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Quote of the Day - Be a fountain, not a drain. - Rex Hudler

Will Insurers Dodge The Katrina-Rita Cocktail Of Hurricanes?

You know the mantra:  insurance companies are happy to accept your premium payment, but not at all pleased to pay claims.  Will they dodge the multiple bullets of hurricanes this season?  If past hurricane devastation is any precedent, the answer depends on policy forms and state law.

Insurers change the policy forms all the time, but it may not be a form change that eliminates coverage.  It may be Mother Nature herself.  As we already know, only the Federal government provides flood insurance.   There's a reason.  Private insurance companies don't cover damage from floods. 

So, is the damage to homes from wind, rain or flood?  The damage for many homes in Louisiana and other areas affected by Katrina may be from floods.  But what caused the flood?  To really answer that question, we have to dig into the tort bag of definitions for the terms proximate cause, concurrent cause, principal cause and other exclusions.   In short, and generally, proximate cause means the actual event that set another series of events in motion.  Concurrent cause means two causes, virtually at the same time, that caused the damage.  Principal cause is the choice of one cause from an evaluation of multiple events that caused damage.  Which one applies to damage from hurricanes is an open question.  Did the wind and rain cause the floods?  Did the storm surge?  Did the negligence of the government in maintaining the dikes cause the flooding?  Even if you have this answer, the analysis isn't finished.

All insurance policies are different and each must be read individually to evaluate coverage, and then applied in light of each state's law.  In California, we have the long-standing (for our state, 1963 is a long time ago) doctrine of efficient moving (or proximate) cause.  That means if the first thing that set the chain of events in motion is covered, then the ultimate damage is also covered, even if there are intervening causes that are not covered.  Read it to say that hurricanes, which rarely hit California, would likely be covered if the cause of the damage was wind, typically listed as a covered peril in an insurance policy, even if a flood hit as a consequence of the wind.  Instead of hurricanes, we get earthquakes, though, which is why our law hasn't factually addressed the question in the South.

Earthquakes, perhaps not surprisingly, aren't covered on typical homeowners policies here, likely for the same reasons that floods aren't covered on policies where floods happen often.  You can purchase earthquake coverage from the State of California, just like you can purchase flood insurance from the Federal government.  Many people don't purchase either earthquake or flood insurance, however.  Insurers in the South, then, may be looking to avoid coverage for the floods based on policy exclusions. 

Not everyone is happy about this situation, and it looks like some are going to try to do something about it. 

Posted by J. Craig Williams on 9/21/2005 at 13:02 Comments (0)


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