Expert Commentary

"Anticoncurrent Causation" Refined by Mississippi Supreme Court

The so-called anticoncurrent causation clause (ACC) underwent refinement in an October 8, 2009, Mississippi Supreme Court decision, Corban v. United Servs. Auto. Assn. Readers familiar with homeowners policies will no doubt recall that the term "anticoncurrent causation" appears nowhere in an insurance policy; rather, it is terminology used by insurers to frame discussions over what is covered and what is not covered under their policies' water exclusions.


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In many respects, the ruling corrected the Fifth Circuit Court of Appeals' "Erie Guess(es)" as to how Mississippi's highest court would rule on the ACC. The Mississippi Supreme Court's decision further shows that its thinking is aligned more closely with that of Federal District Judge J.T. Senter than with that of the Fifth Circuit.

Background

In Leonard v. Nationwide, Judge Senter determined that the ACC, consisting of standard Insurance Services Office, Inc. (ISO) wording, was ambiguous. Describing Judge Senter's reasoning as "unjustifiable when read against the clause's plain language," Fifth Circuit Judges Edith H. Jones (Chief Judge), Thomas M. Reavley (Circuit Judge), and Jerry E. Smith (Senior Circuit Judge) opined that the "fatal flaw" in the district court's rationale was failure to recognize that not only is the ACC unambiguous, but "if wind and water ‘synergistically' caused the same damage, such damage is excluded." In other words, if wind effects damage, but waves come along later and cause further damage, the ACC obviates coverage.

To offer a more graphic illustration of the Fifth Circuit's reasoning, if the Big Bad Wolf huffs and puffs and blows Little Pig's coastal house in, homeowners insurance will pay; conversely, if the Big Bad Wolf relieves himself on the rubble after he blows the house in,1 Little Pig is out of luck.

Apparently, despite the fact that this view is essentially insurance company orthodoxy, insurance defense counsel did not raise this issue until Katrina litigation had progressed beyond its second year. (See Dickinson v. Nationwide Mut. Fire Ins. Co., U.S.D.C. S.D. Miss. No. 1:06 CV 198 LTS–RHW, April 4, 2008.) Nevertheless, the circuit court bought the Little Pig metaphor in Leonard, Tuepker v. State Farm and Broussard v. State Farm.

Trial Court Action

Margaret and Dr. Magruder S. Corban filed suit against United Services Automobile Association (USAA) in the Circuit Court of Harrison County, Mississippi's First Judicial Circuit, seeking a judgment invalidating USAA's ACC clause as ambiguous and against public policy. USAA's defense team was joined by counsel for Nationwide Insurance during the proceeding. The policy exclusion at issue in the case stated:

1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

***

c. Water Damage, meaning:

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

In deciding the motion for summary judgment, Judge Lisa B. Dodson wrote in her March 27, 2008 ruling:

Using the simple rules learned in middle school or high school English classes, the [water] exclusion provides that it does not cover a loss caused by water damage…. This simple, basic interpretation of the language use and sentence structure used bars coverage for only the water damage, whether occurring alone or in any order with other causes.

Despite this deference to the Corban's argument, however, Judge Dodson felt compelled to abandon the simple rules of grammar and yield to the Fifth Circuit judges' rulings in Leonard and Tuepker, explaining:

This Court's interpretation … will not be substituted for that of the only appeals court precedent available on this issue. Further, it is not clear that the appeals courts of Mississippi would decline to adopt the analysis and decisions of the Fifth Circuit … The Corbans may not recover for any damage caused by water as defined in the policy or a combination of that water and wind.

Mississippi Supreme Court Action

At the outset of its analysis, the Mississippi Supreme Court followed a cardinal principle of insurance law: The court "should look at the policy as a whole, consider all relevant portions together and, whenever possible, give operative effect to every provision in order to reach a reasonable overall result." (Emphasis added.) Neither the trial court nor the Fifth Circuit Court followed this principle. As I read the opinion, the court's reasoning may be simplified as follows.

First, the court examined the insuring agreements to determine just what USAA, the insurance company, promised to do for the Corbans. The judges found that the all risks policy provided coverage A—Dwelling and B—Other Structures for "direct physical loss caused by any risk (i.e., perils) not expressly excluded…." and "named perils" coverage for Coverage C—Personal Property.

Second, with respect to water, the court pursued the question, "What is excluded?" The answer: "Loss" is excluded, not perils, and it is to loss, not damage, that the deductible is applied. Since loss is an undefined term, its ordinary and popular meaning controls. Thus, referring to several sources, the court found that "loss" means:

An act or instance of losing; one that is lost; injury or suffering caused by losing or being lost; to suffer the deprivation of; to part with.

The next issue was the question of "When does loss occur?" The court determined a time element is involved, so "loss occurs at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured." Support for this notion of loss, the opinion explained, is found in other policy components, including the "loss settlement" provision and the "Replacement Cost Coverage—Personal Property" section.

