Wind vs. Water

On August 29, 2005, a natural disaster stormed into the Gulf Coast with a ferocity and pestilence never before witnessed on U.S. soil. Hurricane Katrina’s violent winds and raging waters left a devastating collection of destroyed homes, ruined business and vanquished lives in their wake. "An estimated 9.7 million people living in Alabama, Louisiana and Mississippi experienced hurricane force winds." [1] The magnitude of the storm, "the most destructive – and costly – natural disaster in U.S. history," is remembered by an unprecedented death toll and a relief effort that continues to this day. [2]

There is a controversy brewing over a clause in the insurance contracts of the members of the Gulf Coast community that strictly limits the liability of the insurance providers and, by extension, has led to a deluge of lawsuits over the astonishingly meager payouts for the damage caused by Hurricane Katrina. A typical homeowners’ policy in the disaster-ravaged region contains the following exclusionary clause: "We do not cover loss to any property resulting directly or indirectly from…flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by wind." [3] This controversy has developed a catchy moniker: "Wind vs. water is hurricane coverage-speak for the fact that a homeowners policy typically covers damage caused by wind and rain, but not flooding." [4]

Given that the devastation of Hurricane Katrina is still raw in the Gulf Coast Region, case law continues to develop as victims attempt to rebuild their lives.  However, the seminal decision in Leonard v. Nationwide Mutual Insurance Co. will provide courts with precedent likely to influence future decisions.  Leonard was among the earliest cases to funnel through the suddenly burdened Southern District of Mississippi court system.

When Paul Leonard purchased a homeowners' policy for his primary residence in Pascagoula, Mississippi, he chose not to buy supplemental flood insurance. [5]  The insurance policy that Mr. Leonard purchased contained an explicit section on property exclusions regarding the flood coverage.  [6]  The policy purported to "not cover loss to any property resulting directly or indirectly from...flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by wind." [7]  Therefore, the contract appears to bar coverage for any damage caused by water, even if wind was a factor.  In addition, Nationwide's regular billing statements clearly reinforced the fact that flood coverage was not included in its homeowners' policies.  [8] 

There was no question that, as a result of Hurricane Katrina's wrath, Mr. Leonard's house sustained significant injuries.  During the onslaught from the hurricane, the Leonard residence encountered winds that exceeded speeds of 100 miles per hour.  [9]  As the contents of the Mississippi Sound were driven ashore by the hurricane, the water level surrounding the Leonard home rose to a peak level of approximately five feet.  [10]  The storm caused extensive damage to the first floor of the house as well as to the attached garage.  [11]  The most significant wounds included some broken roof shingles, a small hole in one of the windows of the second floor, damaged garage doors, and exterior walls that were "soiled by a combination of wind-driven materials and water-borne materials." [12]

A Nationwide adjuster examined the damage to the Leonard residence and determined that the wind damage consisted only of the broken shingles and the loss that resulted from a tree that was blown down across a fence.  [13]  As compensation for this damage, Nationwid issued a check in the amount of $1,661.17, after applying the $500 deductible.  [14]  Conversely, Mr. Leonard argued that the total damage resulting from the storm was $130,253,49.  [15]  Of this total, Mr. Leonard identified $47,365.41 as being directly attributable to wind.  [16]

In his opinion, Judge L.T. Senter predictably gave credence to the validity of explicit water damage exclusions when he observed that the "provisions of the Nationwide policy that exclude coverage for damages caused by water are valid and enforceable terms of the insurance contract.  Similar policy terms have been enforced with respect to damage caused by high water associated with hurricanes in many reported decisions."  [17]  Similarly, Senter held that such policies provided coverage for wind damage, including any damage caused by waters that entered a home through openings caused by wind.  [18]  However, Senter rejected the specific anti-concurrent causation language of the exclusion provision of the policy as ambiguous.  [19]  In so doing, the court interpreted Nationwide's policy provisions to provide coverage for windstorm damage, an included peril, even when an excluded peril occurs at the same time.  [20]  Interestingly, Senter assigned Mr. Leonard the burden to prove that the house was first damaged by an included peril, specifically wind.  [21]  In other words, Mr. Leonard had the duty to establish that his homeowners' policy was applicable to the circumstances by showing that some damage was caused by a covered hazard that was, in this case, wind.  [22]  Upon satisfaction of this element, the burden of proof shifted to Nationwide to then demonstrate that the portion of the damage for which payment was withheld was caused by flooding and thereby fell within the water damage exclusion.  [23]  If successful, an insurer does not bear responsibility for that damage it can prove was caused by water. [24]

