As insurance companies begin the process of adjusting Hurricane Isaac insurance claims, we thought it would be helpful to highlight briefly on our blog some of the key case law from Hurricane Katrina, and some key Louisiana statutes regarding insurance claim adjustment:
- Water Damage Exclusions: The Louisiana Supreme Court ruled in Sher v. Lafayette Insurance Company that flooding caused by levee breaches was excluded under standard water damage exclusions, regardless of whether man-made causes contributed to causing the flood. The court explained that: “The plain, ordinary and generally prevailing meaning of the word ‘flood’ is the overflow of a body of water causing a large amount of water to cover an area that is usually dry. This definition does not depend on locality, culture, or even national origin — the entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry land.” The Mississippi Supreme Court ruled in Corban v. United Services Automobile Association that storm surge falls within the scope of standard water damage exclusions. The court explained that “‘storm surge’ is plainly encompassed within the ‘flood’ or ‘overflow of a body of water’ portions of the ‘water damage’ definition, and no other ‘logical interpretation’ exists.” (We represented the American Insurance Association as amicus curiae in both Sher and Corban.)
- Segregating Wind Damage from Flood Damage: In Louisiana, one of the leading cases from Katrina addressing the subject of segregating wind damage from flood damage and the insurer’s and insured’s burdens of proof in that regard is the opinion of the U.S. Court of Appeals for the Fifth Circuit in Bayle v. Allstate Insurance Company, where the court explained that:
As the movant for summary judgment, Allstate had the burden of proving the applicability of any exclusion from coverage. Allstate properly supported its motion for summary judgment with specific evidence (its adjusters’ and expert’s reports, and the Bayles’ deposition testimony) that addressed the various items of damage incurred by the Bayles’ property and the cause of each item’s damage, as well as the particular amounts it paid to the Bayles for wind damage to those items. At that juncture, the burden of production shifted to the Bayles to put forward evidence of specific facts sufficient to demonstrate the existence of uncompensated items of damage that were caused by wind, or of any deficiency in its quantum of the damages paid by Allstate to indemnify the Bayles for wind-caused damage. They failed to do so. As all other issues on appeal are subsidiary to these determinations, the district court’s grant of Allstate’s motion for summary judgment must be, and hereby is, AFFIRMED.
In Mississippi, the Mississippi Supreme Court’s decision in Corban v. United Services Automobile Association addresses segregation of wind versus flood damage, ultimately concluding as follows:
Only when facts in a given case establish a truly “concurrent” cause, i.e., wind and flood simultaneously converging and operating in conjunction to damage the property, would we find, under Mississippi law, that there is an “indivisible” loss which would trigger application of the ACC clause.
. . .
This Court finds that with respect to the “all-risk” coverage of “Coverage A—Dwelling” and “Coverage B—Other Structures,” the Corbans are required to prove a “direct, physical loss to property described.” Thereafter, USAA assumes the burden to prove, by a preponderance of the evidence, that the causes of the losses are excluded by the policy, in this case, “[flood] damage.” USAA is obliged to indemnify the Corbans for all losses under “Coverage A—Dwelling” and “Coverage B—Other Structures” which USAA cannot establish, by a preponderance of the evidence, to have been caused or concurrently contributed to by “[flood] damage.” “Contributed to” comes into play only when “[flood] damage” is a cause or event contributing concurrently to the loss. Pursuant to the policy language, only if proof of a “concurrent” cause is presented to a jury for consideration would the jury receive an instruction including the policy phrase “contributing concurrently.” Likewise, striking the proper balance, under “Coverage C—Personal Property,” discussed in ¶¶ 52-53 infra, the plaintiff must prove that the loss was caused by a peril insured against, not “caused or contributed to.” Upon proper instruction, these determinations are for a jury. See Grace v. Lititz Mut. Ins. Co., 257 So.2d 217, 224 (Miss.1972).
