This year, Hurricane Ian swept through the Southeastern United States, causing extensive damage to property in the affected areas. While obtaining insurance recoveries for any loss can be a complex endeavor, recovery for hurricane loss is particularly complex, as it typically involves a mix of covered and excluded perils. Most standard homeowners or other property insurance policies provide coverage for wind-related losses, but exclude coverage for loss caused by flood. While some policyholders may have purchased standard flood insurance policies that provide coverage for flood losses; many have not. Whether the policyholder has a homeowner’s or general property policy, a flood insurance policy, or both, the question of recovery for damage caused by mixed wind and flood forces requires a complex analysis as both covered and uncovered causes may contribute to the damage to insured property.
Analyzing combined causes of loss
Where a loss stems from multiple causes, some covered and others excluded, coverage will depend on whether the causes are contributing, or separate and independent causes of loss.
Where separate perils combine to create one indivisible loss, these will be considered combined or contributing causes of loss and courts will generally apply one of two tests:
- A majority of jurisdictions apply the efficient proximate cause test. This test permits recovery for loss caused by a combination of covered and excluded perils when the efficient proximate cause, i.e. the primary event producing the loss, is a covered cause of loss.
- The concurrent cause doctrine, the minority approach, provides coverage for combined-peril claims so long as a covered cause of loss is a contributing cause of the loss, regardless of whether it is the primary cause or not.
Thus, combined wind and flood forces causing one indivisible loss will be covered in concurrent cause jurisdictions, regardless of whether a policy excludes coverage for one of the two causes of loss. Recovery is more difficult in efficient proximate cause jurisdictions; policyholders may be able to recover for combined wind and flood loss provided the covered peril is the primary cause of loss.
Separating covered and excluded causes of loss
- Application of anti-concurrent cause provisions to separate and distinct losses
While these standard rules governing mixed-peril cases provide ample room for recovery for hurricane claims, insurers will often insert provisions to evade these rules. Many policies employ anti-concurrent causation clauses (“ACC”) to entirely preclude coverage for these types of mixed-peril losses. See Appleman on Insurance Law & Practice Archive § 192.03 (2nd 2011). Such policies exclude coverage for loss which is contributed to in any way by an excluded peril.
Policyholders with ACC wording must separate, to the extent possible, the wind and flood related damage. Courts have found that a policy’s ACC language does not exclude coverage for mixed covered and excluded peril loss which causes “different, distinct, divisible damage,” to property. Covington Lodging, Inc. v. W. World Ins. Grp., Inc., 635 B.R. 675 (Bankr. N.D. Ga. 2021).
Policyholders may show that the perils caused separate and distinct damage either by (1) demonstrating that the covered cause of loss preceded the excluded cause of loss, and would have caused the damage even in the absence of the excluded peril, or (2) separating the damage to parts of the property, with some being caused solely by covered perils and others being caused by uncovered perils.
- Burden on the policyholder
The burden of proof here favors policyholders, as once a policyholder shows that a covered cause of loss has caused property damage, the burden shifts to the insurance company to prove that the exclusion applies, and that an excluded cause of loss contributed to the asserted damage. Thus, a policyholder’s proffer of evidence, typically from an engineering or adjuster report, or even an affidavit based on personal knowledge, is sufficient to create, at minimum, a question of fact to be resolved by a jury.
Even where both covered and excluded causes of loss affect property, and it is not feasible to separate areas affected by each, a policyholder may have a jury resolve the question of causation. In that forum, the policyholder can provide evidence that the covered cause of loss first caused the damage, regardless of an uncovered cause of loss subsequently affecting the insured property. This was the case in Doxey v. Aegis Security Insurance Co., No. 2:21-CV-00825 (W.D. La. June 9, 2021). There the court found that a policyholder’s proffer of an engineering report suggesting that hurricane force winds caused the insured property to be knocked to the ground, before being subsequently swept away by an excluded storm surge, was sufficient to avoid the insurer’s motion for summary judgment based on a policy’s ACC clause and flood exclusion. Id.
- Valued policy laws and recovery for mixed causes of loss
Finally, separating wind and flood loss may permit the policyholder to recover for property damage under a jurisdiction’s valued policy law. Some states have adopted distinct “valued policy” laws, which require insurers to pay the policy limits in the event of a total loss of the property.
Courts have routinely held that a valued policy law sets a measure of damages, and does not expand an insurer’s liability under a policy. While valued policy laws do not allow policyholders to hold insurers liable for the complete policy limits for losses caused by excluded perils, insurers can be held liable for the full policy limits where the covered peril on its own is sufficient to, and did, cause a total loss of the property, regardless of the impact of excluded perils.
While certain jurisdictions limit the application of their valued policy law to fire loss, other jurisdictions do not limit the application of the law to any particular kind of peril. In these jurisdictions, the valued policy law may apply to require insurers to pay policy limits for hurricane losses stemming from a mix of covered and excluded perils.
In Fla. Farm Bureau Casualty Insurance Company v. Mathis, the court analyzed Florida’s Valued Policy Law and found that it applied to require a tender of policy limits under a homeowner’s policy where both covered wind and excluded flood forces acted on the home. 33 So.3d 94, 98 (Fla 1st DCA 2010). Though the property was extensively damaged by flood, with the policyholders conceding that all of the damage to the first story of the home was related to flood, the jury found that the claimed wind damage to the second story of the home (six feet above the water line) was sufficient on its own to create a total constructive loss of the home. Id. at 96.
Thus recovery for the policy limits under a state’s valued policy law may be possible for hurricane losses including both wind and flood, provided the policyholder can separate the damage caused by the covered peril from the damage caused by the excluded peril and show that the covered peril independently caused a total loss to the property, regardless of any additional or separate damage caused by the excluded peril.
While combined perils can make hurricane recovery more complicated, a nuanced understanding of the policy provisions, and applicable law can allow a policyholder to recover losses caused by covered perils under their policy, regardless of any contributing excluded perils.