It logically follows that in the event that property is damaged first by wind and then by water, the insured can recover for the proportion of damages caused by wind, but not for the later damages caused by water.  [25]  Accordingly, Judge Senter found that nearly all of the damage to the house could be attributed to flooding.  [26]  This factual determination was assisted by the fact that Hurricane Katrina mercifully left the house standing and, as a result, the source of the relative destruction was reasonably discernable.  Pursuant to this conclusion, Senter found the amount that Nationwide offered to compensate Mr. Leonard for the damage to his roof to be sufficient.  [27]  However, Senter ordered Nationwide to compensate Mr. Leonard for one-half of the cleaning and repairing costs  for the exterior walls of the residence.  [28]  Evidently, Nationwide had adequately met its burden of proof in the eyes of the court.  [29]

 

[1]    Press Release, U.S. Census Bureau, Census Bureau Estimates Nearly 10 Million Residents Along Gulf Coast Hit by Hurricane Katrina (Sept. 2, 2005), available at http://www.census.gov/Press-Release/www/releases/archives/hurricanes_tropical_storms/005673.html.

[2]    See FEMA, Hurricane Katrina, One-Year Later (2006), http://www.fema.gov/news/newsrelease.fema?id=29108.

[3]    Leonard v. Nationwide Mutual Insurance, 438 F. Supp.2d 684, 689 (S.D. Miss. 2006).

[4]    Randy J. Maniloff, How Do You Catch a Cloud and Pin It Down?:  Solving the Problem of Insurance Coverage for Hurricane Katrina, Mealey's Litigation Report (Sept. 12, 2006), available at http://www.whiteandwilliams.com/CM/NewsAlertsPDF/How-Do-You-Catch-a-Cloud.pdf.

[5]    Leonard v. Nationwide Mutual Insurance, 438 F. Supp.2d at 688.

[6]   See id. at 689-90.

[7]    Id.

[8]    Id. at 691.

[9]    Id. at 689.

[10]    Id.

[11]    Id.

[12]    Id.  Although the roof shingles were damaged, the roof's water-tight integrity was not penetrated.  Id.

[13]    Id. at 690.

[14]   Id.

[15]    Id.

[16]    Id.

[17]    Id. at 693.

[18]    Id.

[19]    Id.

[20]    Id. at 694.

[21]    Id.

[22]    This should be self-evident with an insurance contract of any type.  For example, a car owner can only make a claim to his insurer in the event that he can show that damage to his automobile occurred as a result of some peril that was covered in a valid policy.

[23]    Leonard v. Nationwide Mutual Insurance, 438 F. Supp.2d at 695.

[24]    Id.

[25]    Id.

[26]    Id.

[27]    Id. at 696.  Senter also stated that the amount tendered for the fence damage was adequate.  See id.

[28]    The total estimate of the cleaning and repairing of the exterior walls came to $1,994.80.  Judge Senter allowed the Leonards to recover half of that amount even though most of the exterior is above the water line because the portion below the water line was more soiled and would require more work to clean.  Id.

[29]    Id.

Comments

[Bob Padgett]

The contract giveth, and the contract taketh away.

The concurrent causation language is contrived to widen the net of excluded perils to include even covered cases of loss. The wording is contradictory and detrimental to the party not writing the unilateral contract. In one section the contract offers coverage for windstorm and water damage. However, when a covered peril is mingled with an excluded cause (e.g., surface water), then all bets are off because of the concurrent causation language.
To the average consumer, this contractual sleight of hand is understandably unfair. Taken in the extreme, a "creative" insurer may attempt to deny just about any type of property damage claim by claiming that it includes "wear and tear," an excluded form of damage the occurred "concurrently" with some form of "covered" damage. The concurrent causation language is too broad and amounts to deceptive marketing language. The courts are obligated to interpret ambiguous and discriminatory contract language in favor of the non-drafting party, and in this decision took the middle road. Shifting the burden of proof onto the insured for structural damage, however, is contrary to common practice. The insurer has the obligation to prove that an excluded portion of a loss is not covered, not the other way around.