The parties likewise agree that the subject policy separately provides “named perils” coverage as to “Coverage C—Personal Property.” Under “named perils” coverage, the burden of proof rests with the insured “to prove that the damages sustained were covered by the peril insured against….” Lunday, 276 So.2d at 699. See also Appleman on Insurance at § 192.09 (under “named peril” coverage, “the insured has the burden of proving that any losses were caused by a peril covered by the policy—indemnity is not available unless the loss falls under one of the specifically enumerated coverages.”); Russ & Segalla, 7 Couch on Insurance at § 101:7 (“`[n]amed perils’ … policies provide coverage only for the specific risks enumerated in the policy and excludes all other risks.”).
¶ 53. We find that with respect to the “named perils” coverage of “Coverage C—Personal Property,” the Corbans are required to prove, by a preponderance of the evidence, that the “direct physical loss” to the property described in Coverage C was caused by wind. This is likewise a question of fact for the jury. See Grace, 257 So.2d at 224.
- Louisiana Valued Policy Law: Louisiana Revised Statutes § 22:1318 provides that: “Under any fire insurance policy insuring inanimate, immovable property in this state, if the insurer places a valuation upon the covered property and uses such valuation for purposes of determining the premium charge to be made under the policy, in the case of total loss the insurer shall compute and indemnify or compensate any covered loss of, or damage to, such property which occurs during the term of the policy at such valuation without deduction or offset, unless a different method is to be used in the computation of loss, in which latter case, the policy, and any application therefor, shall set forth in type of equal size, the actual method of such loss computation by the insurer.” In Chauvin v. State Farm Fire & Casualty Company, the U.S. Court of Appeals for the Fifth Circuit addressed the application of this statute to claims involving structures that become total losses as a combination of both wind and flood damage. The court concluded that “the VPL [Valued Policy Law] only requires an insurer to pay the agreed face value of the insured property if the property is rendered a total loss from a covered peril.” In a footnote, the court further explained that “we only hold that a total loss resulting from a non-covered peril does not trigger the VPL. Our decision has no bearing on the insurers’ potential liability for incidental damage to the homeowners’ property by wind or any other peril covered by the relevant insurance policies.” The Louisiana Supreme Court addressed the Valued Policy law in Landry v. Louisiana Citizens Property Insurance Company, but without deciding the issue that was decided by the federal Fifth Circuit in Chauvin. Footnote 10 of the court’s opinion, however, noted that the Valued Policy Law might not apply at all to homeowners’ policies, explaining as follows:
It appears to us that the legislative history of La. R.S. 22:695 [the Valued Policy Law], combined with the definitions provided in La. R.S. 22:6(10) and (15), and the contrast of the language used in related statutes, reveals that the statute is intended to apply only to fire insurance policies, which may include coverage against other perils as allowed by La. R.S. 22:691 and is distinct from homeowners’ policies. However, it seems the insurance industry has always assumed that the use of the term “fire insurance policy” includes homeowners’ policies. We need not resolve this issue in the instant matter because the result is the same whether the statute applies or not. We urge the legislature to consider this issue and to make changes to the language of La. R.S. 22:695 if needed.
The Louisiana Legislature did not modify the Valued Policy Law subsequent to this decision. (Note: We participated as counsel in both the Chauvin and Landry cases.)
- Louisiana Bad Faith Statutes: Louisiana Revised Statutes 22:1892 and 22:1973 contain requirements for property claim adjustment, including timeframes for initiation of loss adjustment and payment of undisputed amounts after receiving satisfactory proof of loss (which is not limited to a formal proof of loss under Louisiana law). The penalties for failure to comply with these statutes can be substantial, as demonstrated by, for example, the $92 million class action verdict against Louisiana Citizens Property Insurance Company arising from Hurricane Katrina and Rita claims. For more on that, see the December 22, 2011 post on our Insurance Class Actions Insider blog.
These are just a few significant issues that insurers should be aware of in adjusting Hurricane Isaac claims. Numerous other issues may arise and you should always consult with your counsel regarding your specific situation.