Insurers took a few hard knocks at the federal trial court level in Katrina litigation, but on appeal before the U.S. Fifth Circuit Court of Appeals, they have seen much better results. The latest example is Leonard v. Nationwide, a case of great importance where the Fifth Circuit ruled yesterday in favor of Nationwide and declared a key provision in its property insurance contracts -- the so-called anti-concurrent cause language -- unambiguous and enforceable. Because almost all insurers draft their property policies to include such language -- there are a few exceptions -- the industry was watching this case very closely. The result, however, is not much of a surprise: anti-concurrent cause language has widely been upheld.
It was not upheld, however, in the bench trial in Mississippi last year before Judge L.T. Senter Jr. The trial result was mostly OK for Nationwide: its contractual exclusion for flood damages was upheld, Senter basically agreed with the relatively small amount of covered wind damage the insurer paid to Paul and Julie Leonard, and Judge Senter said there were no misrepresentations or other factors that would justify reforming the contract, or in other words, altering the written terms to match a purported prior oral agreement.
However, Judge Senter also said that the insurance policy's anti-concurrent cause provision was ambiguous. Nationwide could not accept this, and had to appeal -- anti-concurrent cause provisions have been a feature of many property insurance policies for more than 20 years and were introduced to contractually prevent what insurers saw as judicial activism that stuck them with losses they never contemplated. As I have explained at great length in numerous writings, including this post today on the Leonard case at Insurance Coverage Law Blog, Senter did not need to rule on the anti-concurrent provisions of the contract at all, because the damage to the Leonard house did not involve concurrent multiple causes of the same damage: instead, the wind and the flood were two single causes of different damage. Single-force causation does not implicate the anti-concurrent cause language for an obvious reason: concurrent causes must be multiple causes, and a cause can't be concurrent with itself. Analysis of causation in property insurance contracts is tricky business, and taking off down the wrong path almost always leads to wrong results. The Fifth Circuit basically upheld Senter's rulings, except it reversed his verdict on the anti-concurrent language. Unfortunately, the Fifth Circuit, like Judge Senter, also said more than it needed to, and its own causation analysis was flawed and probably will lead to some confusion further down the road. The Leonards' attorney, of course, was noted tort lawyer Dickie Scruggs, who, true to form, immediately began spinning. He claims the case will be appealed to the U.S. Supreme Court, which is not much of a threat. The court will have no interest whatsoever in taking a case involving the interpretation of state insurance law.