The Mississippi Supreme Court’s Anti-Concurrent Clause Decision

How Far Will It Go?

On Oct. 8, 2009, the Mississippi Supreme Court handed down its opinion in Corban v. USAA, in which it addressed the enforceability and application of “Anti- Concurrent Cause” clauses (ACCs) to claims involving damage caused by some combination of wind, a covered peril, and water, an excluded peril.

Prior to Corban, the Federal Fifth Circuit Court of Appeals had issued several decisions in which it made an “Erie” guess as to how the Mississippi Supreme Court would apply ACCs to claims in Mississippi arising out of Hurricane Katrina. In Corban, the Mississippi Supreme Court concluded that the Fifth Circuit had “guessed” incorrectly in broadly applying ACCs to damage caused by any combination of wind and water.

ACC and the Fifth Circuit

A typical ACC reads as follows: “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.”

ACCs were included in policies primarily to contract around the “efficient proximate cause” doctrine, which allowed an insured to recover under a homeowner or business insurance policy for property damaged by a combination of covered and excluded perils based on proof that the covered peril was the proximate or “efficient” cause of the damage, even if excluded perils contributed to the damage.

The validity and interpretation of ACCs was brought to the forefront by Hurricane Katrina because many insureds suffered significant property damage caused by a combination of wind and water, and many looked to recover under their homeowner or business insurance policies under the efficient proximate cause doctrine.

In Leonard v. Nationwide Mutual Ins. Co. [499 F.3d 419 (5th Cir. 2007)], the Fifth Circuit held that ACCs were valid and enforceable under Mississippi law, and concluded that when a policy contained an ACC, the “only species of damage covered under the policy [was] damage caused exclusively by wind.” The Fifth Circuit even stated that an ACC excluded coverage of property that was first damaged by a covered peril, such as wind, but then subsequently damaged or impacted by an excluded peril, such as water. It affirmed its Leonard decision in a subsequent Mississippi case, Tuepker v. State Farm Fire & Cas. Co. [507 F. 3d 345 (5th Cir. 2007)].

Corban v. USAA

The Corbans owned a house just off of the beach in Long Beach, Miss., which was damaged by storm surge and wind from Katrina. They sought recovery under their homeowner’s policy issued by USAA, which excluded damage caused by water, for damage to the first floor of the home, arguing that it was damaged by wind before the arrival of the storm surge. The USAA policy contained a standard ACC.

Based on the Fifth Circuit holdings in Leonard and Tuepker, the trial court ruled that as a result of the ACC, the Corbans could only recover for damage caused solely by wind. The Corbans appealed to the Mississippi Supreme Court, which affirmed that “storm surge,” i.e., wind driven water, was “plainly encompassed” within the water damage exclusion of the Corban’s policy and there was “no other logical interpretation.”

However, turning to the ACC, the Court pointed out that the insurance policy covered or excluded “loss” rather than “damage.” It noted that while a “loss” typically followed damage to property, the term “loss” was broader than “damage” and occurred “when the insured suffers deprivation of, physical damage to or destruction of the property insured.”

The Court then stated:

“No reasonable person can seriously dispute that if a loss occurs, caused by either a covered peril (wind) or an excluded peril (water), that particular loss is not changed by any subsequent cause or event. Nor can the loss be excluded after it has been suffered, as the right to be indemnified for a loss caused by a covered peril attaches at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured. An insurer cannot avoid its obligation to indemnify the insured based upon an event which occurs subsequent to the covered loss. The insured’s right to be indemnified for a covered loss vests at the time of loss. Once the duty to indemnify arises, it cannot be extinguished by a successive cause or event. … The same principal applies in reverse. In the case of a loss caused by an excluded peril, that particular loss is not changed by any subsequent covered peril or event. Nor can that excluded loss become a covered loss, after it has been suffered.”

The Mississippi Supreme Court held that ACCs apply only when a covered peril and an excluded peril act together at the same time, “as an indivisible force,” to cause a loss. The Court emphasized that unless both perils act at the same point in time to cause a loss, the loss is not caused “concurrently” within the meaning of the ACC and the ACC therefore would not apply to that loss.

It also noted that the ACC in the Corbans’ policy purported to apply to those losses caused “in any sequence” by an excluded peril. The Court effectively held that the “in any sequence” language of the ACC was unenforceable as it impermissibly sought to deprive an insured of the right to indemnification which vested in the insured at the moment the loss was caused by a covered peril, notwithstanding loss subsequently caused by an excluded peril.

In reaching this conclusion, the Mississippi Supreme Court disagreed with the Fifth Circuit and specifically rejected its conclusion in Leonard that ACCs excluded coverage for any loss resulting when an area was initially damaged by wind, but subsequently inundated by storm surge. It reiterated that the ACC only excluded coverage if the wind and water were “simultaneously converging and operating in conjunction to damage to property.” In all other circumstances, the determination of the extent of damage caused by a covered versus an excluded peril is a burden of proof issue. Under all-risks policies, the insured has the initial burden to prove that a loss occurred and the insurer’s burden is to prove the extent to which the loss was caused by an excluded peril.

The practical effect of the Mississippi Supreme Court’s ruling in Corban v. USAA is to render ACCs virtually useless under Mississippi law. The more important question is whether the Corban reasoning will spread beyond the borders of Mississippi.

Louisiana courts have also been faced with similar issues involving ACCs. The Louisiana Supreme Court has not yet ruled on the reach of ACCs, but several Fifth Circuit cases have applied the Leonard and Tuepker holdings to Louisiana cases and upheld exclusions based on ACCs. The Fifth Circuit is not bound to apply the Mississippi Supreme Court’s Corban ruling to Louisiana cases, but should the issue be presented again in a Louisiana case, the Fifth Circuit, and all federal courts in Louisiana, will certainly have to reconsider its prior analysis of ACCs in light of Corban.

Topics Profit Loss Louisiana Property Mississippi