidental direct physical loss to property ... caused by thefollowing perils ...“‘(...)“’2. windstorm or hail.“’Direct loss caused by rain ... driven through roof or wall openings made bydirect action of wind ....’

“If, for example, a policyholder's roof is blown off in a storm, and rainenters through the opening, the damage is covered. Only if storm-surgeflooding-an excluded peril-then inundates the same area that the rain

damaged is the ensuing loss excluded because the loss was causedconcurrently or in sequence by the action of a covered and an excluded peril.The district court's unsupported conclusions that the ACC clause isambiguous and that the policyholder can parse out the portion of theconcurrently caused damage that is attributable to wind contradict the policylanguage.” Id., at 430-31.

The Leonard court made it abundantly clear that Nationwide’s “water”damage exclusion exempted coverage from damage caused by “flood …waves, tidal waves, [and] overflow of a body of water … whether or notdriven by wind.” The appeals court said that the phrase “storm surge” islittle more “than a synonym for a ‘tidal wave’ or wind-driven flood, both of which are excluded perils.” Id., at 437. The court added that the omission of the term “storm surge” did not create any “ambiguity” in the policy and doesallow for the Leonards’ to recover for “flood-induced damages.” Id., at 438.

The third Fifth Circuit case followed the lead of In re Katrina and Leonard.It was decided on November 6, 2007. See: Tuepker v. State Farm Fire &Casualty Company, ___ F.3d ___, 2007 WL 3256829 (5 th Cir. 2007). In thiscase Katrina completely destroyed the home of John and Clarie Tuepker (“the Tuepkers”). The dwelling was insured by State Farm. The Tuepkerstold State Farm that their home and all its contents were destroyed by thehurricane’s winds, rain, and/or storm surge. The Tuepkers’ policy coveredthe period of August 9, 2005 to August 9, 2006. They told State Farm thattheir policy covered all their losses. Three months after the hurricane State



Farm refused to compensate the Tuepkers for their losses. Id., at WL 1. Theyfiled a lawsuit in the federal district court alleging:

“... regardless of whether the total damage to Plaintiffs' insured property wascaused by hurricane wind, storm surge proximately caused by hurricanewind, or both, the so-called ‘flood’ exclusion, which State Farm defines inthe subject policy and in its denial letter as ‘flood, surface water, waves,tidal water, tsunami, seiche, or overflow of a body of water, or spray fromany of these, all whether or not driven by wind,’ is not applicable here and inany event, is modified by the ‘Hurricane Deductible’ [and that] “[t]his‘flood’ exclusion is ambiguous and deceiving when read in conjunction with... the ‘Hurricane Deductible’.” Id.

As was done by the district court in Leonard, the district court in the

Tuepker case held that any losses caused by Katrina’s storm surge wereexcluded by the Tuepkers’ policy. Id., WL at 2. The court reasoned that thisdamage was caused by inundation of tidal water from the Mississippi Sound

pushed ashore by the hurricane. Id. Finally, this court, like Leonard, ruledthat the “anti-current-causation clause was ambiguous and, therefore, couldnot bar damages caused by wind or rain. Id. The court said any damagecaused the hurricane’s winds or objects driven by those winds, as well asany damaged caused by rain falling through openings in the house produced

by the winds, were covered by the policy. Id.

The Tuepkers policy had two relevant property coverage provisions:SECTION I – YOUR PROPERTY COVERAGES.” They read as follows:

“SECTION I-LOSSES INSURED“COVERAGE A-DWELLING

“We insure for accidental direct physical loss to the property described inCoverage A, except as provided in SECTION I-LOSSES NOT INSURED.

“COVERAGE B-PERSONAL PROPERTY

“We insure for accidental direct physical loss to property described inCoverage B caused by the following perils, except as provided in SECTIONI-LOSSES NOT INSURED.”

