WAS IT WATER OR WAS IT WIND? INSURANCE BLACK HOLE FOR FLOOD LOSSES

Posted in Excess and umbrella policies, Property and casualty

Insurance policies often carry a small clause that contains big language.  It is called a concurrent clause provision.  The words can bar a policyholder’s claim for flood or wind damage if both of those events together cause a loss.  Or if one of those events is specifically excluded from coverage, the insurance company doesn’t have to pay a cent.  Ouch.

 

Because this is a source for much insurance litigation on many loss scenarios – in addition to wind and water – I will be discussing it regularly in this blog.  Also different states do not always interpret the clause the same.  For this reason I will also be discussing varying interpretations regularly on this website.  For today, however, we focus on storm damage.

 

What happens when both wind and rain occur together to cause damages?  Flood damage is generally excluded by business and home policies.  The insurance company can rely upon the concurrent clause provision to exclude wind and rain losses that combined to cause a flood.  Certain Midwest courts have interpreted policies to afford coverage.  Others have not.

 

For example in Missouri, courts have looked at situations where water damage could have been caused by both an excluded clause (flood) and a covered cause (wind).  They have resolved the issue by looking at the real cause – or in legal terms the “proximate efficient” cause of the event.  This rule is only applied where there are two separate or distinct perils which could have occurred independently of the other and caused damage.  See Russ & Segalla, Couch on Insurance § 153:86 (3d Ed. 2005) (“In a jurisdiction that has adopted the efficient proximate cause rule, the policy provides coverage for a loss efficiently caused by a covered peril, even though other excluded perils contributed to cause the loss.”).  Most times those courts have ruled in favor of the policyholder and have covered the water damage. 

 

See also, Hampton Foods, Inc. v. Aetna Cas. & Sur. Co., 787 F.2d 349, 353 (8th Cir. 1986) (interpreting Missouri law and holding that “exclusion clauses must be construed so as to give the insured the protection which he reasonably had a right to expect; and to that end any doubts, ambiguities and uncertainties arising out of the language used in the policy must be resolved in his favor.”)  and Graff v. Farmers Mut. Home Ins. Co. of Hooper, Dodge County, 211 Neb. 13, 20, 317 N.W.2d 741, 745 (1982) (the policyholder will recover if the wind was the efficient cause of the loss, even though other causes may have contributed to the loss).

 

On the other side of the coin, some Nebraska decisions have found that there is no coverage if an excluded cause was the real cause.  In Thorell v. Union Ins. Co., 242 Neb. 57, 59, 492 N.W.2d 879, 881 (1992) the Thorells sued their insurance company for failing to pay for damages to their house caused by a severe wind and rain storm. They argued that the wind storm drove water into their home.  Such wind losses were covered by the policy terms.  The insurance company argued instead that their home damage was caused by surface water or flood, both of which were excluded by the policy terms.  The Nebraska Supreme Court sided with the insurer.  It found that the water was the true cause of the Thorell’s losses, even if the water was propelled by the wind.  As such, they were not covered.

 

Also in Lydick v. Ins. Co. of N. Am., 187 Neb. 97, 99, 187 N.W.2d 602, 604 (1971) the Nebraska Supreme Court denied coverage for cattle which had drowned in a farm pond covered with ice and snow.  The loss occurred in a storm where the wind had driven the cattle onto the pond and they broke through the ice.  The Lydicks argued that the loss was ultimately caused by wind. The insurer argued that the loss was caused by drowning, an excluded event. The Nebraska court sided with the insurer.  It found that “…(T)he loss of these cattle was due to a combination of different factors and that the wind was merely one of the prior conditions contributing to the loss.”  Id.  The policyholder was ultimately not paid.

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