Say Hurricane Katrina and you immediately think of New Orleans; say Hurricane Katrina and insurance coverage, and the story is different. At the nine-month anniversary since the storm made landfall, of all the Mississippi coverage cases that have been filed, the two that merit the closest scrutiny involve regular Mississippians. The actions brought by Gulfport residents Elmer and Elexa Buente and Long Beach residents John and Claire Tuepker seeking coverage under homeowners policies issued by Allstate and State Farm recently have been the subject of similar decisions by Senior Judge L.T. Senter Jr. of the Southern District of Mississippi. Because those cases provide some answers and not simply allegations, they are presently the eye of the Katrina coverage storm.
Tuepker versus State Farm
On May 24, Judge Senter issued an opinion in Tuepker v. State Farm addressing coverage under a State Farm homeowners policy for the destruction of the Tuepkers’s home, allegedly caused by “hurricane wind, rain, and/or storm surge” from Katrina. State Farm disclaimed coverage on the basis that the property was destroyed by “storm surge, wave wash and flood.” Litigation ensued, and the matter before Judge Senter was State Farm’s Motion to Dismiss.
Judge Senter held there is coverage under the State Farm policy for damage caused by wind. Turning to damage caused by flooding, the plaintiffs argued with category five force that the flood exclusion is inapplicable because “storm surge” is not a flood. Attempting to eliminate the flood exclusion was clearly the plaintiffs’ swing for the fences. The issue was the most heavily briefed in the case — and for good reason. Considering the extent of Katrina damage caused by flood, the elimination of the flood exclusion would be the insurance industry’s own version of a levee breach. Judge Senter dismissed the plaintiffs’ argument without breaking a sweat, nor even mentioning the extent of contentiousness over the issue.
The court’s decision in Tuepker that coverage is available under the State Farm policy for damage caused by wind, but not flooding, does not stray from the general rules that have traditionally governed claims for property damage caused by a hurricane. Of course, a great deal of the damage at issue in Katrina claims may not have been caused by only one or the other. Rather, damage is likely to have been caused by both wind and flooding. That is where the adjusting process gets more complicated, and it is less likely that the parties will find common ground.
On that point, Judge Senter’s decision calls for a finder of fact to determine the extent of damage caused by wind versus flooding. The judge also recognized the determination would be guided by competing experts. The need for both sides to incur the expense of retaining experts to assist with the adjusting process is unfortunate, but not something that can be blamed on the parties or the judge. The requirement for expert testimony is an inherent consequence of the technically-intensive nature of the determination that needs to be made. A review of prior decisions addressing coverage for property damage caused by hurricanes reveals that they are expert-driven, as well as based on any eye-witness accounts of how the damage was caused. The determination may not be easy or perfect, but it’s the system we have.
Room for dispute
While certain aspects of Judge Senter’s opinion in Tuepker are unremarkable, he left room for dispute. The court’s determination that damage caused by wind and rain is covered, “even if flood damage, which is not covered, subsequently or simultaneously occurred,” is likely to be challenged by insurers as contrary to existing Mississippi law.
With causation being such a pivotal issue in Katrina coverage determinations, the road ahead promises to be anything but smooth. Prosser, a leading scholar on the subject, has said this about proximate cause: “There is perhaps nothing in the entire field of law that has called forth more disagreement, or upon which the opinions are in such a welter of confusion. Nor — despite the manifold attempts that have been made to clarify the subject — is there yet any general agreement as to the proper approach.”
A review of the Tuepker decision reveals that Judge Senter played it down the middle. Indeed, it was difficult to tell from media reports of the decision who had won. Perhaps that was intentional. By resolving certain questions of policy interpretation in a manner that hands each side a reason to applaud and leaving factual disputes to be resolved by juries with the help of experts (an often expensive, time consuming and unpredictable process),Judge Senter may be trying to push the parties (the Tuepkers and others) toward settlement.
To be sure, the Tuepker decision is far from the last word on the availability of insurance under homeowners policies for damage caused by Hurricane Katrina. But just as the early decisions in the asbestos coverage battles were nowhere near the last word on the evolving subject, they certainly played a part in shaping the landscape to come.
Randy J. Maniloff is a partner in the White and Williams LLP, Business Insurance Practice Group in Philadelphia. He represents insurers in coverage disputes over primary and excess policy obligations. This commentary is excerpted from his article in the June issue of Mealey’s Litigation Report: Catastrophic Loss. E-mail: Maniloffr@whiteandwilliams.com.
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