Subparagraph 2 of COVERAGE B read as follows:



“2. Windstorm or hail. This peril does not include loss to property containedin a building caused by rain, snow, sleet, sand or dust. This limitation doesnot apply when the direct force of wind or hail damages the building causingan opening in a roof or wall and the rain, snow, sleet, sand or dust entersthrough this opening.

“This peril includes loss to watercraft of all types and their trailers,furnishings, equipment, and outboard motors, only while inside a fullyenclosed building.”

Under SECTION I – LOSSES NOT COVERED,” the “anti-concurrent-causation clause” provided:

“2. We do not insure under any coverage for any loss which would not haveoccurred in the absence of one or more of the following excluded events. Wedo not insure for such loss regardless of: (a) the cause of the excluded event;or (b) other causes of the loss; or (c) whether other causes acted concurrentlyor in any sequence with the excluded event to produce the loss; or (d)whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as aresult of any combination of these.” Id., at WL 4.

The policy then set forth the “water damage” exclusion: “c. Water Damage, meaning:

“(1) flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not;

“(2) water or sewage from outside the residence premises plumbing systemthat enters through sewers or drains, or water which enters into andoverflows from within a sump pump, sump pump well or any other systemdesigned to remove subsurface water which is drained from the foundationarea; or

“(3) water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through a building, sidewalk, driveway,foundation, swimming pool or other structure.



“However, we do insure for any direct loss by fire, explosion or theftresulting from water damage, provided the resulting loss is itself a LossInsured.” Id.

The policy also included a “Hurricane Deductible Endorsement” which provided:

“The following Deductible language is added to the policy:

“Deductible

“The Hurricane deductible percentage (%) shown in the Declarations appliesonly for direct physical loss or damage to coverage property caused by wind,wind gusts, hail, rain, tornadoes, or cyclones caused by or resulting from a

hurricane as defined above. The deductible for loss caused by each hurricaneoccurrence is the amount determined by applying the deductible percentage(%) shown in the Declarations to the COVERAGE A-DWELLING limitshown in the Declarations.

“In the event of a hurricane loss, this deductible will apply in place of anyother deductible stated in the policy. In no event will this deductible be lessthan the Section I deductible amount shown in the Declarations.

All other policy provisions apply.” Id.

The issues on appeal for the Fifth Circuit were “Whether damage resultingto the Tuepkers' home from the storm surges is an excluded peril that is notcovered by the policy, whether the ACC Clause in the State Farm policy isambiguous; and whether the efficient proximate cause doctrine applies inthis case.” Id.

Relying upon In re Katrina and Leonard, the Fifth Circuit held:

“The Water Damage Exclusion states that water damage includes damagescaused by, among other things, flood, waves, tidal water, and overflow of a

body of water, “all whether driven by wind or not.” These words accuratelydescribe the influx of water into the Tuepkers' home that was caused by theKatrina storm surge. Furthermore, courts have held that similarly wordedwater damage exclusions apply to flooding that occurs during a hurricane…In interpreting an almost identical water damage exclusion and applying



Mississippi law, this court has found that ‘storm surge’ is ‘little more than asynonym for a ‘tidal wave’ or wind-driven flood,’ both of which are perilsexcluded by the State Farm policy. In Leonard, we concluded that the lack of a specific reference to a ‘storm surge’ in the water damage exclusion did notrender the policy ambiguous or allow the insured party to recover for lossescaused by the storm surge associated with Hurricane Katrina. Id. Our opinion in Leonard specifically relied on the Katrina Canal BreachesLitigation opinion and on the district court's opinion here for the holding thatthe Katrina ‘storm surge’ was unambiguously excluded water damage.

“We conclude that under Mississippi law, the Water Damage Exclusion isvalid and that the storm surge that damaged the Tuepkers' home is a perilthat is unambiguously excluded from coverage under State Farm's policy.”Id., WL at 5.