The court then decided that once loss occurs, whether caused by a covered or excluded peril, it is fixed at that point in time "when an insured suffers deprivation of, physical damage to, or destruction of the property insured." Moreover, "An insurer cannot avoid its obligation to indemnify the insured based upon an event which occurs subsequent to the covered loss…." Similarly, with respect to loss attributable to an excluded event, the excluded loss may not "become a covered loss, after it has been suffered."

With respect to the meaning of "concurrently," the court concluded that the ordinary meaning is "Occurring at the same time; operating in conjunction; meeting or tending to meet at the same point; convergent." Accepting this definition, the court affirmed its agreement with the Fifth Circuit; however, "Only if it can be proven that the perils (wind and flood) contemporaneously converged, operating in conjunction to cause the loss," will concurrent apply.

The court construed "In any sequence" as "sequentially," including "Forming or marked by a sequence, as of notes or units." Returning to the subject of loss, the court cited USAA's Conditions section regarding "Insurable Interest and Limit of Liability," which provided that in any single loss, the company "will not be liable for more than the amount of the insured's interest at the time of loss." The court pointed further to the Loss Settlement section wherein USAA may pay "the cost to repair or restore the property to the condition it was in just before the loss" and the Loss Settlement provision under Special Coverage on Jewelry, Watches, Furs and Silverware, where the policy says:

The value of the covered property will be set at the time of loss or damage and the company has the option to repair or restore the property to the condition it was in just before the loss. (Emphasis added.)

Relying on these sections of the policy, the court concluded:

These provisions irreconcilably conflict with the "in any sequence" language, thereby creating an ambiguity [and] the "in any sequence language in the policy may not be used to divest the insureds of their right to be indemnified for covered losses."

Ultimately, the court determined that the state circuit judge correctly interpreted the ACC clause but erred by applying the Fifth Circuit's "Erie Guess" as to how it applied. An insured's interest vests at the time of loss. With respect to the Corban claim, the court ruled that the ACC clause was inapplicable, adding:

We respectfully reject the proposition that, under the subject ACC clause, indivisible damage caused by both excluded perils and covered perils or other causes is not covered. We neither agree nor find support for an analysis focusing on damage rather than loss or the premise that storm surge flooding which inundates the same area that the wind, acting independently, previously damaged constitutes indivisible damage or the same damage.

The court noted that the facts of the Corbans' case did not demonstrate that wind and water acted concurrently to cause the loss; instead, "the subject perils acted in sequence … at different times, causing different damage, resulting in separate losses." The policy excludes coverage only when wind and water clearly converge at the same time to cause loss. The court then stipulated that the parties should read the ACC as follows:

SECTION I—EXCLUSIONS
1. We do not insure for loss caused directly or indirectly by [water damage]
Such loss [from water damage] is excluded regardless of any other cause or event [wind damage] contributing concurrently or in any sequence to the loss from [water damage].

Who Has To Prove What?

I served as consultant in several Hurricane Katrina cases, and a common thread of the litigation was that insurers retained experts to conduct a damage analysis. Invariably, damage was attributed primarily to water during the claim investigation. In effect, policyholders often faced the task of disproving a negative.

In addressing the burden of proof question, the court determined that in an "all risks" policy, under coverage A—Dwelling and Coverage B—Other Structures, a policyholder satisfies the burden of proving loss by showing a "direct physical loss to property described." When presented with evidence of direct physical loss, an insurer must either pay or show by a preponderance of evidence that a policy exclusion relieves it from paying the claim. Conversely, under Coverage C—Personal Property (named perils coverage, not all risks), the burden of proving cause must be borne by the policyholder. In litigation, determining causation is a fact question for the jury.


1The Circuit Court judges seem enamored with the term "synergistic," a Reagan-era business buzz word, choosing to use it three times in the Leonard case. The word does not appear in the insurance policy. As typically used, it has a distinctly different meaning from "concurrent" or "in any sequence." The Oxford Dictionary defines "synergy" as "the interaction or cooperation of two or more organizations, substances, or other agents to produce a combined effect greater than the sum of their separate effects."


Case References

Broussard v. State Farm Fire & Cas. Co., 2008 U.S. App. LEXIS 7419 (5th Cir. April 7, 2008).

Margaret Corban and Magruder S. Corbin v. United Servs. Auto. Assn., 2009.MS.0000549.

Margaret Corban and Magruder S. Corbin v. United Servs. Auto. Assn., Circuit Court of Harrison County, Mississippi, First Judicial Circuit, Cause No. A2401–2006–00404, March 27, 2008.

Leonard v. Nationwide Mut. Ins. Co., 438 F. Supp. 2d 684 (S.D. Miss. 2006).

Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007).

Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346 (5th Cir. 2007).


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