With respect to the “anti-concurrent-causation clause,” the appeals court pointed out that State Farm’s ACC clause is similar to the Nationwide ACCclause upheld in Leonard. Id., at WL 6. While the Fifth Circuit noted that theState Farm ACC clause differed slightly from the Nationwide ACC clause[State Farm clause does not cover “any loss which would not have occurredin the absence of one or more of the following excluded events”], the courtsaid “this difference does not introduce any ambiguity or significantlydifferentiate the clause from the ACC Clause at issue in Leonard. Bothclearly state that excluded losses-here, any loss which would not haveoccurred in the absence of one or more of the excluded events-will not becovered even if a nonexcluded event or peril acts ‘concurrently or in anysequence’ with the excluded event to cause the loss in question. Thus,Leonard governs this case, and compels the conclusion that the ACC Clausein State Farm's policy is not ambiguous, and should be enforced under Mississippi law. As the Leonard opinion directs, any damage causedexclusively by a nonexcluded peril or event such as wind, not concurrentlyor sequentially with water damage, is covered by the policy, while alldamage caused by water or by wind acting concurrently or sequentially withwater, is excluded. Id. Thus, the ACC Clause in combination with the Water Damage Exclusion clearly provides that indivisible damage caused by bothexcluded perils and covered perils or other causes is not covered. However,as State Farm has conceded in its briefs here and below, the ACC Clause byits terms applies only to ‘any loss which would not have occurred in theabsence of one or more of the below listed excluded events’, and thus, for example, if wind blows off the roof of the house, the loss of the roof is not





















excluded merely because a subsequent storm surge later completely destroysthe entire remainder of the structure; such roof loss did occur in the absenceof any listed excluded peril.” Id.

After finding that State Farm’s Hurricane Deductible Endorsement did not inany way render the policy’s ACC clause ambiguous, the Fifth Circuit’s finalconclusion rejected the Tuepkers claim that the “efficient proximate causedoctrine” made the ACC clause unenforceable:

“The district court agreed to the extent of refusing to apply that clause whenit might deny coverage that would have been allowed under the ‘efficient

proximate cause doctrine.’ Under that doctrine, when a loss is caused by thecombination of both covered and excluded perils, the loss is fully covered bythe insurance policy if the covered risk proximately caused the loss. Under

this doctrine, if a policy covers wind damage but excludes water damage, theinsured may recover for damages if it can show that the wind (the covered

peril) proximately or efficiently caused the loss, notwithstanding that therewere other excluded causes contributing to that loss like flooding.

“Mississippi courts have yet to indicate whether a homeowner's insurance policy may preclude recovery for damages resulting from the concurrentaction of wind and water in a hurricane. However, in Leonard, we made an‘Erie guess’ as to how the Mississippi Supreme Court would rule on theissue. The efficient proximate cause doctrine is the ‘default causation rule inMississippi regarding damages caused concurrently by a covered and anexcluded peril under an insurance policy.’ However, Leonard concludes thatACC Clauses are enforceable under Mississippi law, and that theycircumvent the efficient proximate cause doctrine.

“Therefore, under Leonard, which binds us, and with which we in any eventagree, the ACC Clause in State Farm's policy overrides the efficient

proximate cause doctrine.” Id., WL at 8-9. [citations omitted]

The law is sometimes cruel, and too often unforgiving. It was both cruel andunforgiving to thousands of victims of Hurricane Katrina. But it protectedthe insurance companies from having to pay out billions in losses produced

by the hurricane. These cases illustrate why any insurance policyholder living in a high-risk natural disaster area like the Gulf Coast should consultwith an attorney before signing a standard insurance contract. The attorneyshould will sure that the “contract” (policy) contains all the desired









coverage. Most of the Gulf Coast insurance policyholders before Katrina believed they had coverage from any damage caused by a hurricane,including its inevitable storm surge. They learned that the law is not flexibleeven in the wake of a massive human tragedy like Hurricane Katrina.

12 09 07 Katrina Aftermath

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